Note: The original text comes from Medium, authored by Four pillars, compiled and compiled by Baize Research Institute, and slightly deleted due to length reasons.
In January 2023, Bitcoin core contributor Casey Rodarmor proposed the "Ordinals Theory" and created the Ordinals protocol, which triggered a craze on the Bitcoin network and reminded people of what happened in Ethereum. NFT minting craze. "Ordinal Theory" allows users to store various files on the chain by writing arbitrary files (images, text, videos, etc. up to 4MB in size) on satoshis (the smallest unit of Bitcoin).
Soon after, Domo developed a new token standard called BRC-20 based on the Ordinals protocol. Essentially, BRC-20 is a new way to facilitate the issuance and transfer of tokens by writing a type of text on Satoshi. The standard gained significant traction in April, with a surge in the number of BRC-20 tokens leading to a spike in on-chain transaction fees on Bitcoin on May 8. At the time, the Bitcoin network faced more than 400,000 pending transactions, leading to the comical situation when cryptocurrency trading platform Binance stopped accepting Bitcoin deposits and withdrawals.
As BRC-20 tokens gain traction, their prices also see significant increases. The price of ordi, the first token in the BRC-20 standard, started at $0.1 and eventually increased 310 times to $31 on May 8, with a market capitalization of nearly $650 million. A market capitalization of this size puts it around 70th on Coingecko, even higher than Sui and Optimism.
However, this trend was short-lived and is now showing signs of waning. However, we have to admit that the emergence of the BRC-20 standard has enabled Bitcoin to regain great attention after a long period of adverse market conditions.
Subsequently, more new token standards emerged and found their place - ORC-20 and SRC-20. From May 13 to 15, transactions involving ORC-20 tokens accounted for 10% of the total transactions on the Bitcoin network. Additionally, the SRC-20 token has recently begun to gain momentum.
ordinal theory
Ordinal number theory is not a new concept that emerged out of thin air, but a derivative of a previous concept: ordinal numbers, the order of numbers, refers to the sequential numbering of satoshis, the smallest unit of Bitcoin. According to ordinal number theory, each satoshi is numbered in the order in which it was mined.
In fact, the serial number of Satoshi can be expressed in many ways, including:
Integer representation: 2099994106992659 - a number arranged in the order of mining. Since the total amount of Bitcoin is 21,000,000 and 1 BTC = 100,000,000 satoshis, the maximum serial number is 2,100 trillion.
Decimal notation: 3891094.16797 — The number before the decimal point represents the height of the Bitcoin block where Satoshi was mined, and the following numbers represent the order of Satoshi within the block.
Degree notation: 3°111094′214″16797‴ — The last set of numbers is the order in which satoshis were mined in the block, preceded by the height of the block in degrees.
Percentile notation: 99.99971949060254% — A way of expressing the percentage of satoshis in the total supply of Bitcoin.
Name: A method of sorting using letters a-z.
Interestingly, the creators of Ordinal Theory also assigned each Satoshi a rarity based on the ordinal number assigned to it:
Common: All satoshis except the first satoshi in each block
Uncommon: the first satoshi of every block (occurs approximately every 10 minutes)
Rare: First satoshi after difficulty adjustment (occurs approximately every two weeks)
Epic: the first Satoshi after the halving event (occurs approximately every 4 years)
Legend: The first Satoshi when the difficulty adjustment coincides with the halving event (occurs approximately every 24 years)
Myth: The first Satoshi of Bitcoin’s genesis block (only one exists)
Inscription: Write file to Congzhong
Ordinal number theory gives each satoshi a unique sequence number, and the Segwit and Taproot upgrades to the Bitcoin network made it possible to write files to satoshis.
SegWit is the abbreviation of Segregated Witness and is an upgrade applied to the Bitcoin network client Bitcoin Core in 2017. While SegWit solves the long-standing transaction malleability problem in the Bitcoin network and paves the way for the Lightning Network to operate, the most important thing relevant to this upgrade discussion is the expansion of block sizes.
SegWit introduces a new concept - block weight, changing the unit of block size from Bytes to vBytes, where 1 vByte is equivalent to 4 weight units. Therefore, the maximum block size has been changed from 1 MB to 1 vMB. In addition, existing transaction data is divided into two parts: a. Transaction data, b. Witness data. Transaction data contains information about senders, receivers, inputs, and outputs; while witness data contains information about scripts and signature data.
Later, the Taproot upgrade moved forward by updating the scripting language used in the Bitcoin network to Tapscript. After the upgrade, a wider range of transactions became feasible on the Bitcoin network, and Ordinal Theory took advantage of this to record various files on Satoshi through witness data.
Essentially, each Satoshi has a unique serial number and can store data, functioning similarly to an NFT. However, unlike most NFTs in the Ethereum ecosystem, the inscription process records all data, making it a more authentic “blockchain native” NFT than an Ethereum NFT. Users can utilize the Ordinals protocol to record files on satoshis, and the satoshis containing the files can also be traded (exchanged) just like regular Bitcoins.
However, to do this, a significant challenge is that users must use a wallet that is compatible with Ordinals. Although inscriptions are recorded on Satoshis and Satoshis are able to be transferred to any Bitcoin wallet, the challenge comes from not being able to distinguish these inscribed Satoshis from other Bitcoins. Therefore, on regular BTC transfers, there is a risk of accidentally having Satoshis written on the file as miner fees. Therefore, Ordinals users should choose a wallet that facilitates control and selection of satoshis.
example
So far, early users have created a wide variety of Bitcoin NFTs using the Ordinals protocol. The earliest ones used pictures, with the first recorded inscription being satoshi 727,624,168,684,699 with a dicbutt image.
Dustlabs packed their 535 DeGods into a block (block #776408) via the Ordinals protocol, while Yuga Labs, the developer of Ethereum’s well-known NFT “Boring Ape”, put a set of generative art called TwelveFold on Bitcoin on the coin network.
In the meantime, there are a lot of interesting experiments using text. In addition to BRC-20, which we will highlight below, Sats Names are also a good example.
The Ethereum Name Service (ENS) is a naming service on the Ethereum network, while Sats Names is a naming service on the Bitcoin network. To register a name, simply enter text according to the JSON syntax as shown above.
Does this allow anyone to use a unique name at will? For example, if Xiao Ming creates the name "bitcoin.sats" and Xiao Hong creates the same name "bitcoin.sats" on a different satoshi, this may cause ambiguity. What Sats Names basically do is recognize ownership of a specific name—belonging to the first Satoshi to create that name. Therefore, if the Bitcoin naming service is to be adopted at scale, the limitation is that a separate indexer is required to distinguish name types and ownership.
BRC-20
BRC-20 is an experimental token standard proposed by Domo in March 2023 that allows anyone to issue new tokens on the Bitcoin network by inscribing text.
Unlike Ethereum ERC-20, where tokens can be issued and transferred immediately after smart contracts are deployed, BRC-20 tokens are not actual tokens, but satoshis that record specific text. Therefore, as with Sats Names, a separate indexer is required to understand the status or balance of BRC-20 tokens.
Since BRC-20 tokens are issued differently than ERC-20 tokens, the deployment, minting, and transfer stages can be difficult to understand. In order to facilitate readers to better understand, we take the existing BRC-20 token XING as an example.
deploy:
The deployment of the XING token was recorded by bc1qxhxhxxrv244ptsp5447lx4nsyue3ek23s9yycf (the deployer) in satoshi #1934771250000000. However, since this deployer only deployed XING tokens and did not mint them, we can see that his XING token balance is zero.
coin:
One minter bc1qk3fqhw8txe5ev0s8n7rj2e3z564uw02hfhuw62 inscribed the above text into 26 different satoshis, minting a total of 26,000 XING tokens as shown below. The reason why 26,000 tokens are minted in 26 satoshis, rather than all at once, is because the deployer set a maximum mint size of 1,000.
Transfer:
To transfer 26,000 XING tokens, bc1qk3fqhw8txe5ev0s8n7rj2e3z564uw02hfhuw62 inscribed the above text in 5 satoshis to transfer 22,000 XING tokens.
Balance:
So what is the final number of XING tokens held by the wallet address in the above example?
bc1qxhxhxxrv244ptsp5447lx4nsyue3ek23s9yycf (deployer): Only deployed XING tokens, not minted them, so balance is 0.
bc1qk3fqhw8txe5ev0s8n7rj2e3z564uw02hfhuw62 (minter/sender): Searching this address on ordiscan, the number of XING inscriptions held is 26. However, this address minted 26,000 tokens and sent 22,000 tokens, why does it still have 26 inscriptions? This is because for BRC-20 tokens, the transfer is not to transfer the existing mint inscription, but to engrave the transfer text of XING in another Satoshi and then complete the transfer. In other words, when the transfer process occurs, the sender's balance is deducted and the XING transfer inscription is added to the receiver's balance. So even though bc1q…uw62 still retains the mint inscription of 26,000 tokens, the final confirmed balance is 4,000 because the XING transfer inscription of 22,000 tokens was sent to another address.
All in all, BRC-20 introduces a new way to handle fungible tokens (FT) on the Bitcoin network, which has also received widespread attention with the recent rise of memecoins (such as PEPE) on the Ethereum network. .
In the last two months, nearly 50% of the transaction fees generated on the Bitcoin network were related to ordinal numbers, specifically BRC-20. As of May 9, 2023, the number of deployed BRC-20 tokens is 1,599, the network fees related to minting total 628.7 BTC, and the network fees related to transfers total 46.8 BTC. It can be seen that BRC-20 has triggered a huge network Usage amount.
The first BRC-20 token, ordi, started at $0.1 and surged to a high of $31 as it was listed on various centralized exchanges. Additionally, other tokens such as nals, meme, pepe, and piza have market caps ranging from $10 million to $40 million.
Without smart contracts, are all BRC-20 trading markets centralized?
How does BRC-20 token trading work? As we all know, the Ethereum network supports smart contracts, allowing the establishment of decentralized market protocols through smart contracts, but it is impossible for us to build similar smart contracts on the Bitcoin network.
If you’ve used the UniSat Marketplace, you’ll find a variety of BRC-20 token deals listed on the platform, and buyers can connect their Bitcoin wallets to make purchases. In addition to secondary market trading of BRC-20 tokens, this is also happening on various marketplaces that trade Bitcoin NFTs (such as MagicEden). Do all existing Ordinals marketplaces use a centralized hosting approach?
The answer is PSBT (Partially Signed Bitcoin Transaction). PSBT is a feature introduced by BIP-174 that allows users to sign only certain inputs. Therefore, UniSat and other Ordinals marketplaces utilize PSBT to enable buyers and sellers to transact in a trustless and non-custodial manner.
The popularity of BRC-20 has led to a significant increase in Bitcoin network fees. However, this trend was short-lived and is now showing signs of waning. This is where new token standards come in – ORC-20 and SRC-20. From May 13 to 15, transactions involving ORC-20 tokens accounted for 10% of total transactions. Additionally, the SRC-20 token has recently begun to gain momentum.
ORC-20
While BRC-20 paves the way for a new way to issue FT using Ordinals on the Bitcoin network, it is a very early experiment and has many shortcomings:
First, when BRC-20 tokens are initially deployed, the total supply and maximum number of tokens per mint are fixed and cannot be changed. While this can be beneficial in some cases, it does have the disadvantage of limiting the flexibility of the token model.
The second drawback is that BRC-20 token names can only be 4 characters long. In contrast, ERC-20 tokens have names of varying lengths. Removing restrictions on token name length will allow more projects to create tokens.
The third disadvantage is that the transfer of BRC-20 tokens is completely dependent on an external, centralized indexer. Since the inscription process itself simply writes data to satoshis, the Bitcoin network has no way at the consensus level to prevent inscriptions that violate the BRC-20 standard.
For example, if the maximum supply of BRC-20 ordi tokens is 21,000,000, and all 21,000,000 tokens have been minted, minting additional ordi tokens will be invalid according to the BRC-20 token standard, but the minting transaction will be regardless is recorded because the transaction pays a fee. Therefore, it is entirely up to an external indexer to determine which inscription is valid or invalid, a situation that has led to attackers exploiting weaknesses in the UniSat market to conduct a double-spend attack on BRC-20 tokens, causing financial losses.
It can be said that ORC-20 is an upgraded version of the BRC-20 standard, which solves some shortcomings of the BRC-20 standard:
1. Token identification
The ORC-20 standard brings substantial enhancements compared to the BRC-20 standard. One of the improvements is the inclusion of identifiers (IDs) that can identify specific tokens. In the BRC-20 standard, if tokens with the same name are deployed, the external indexer treats the first deployed token as "legitimate". In contrast, in the ORC-20 standard, even tokens with the same name can still be distinguished because the "ID" is included in the inscription number when deployed, allowing identification.
2. Token name of any length
Second, unlike the BRC-20 standard, which only allows four letters to be created as names, ORC-20 allows the creation of names of any length. For example, ORC, the first deployed ORC-20 token, had a three-letter name.
3. Upgradeable
Third, the ORC-20 standard introduces the ability to modify the total supply and modify the maximum number of tokens per mint. While this flexibility may be exploited by deployers, it also provides opportunities for various token economics experiments. These experiments could include gradually reducing the maximum number of tokens per mint, simulating the Bitcoin halving.
4. UTXO model
Fourth, and most importantly, ORC-20 adds the concept of UTXO to transfer tokens. For example, A sends $2 to B, who already has $1 on hand. Under the account model, B's balance would appear to be $3—$1 and $2 combined. But under the UTXO model, B's balance would have two separate UTXOs, one for $1 and one for $2. If B sends $2.5 to C, the $1 and $2 UTXOs are merged and split into $2.5 and $0.5 UTXOs, with $2.5 going to C and $0.5 staying with B. The advantage of this improvement is that UTXO can only be used once, essentially preventing double spending. ORC-20 adds the concept of UTXO to token transfers, which is the biggest difference from BRC-20.
To send ORC-20 tokens, the sender must write the step 1 text in the image above into satoshi, and the receiver needs to write the step 2 text in order to send the balance back to the sender. This is the same process as UTXO. Therefore, for wallets or markets adopting ORC-20, one must wait until the ORC-20 transfer transaction is completed.
ORC-20 ecosystem and current status
While ORC-20 hasn’t been around as long as BRC-20, we can see it gaining some traction, with the total transaction volume involving ORC-20 to date being around 260,000, with fees of around 19.5 BTC.
There are community projects worth keeping an eye on, such as BitPunks , which provides an ORC-20 browser, and OrcDAO , which uses ORC tokens.
SRC-20：
Although the ORC-20 standard can be considered an enhanced version that corrects the limitations of BRC-20, the SRC-20 standard uses Stamps (stamps) to engrave text, which is completely different from the previous two standards.
BRC-20 and ORC-20 are based on ordinal theory, and the principle is to write arbitrary files in the witness data of Bitcoin transactions. However, this process consumes a large portion of the distributed ledger's capacity, enabling nodes to prune or eliminate witness data. Additionally, not all nodes are required to retain or propagate this witness data.
However, in the case of Stamps, since the information is stored in UTXO, every full node must store them, making them more durable than ordinal, or doubly "blockchain native". While this is a clear advantage, the space to store data is limited and can only accept 24x24 pixel images or PNG or GIF with 8 color depth.
The text used to deploy, mint, and transfer SRC-20 tokens is also in JSON format, very similar to BRC-20.
Summarize
Starting with Sats Names, to the recently popular BRC-20, to ORC-20 and SRC-20, there are even efforts to incorporate staking functionality into BRC-20 tokens. Why are there so many experiments on the Bitcoin network?
First, compared to the strong security of the Bitcoin network, utilization is still very low. The nature of the scripting language limits the execution of complex smart contracts on the Bitcoin network, thus limiting its applications. However, its superior security level encourages developers and users to continually test and exploit its features. Of course, with just storing and moving money being so secure, it would be great if this security could be leveraged for a variety of other use cases.
Second, text has unlimited expressive potential. Like the early days of the PC, when many games were text-based, text could stimulate the imagination and represent broad concepts. Sats Names, BRC-20, ORC-20 and SRC-20 tokens use only text to symbolize intangible entities and use external indexers to give them a tangible feel. While these standards are still in their infancy and have their own limitations, there is no doubt that they will form the basis for a host of innovative experiments in the future.
Another question is how far these "X" RC-20 tokens can go. The Bitcoin network is fundamentally incapable of implementing complex smart contracts, and since BRC-20 tokens are not tangible like ERC-20 tokens and simply represent the existence of the token by recording an inscription in the satoshi, their utility is therefore limited It’s hard to imagine being used for anything other than being traded as a meme token. Perhaps, we could envision simple governance events where users connect their Bitcoin wallets and vote based on the number of BRC-20 tokens they hold, but enforcing governance outcomes on-chain is still not feasible.
risk warning:
According to the "Notice on Further Preventing and Dealing with Speculation Risks in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing and does not promote or endorse any business or investment behavior. Readers are requested to strictly abide by the laws and regulations of their region and do not Engage in any illegal financial practices.
