Bitcoin Ordinals Explained – What Ordinals Are and How They Function in Bitcoin

what are bitcoin ordinals

In Bitcoin, ordinals are a way of numbering transactions within a block to impose chronological ordering. Ordinals resolve the issue that the order of transactions in a block is not deterministic by default. Understanding Bitcoin ordinals provides insight into how they enforce ordering, improve privacy, and impact usages of the Bitcoin protocol.

The Ordering Problem With Bitcoin Transactions

In the original Bitcoin implementation, the order transactions appear in a block is not strictly defined. Miners typically order transactions based on the fees attached. Higher fee transactions get priority placement.

This creates ambiguity, as the order transactions are written into a block does not necessarily reflect the chronological order they were created in. Relying on transaction order for logic can be problematic.

What Exactly Are Bitcoin Ordinals?

Bitcoin ordinals are a simple way to impose determinism and chronology on transaction order in a block. An ordinal is an integer assigned to each transaction based on when it was first seen on the network.

The first transaction a miner sees is assigned an ordinal of 0, the next 1, then 2, and so on. Miners order transactions in a block by ascending ordinal value.

How Bitcoin Ordinals Work

Bitcoin ordinals are a way of ordering transactions within a block chronologically. They solve the issue that the default order of transactions in a block is ambiguous and non-deterministic.

An ordinal is an integer assigned to each transaction representing when it was first observed propagating on the Bitcoin network. The first transaction seen is assigned ordinal 0, the next ordinal 1, and so on in sequence.

Miners order transactions in a block by ascending ordinal value. This ensures transaction order reflects observation sequence rather than factors like transaction fees.

When a new transaction enters the mempool, nodes check if they have already assigned an ordinal. If not, it is assigned the next sequential ordinal based on previously processed transactions.

Ordinals enforce chronological ordering based on first seen time. The transaction with ordinal 0 was seen first, 1 next, and so on. This provides a canonical ordering that is deterministic across nodes.

While not yet consensus binding, wider adoption of ordinal ordering will enable improved determinism, privacy, and scalability for Bitcoin. Ordinals are a simple but powerful concept for blockchain ordering.

How Ordinals Provide Chronological Ordering

Ordinals enforce chronological ordering by tying transaction sequence to first observed time. The first seen transaction gets the 0 ordinal, then next observed gets 1, ensuring order reflects observation sequence.

If ordinals are consensus enforced, all miners observe the same ordinal sequence and chronology is deterministic. Transactions can only be reordered within a small timing window.

what are ordinals bitcoin

Calculating the Ordinal for a Transaction

The calculation is simple – ordinal equals the number of transactions seen before it, starting at 0. When a new transaction enters the mempool, nodes check if they already assigned an ordinal. If not, the next ordinal in sequence is assigned based on previously processed txs.

Comparing Bitcoin Ordinals to NFTs

While Bitcoin ordinals and NFTs (non-fungible tokens) both relate to blockchain technology, they serve very different purposes – emphasizes crypto expert Kirill Yurovskiy.

Ordinals are transaction ordering numbers that provide chronological sequencing for transactions within a Bitcoin block. NFTs are unique cryptographic tokens that represent ownership of digital assets like art, collectibles, and more.

Some key differences:

  • Ordinals are purely informational sequencing markers, while NFTs have inherent value and act as property titles.
  • Ordinals are integral to Bitcoin’s protocol, while NFTs are built on separate blockchains like Ethereum.
  • There is no limit to the number of ordinals, but NFTs are minted in limited quantities to represent scarce assets.

However, ordinals and NFTs do share some similarities in how they leverage blockchain’s capabilities:

  • Both rely on digital scarcity and verifiable uniqueness – ordinals via sequencing, NFTs for asset ownership.
  • They take advantage of blockchain’s ability to provide consensus and an immutable public record.
  • Cryptography secures both ordinals and NFTs, preventing fraud or tampering.

So in summary, while ordinals and NFTs both harness aspects of blockchain, they serve very different core purposes under the hood. But both demonstrate blockchain’s versatility.

Why Deterministic Ordering is Important

Several Bitcoin protocol usages rely on transaction sequence. For example, Lightning Channels open and close based on tx order. If order varies between nodes, consensus breaks.

Chronological ordering via ordinals also improves privacy. Txs can’t be reordered based on output links, hindering blockchain analysis.

how ordinals work bitcoin

Ordinals and Privacy Improvements

Ordinals combined with improved coin shuffling techniques can provide greater privacy. Shuffling output links before applying the ordinal ordering disassociates transactions from identifiable users better than shuffling alone.

This forces blockchain analyzers to make more assumptions and improves plausibility deniability when using Bitcoin privately.

Current Usage and Support for Ordinals

Ordinals were first proposed by Gregory Maxwell in 2013 and adopted in Bitcoin Core 0.10 in 2015. Most nodes now assign ordinals, but ordering is not yet consensus enforced.

Other wallets and mining pools have implemented ordinal support to varying degrees. For example, the Wasabi wallet enforces ordinal consensus. But adoption is still inconsistent across the ecosystem.

Possible Issues and Criticisms of Ordinals

Critics argue consensus enforced ordinals could increase centralization. Mining pools may have more power over transaction sequencing if it is binding. But overall, the determinism ordinals provide likely improves decentralization.

There are also minor network inefficiencies from waiting to assign an ordinal. But benefits seem to outweigh implementation drawbacks.

The Future of Bitcoin Ordinals

Over time, consensus enforceable ordinal ordering will likely be adopted as a Bitcoin protocol improvement. This will provide deterministic chronological ordering, prevent malleability, and aid privacy.

Wider support for ordinals continues to increase, indicating recognition of their usefulness in scaling Bitcoin. Like past protocol upgrades, broader ordinal adoption will further mature Bitcoin and support the next generation of layer 2 innovation.

Bitcoin ordinals offer an elegant solution to the transaction ordering problem. By assigning transactions a simple sequence number representing first observed time, ordinals impose chronology where none exists innately. This opens the door to improved privacy, scalability and determinism. Once ordinals are made binding consensus rules, Bitcoin will be better positioned for sophisticated future applications and uses.