The Ordinals protocol is a system for numbering satoshis, giving each satoshi a serial number and tracking them across transactions. Simply put, ordinals allow users to make individual satoshis unique by attaching extra data to them. This process is known as “inscription.”
A satoshi – named after Bitcoin’s pseudonymous creator Satoshi Nakamoto – is the smallest denomination of Bitcoin (BTC). A single BTC can be divided into 100,000,000 satoshis, meaning each satoshi is worth 0.00000001 BTC.
Satoshis are numbered based on the order in which they were mined and transferred. The numbering scheme relies on the order satoshis are mined, while the transfer scheme relies on the order of transaction inputs and outputs. Hence the name “ordinals.” The first satoshi in the first block has the ordinal number 0, and the second has the ordinal number 1, and so on. According to ordinal theory, these ordinal numbers act as stable identifiers for the data attached to sats.
While traditional NFTs are similar to ordinals in some ways, there are a few key differences. NFTs have typically been made using smart contracts on blockchains such as Ethereum, Solana, and the BNB Chain, and sometimes, the assets they represent are hosted elsewhere.
Conversely, ordinals are inscribed directly onto individual satoshis, which are then included in blocks on the Bitcoin blockchain. Ordinals reside fully on the blockchain and do not require a sidechain or separate token. In this sense, ordinal inscriptions inherit the simplicity, immutability, security, and durability of Bitcoin itself.