Despite the Securities and Exchange Commission’s recent crackdown on crypto, Bitcoin is up, and up big: From Tuesday to Thursday, the price rose almost 14%, peaking just above $25,000, according to CoinMarketCap.
Pinpointing exactly why the price of the world’s first cryptocurrency rises and falls isn't an exact science, but reports of a recent short squeeze—investors who'd bet the price of Bitcoin would decrease sold holdings—is one explanation for Bitcoin’s sudden rally.
Also driving up Bitcoin's value are ordinals, according to a report from blockchain data company Glassnode. But what are they, and how are they contributing to Bitcoin’s latest price surge?
Ordinals' origins
An ordinal is essentially a non-fungible token, a digital asset most famously used to prove that only one person owns, for example, a $69 million piece of digital art sold in March 2021.
NFTs are most famously used on blockchains like Ethereum and Solana. The computing capabilities of these digital ledgers extend far beyond Bitcoin’s, whose blockchain is primarily designed to record transactions between owners of the digital currency.
However, in December, Casey Rodarmor, a Bitcoin engineer, designed a method to allow NFTs to exist on Bitcoin’s blockchain, as opposed to earlier efforts to add NFTs to Bitcoin’s ledger that were hosted “off-chain,” or not in the same database that records daily transactions. Rodarmor called these “digital artifacts” ordinals.
Cumulative fees spent minting Ordinals approaching $1M and looking exponential.
— Ben DiFrancesco (@BenDiFrancesco) February 16, 2023
🔗 https://t.co/kD6KnYFd8f pic.twitter.com/BjvotTwnpc
How do ordinals work?
First, Rodarmor invented an algorithm to create a serial number for each and every satoshi, the name for the smallest subdivision of a Bitcoin (there are 100 million satoshis per Bitcoin), based on when the satoshi was first generated.
Then, he created a method for “inscribing” data on a satoshi, exploiting recent updates to Bitcoin’s code in 2017 and 2021, which expanded the capacity for the blockchain to store data beyond transaction records.
“Imagine the one-cent piece you have in your pocket, and I can put a piece of data on it,” Daniel Peter, cofounder and CEO of CapsuleNFT, a blockchain infrastructure company that recently announced its work with ordinals, told Fortune. “Instead of that being a cent, now I've attached a picture of Benjamin Franklin to that cent.”
Like NFTs on other blockchains, ordinals are “non-fungible.” In other words, there is a unique record on Bitcoin’s ledger that says that the slight sliver of Bitcoin with, say, Benjamin Franklin’s image on it belongs to one owner and one owner only.
But, as opposed to the NFTs on blockchains like Ethereum and Solana, the data piggybacking on top of a satoshi is not a link to where the actual file resides (often on decentralized file storage systems). The data is stored, or “inscribed,” on the ordinal itself.
It’s worth noting that Ethereum and Solana also allow users to store large data files on an NFT; however, pushing this data “on chain,” or having it reside on the blockchain itself, is more computationally intensive and therefore expensive, Jon Wong, technical lead on the NFT team at the Solana Foundation, told Fortune.
“It’s decidedly an anti-scale model,” Austin Federa, head of strategy and communications at the Solana Foundation, said of ordinals. He added: “Here's a version of something that sort of, if you squint, resembles fine art, in terms of its ability to create value through scarcity.” However, he noted, its uses are otherwise limited.
Staying power?
Since ordinals became hot in early February, the number of “mints,” or creations, of Bitcoin NFTs have soared, according to data from Dune Analytics. Over 100,000 have been minted so far, per Decrypt.
As ordinal mints have increased, the minters have been willing to pay the miners, the computers that run and secure Bitcoin’s blockchain, more and more in transaction fees. The increased frenzy is one of the reasons behind Bitcoin’s recent price increase, says Wong of the Solana Foundation.
It remains to be seen whether ordinals, which are only about two months old, have staying power. But, in the meantime, Bitcoiners are cheering on the rally.
#Bitcoin broke through $25,000 🚀
— Keyur Rohit (@CryptoKingKeyur) February 16, 2023
The ride TO THE MOON is just getting started 🔥
