Bitcoin Ordinals and Inscriptions

May 2, 2025

Introduction

Ordinals assign unique identities to individual satoshis, turning them into non-fungible collectibles on Bitcoin. Developed by Casey Rodarmor, Ordinal Theory numbers each satoshi in mining order and enables attaching metadata, like text or images, directly to sats, without changing Bitcoin’s protocol. Launched in January 2023, Ordinals introduced fully on-chain NFTs stored in Taproot witness data. While celebrated for cultural and technical innovation, inscriptions also raise concerns about block space usage and rising fees. This article first explains how Ordinals work, then explores their impact on Bitcoin’s network and miner economics.

What Are Ordinals?

Ordinals are a numbering scheme that gives each individual satoshi (1/100,000,000 BTC) a unique serial number, based on the sequence of all satoshis ever mined In practice, one can imagine iterating through the blockchain from the genesis block onward: whenever a transaction output creates N satoshis, the next N ordinal numbers are assigned to those satoshis.

ordinal_counter = 0

for block in blockchain:

for tx in block.transactions:

for output in tx.outputs:

amount = output.value_in_satoshis

for i in range(amount):

ordinal_counter += 1

assign_satoshi_ordinal(ordinal_counter, output)

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Each satoshi thus has an ordinal (e.g. 1°, 2°, …) and can be referenced by its (block, transaction, output, offset) tuple. Because these ordinals are deterministic given the public blockchain, one can use a wallet or indexer to locate any inscribed satoshi’s UTXO and track its movements across transactions. This means, for instance, that an inscribed sat (an “art sat”) can be sent or traded just like normal Bitcoin, but remains uniquely identified.

Using this scheme, Bitcoin sats can also be classified by rarity. Rodarmor defines categories based on special positions in Bitcoin’s history: for example, the first satoshi of each block is “uncommon”, the first sat of each difficulty adjustment period is “rare”, the first sat of a halving epoch is “epic”, the first sat of a six‐halving cycle (“conjunction”) is “legendary”, and the genesis satoshi is “mythic”. These rare sats carry collectible value because very few exist (e.g. only 32 “epic” sats in Bitcoin’s history). This emergent rarity system means collectors hunt for certain ordinal numbers, similar to trading collectible coins or NFTs. The result is a new Bitcoin-native collectible ecosystem, where each sat’s scarcity and history become part of its value

How Ordinal Numbering Works

Bitcoin is a UTXO based blockchain, where individual transaction outputs hold discrete quantities of satoshis. Rodarmor's ordinal system assigns each satoshi a sequential index based on the order in which it was mined (block height × 100,000,000 + offset).

As these sats are spent and respent in transactions, their ordinal numbers can be tracked deterministically assuming full transaction history is available.

This indexing is purely client side and does not interfere with Bitcoin’s consensus layer.

For example, the first sat of Block 1 has index 0, the second 1, and so on. These ordinals are not stored on chain, but with complete chain data and UTXO set tracking, a node running ordinal aware software can trace each satoshi’s location and movement.

Rarity, Scarcity, and Digital Collectibles

Ordinal Theory gives rise to the concept of “rare sats”, where certain satoshis gain collectible status due to their historical position or event association. Examples include:

The first sat of every block (“block 0” sats).
The first sat after each halving.
Satoshis from the Genesis block or early blocks (“vintage sats”).

Inscriptions: Embedding Data into Bitcoin

Inscriptions build on this uniqueness by allowing arbitrary data such as images, text, or cultural records to be permanently written onto a satoshi. This is achieved using the witness space introduced by SegWit (2017) and further optimized by Taproot (2021). In technical terms, inscriptions store metadata in the witness portion of a transaction, which is pruned from the UTXO set, keeping on chain impact low while preserving the data in full node history.

This mechanism allows the Bitcoin base layer to support immutable digital artifacts (akin to NFTs) without altering the protocol rules.

Segregated Witness (SegWit): Activated in 2017, SegWit addressed transaction malleability and improved scalability by separating witness data (signatures) from transaction data.

This separation allowed for an effective increase in block capacity and introduced a discount on the storage cost of witness data. Consequently, embedding additional data within transactions became more economical, as the witness section could now accommodate larger data payloads without inflating transaction fees.

Taproot Upgrade: Implemented in November 2021, Taproot further advanced Bitcoin's scripting capabilities by introducing Schnorr signatures and Merkleized Abstract Syntax Trees (MAST). These enhancements enabled more complex and efficient smart contracts with improved privacy features. Notably, Taproot removed certain limitations on witness data size, allowing for the inclusion of larger data sets within transactions.

This development paved the way for storing extensive data, such as images or videos, directly on chain by embedding them in the witness section of Taproot outputs.

Impact on Data Inscription: The combined effect of SegWit and Taproot has lowered the barriers to inscribing data onto the Bitcoin blockchain. By utilizing the expanded and cost effective witness space, users can embed arbitrary data into individual satoshis, creating unique digital artifacts known as Inscriptions. This process leverages the Ordinals protocol, which assigns a unique identifier to each satoshi, enabling the tracking and transfer of these inscribed units.

Ordinal Indexing vs. Protocol Level Mechanics

Ordinal Theory provides a non-consensus overlay for tracking individual satoshis within the Bitcoin blockchain. It operates entirely outside Bitcoin’s core protocol rules. That is, Bitcoin nodes do not validate or enforce ordinal indexes; instead, this indexing is applied client-side using a deterministic algorithm that assigns a unique number to each satoshi based on its position in the mining sequence.

Because the theory uses existing transaction structure and UTXO flows, it requires no changes to Bitcoin’s consensus mechanism, keeping the base layer secure and decentralized while enabling applications like collectibles and on chain inscriptions.

Impact on the Bitcoin Ecosystem

While Ordinals do not affect consensus, their usage, particularly via inscriptions, can influence network behavior. Inscriptions store arbitrary data in Taproot witness fields, significantly increasing transaction sizes. This raises miner fees due to limited block space and can congest the mempool, particularly during inscription surges. From a UX standpoint, users may experience delays or higher costs during peak activity, and block explorers may display unexpected or bloated metadata.

Despite these trade-offs, the system ensures that all data is stored in a private section of the blockchain, minimizing UTXO set bloat.

Miner Revenue Boost from Ordinals Activity

Bitcoin’s miners have seen a notable uptick in fee income since the Ordinals protocol emerged in early 2023. The surge of inscription transactions (which carry arbitrary data like text or images) created new demand for block space, leading to several blocks in 2023 where transaction fees exceeded the 6.25 BTC block subsidy. Throughout 2023, transaction fee spikes attributed to Ordinals pushed fees to around 25% of total miner revenue, levels previously seen only during the peak bull markets of 2017 and 2021. Ordinal inscriptions have directly contributed an estimated 15%–30% of all transaction fees paid to miners over the year In the first half of 2023 alone, miners collected ~1,779 BTC in fees from inscription transactions (about 20% of all BTC fees in H1 2023). This additional fee revenue has meaningfully improved miner economics: by mid-2024, over 6,800 BTC (hundreds of millions of USD) had been paid in inscription-related fees since Ordinals launched. In short, Ordinals activity established a new baseline of fee revenue for miners, even allowing some post-halving blocks in 2024 to earn fee rewards rivaling the reduced subsidy. (Notably, on April 20, 2024 just after the halving daily fees spiked to 1,257.7 BTC, about 75% of miner income that day, amid a rush of Ordinals-like token transactions.)

Ordinals’ Share of Bitcoin Transactions

The inscription craze has also dominated a large share of Bitcoin’s transaction count. At its peak in spring 2023, nearly half of all Bitcoin transactions were Ordinals or inscription-related. Glassnode data shows that in mid-2023 the proportion of Ordinals transactions held around 46–47% of total activity. In other words, roughly one in every two Bitcoin transactions at that time was carrying an Ordinal inscription (often text for BRC-20 tokens or NFTs). This trend continued for much of 2023, for example, from May to July 2023, Ordinals consistently accounted for ~47% of transactions. Such inscribed transactions remain a significant portion of the network’s activity into late 2023, although their share has fluctuated as waves of interest come and go. By early 2024, the Ordinals boom had cooled somewhat, and newer protocols (like “Runes”) briefly overtook activity, leading the Ordinals share of transactions to dip from its highs. Still, inscription activity persists as an important component of Bitcoin’s transaction mix, even if it’s no longer at the 50% level of the initial frenzy.

Impact on Block Size, Fees, and Mempool

Bitcoin block sizes increased markedly once Ordinals inscriptions started (green line indicates first inscription). Nearly all blocks since early 2023 have been “full,” pushing the 5,000-block rolling average size (white line) well above historical levels. Each dot represents a block’s size in bytes, with the upper limit at 4 million bytes (4 MB).

Notable milestones include:

Bitcoin’s first-ever 4 MB block (Feb 2023) due to an Ordinal inscription.
Record volumes: over 700,000 transactions in a single day (Sept 2023), primarily driven by Ordinals.
By early 2025, over 65 million inscriptions had been minted, indicating lasting network usage.

Ordinals have reshaped Bitcoin’s transaction landscape and miner economics, introducing new baseline demand for block space and highlighting Bitcoin's versatility beyond traditional monetary transfers.

Conclusion

Bitcoin can now host permanent digital artifacts through ordinal numbering and Taproot embeddings, blurring the line between currency and collectible platform. Technically, this requires no consensus change, relying instead on existing SegWit/Taproot capabilities to store data on-chain. The Ordinals experiment has already had measurable effects on miner revenue, mempool congestion, and block sizes. It remains to be seen how this new usage will evolve. What is clear is that Bitcoin’s ecosystem now includes a vibrant new class of on-chain assets, and that satoshis have taken on a dimension of uniqueness and scarcity beyond their monetary value.

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