Ordinals Vs. NFTs: Key Differences

Key Takeaways

• Unlike NFTs, Ordinals embed data directly on Bitcoin without smart contracts.
• Both NFTs and Ordinals provide methods for digital ownership.
• NFTs offer flexible uses, while Ordinals focus on permanence.
• Ordinals and NFTs are developing, with the latter already having an established market.

Understanding Ordinals And NFTs

After the introduction of blockchain technology with Bitcoin’s inception in 2008, various new concepts and use cases emerged for investors, developers, and tech enthusiasts. Two such concepts that gained traction were non-fungible tokens (NFTs), initially introduced around 2014, and, more recently, Ordinals, which emerged in 2023. 

While both represent digital ownership, they have key differences in their uses and underlying technology. 

What Are NFTs

NFT Basics: Creation Vs. Minting

NFTs are digital assets that represent ownership of a unique item or piece of content on a blockchain. NFTs are “non-fungible,” which means that each token is unique and cannot be exchanged on a one-to-one basis with another token. 

NFTs are only built on smart contract platforms through the process of minting. Smart contracts are just a set of programmed rules stored on the blockchain to establish NFT ownership and define how it can be transferred or sold. 

NFT minting on blockchain ensures that ownership and transactions are managed transparently and securely. Since the details of the NFT are recorded on the secure digital ledger called blockchain, a new block is added on every minting. 

After the minting information is verified, the block is sealed to make the records tamper-proof. Imagine you’ve made a special digital sticker, and you want to ensure that everyone knows it’s unique and belongs to you. You decide to put it in a super-secure digital album where everyone can see it, but no one can claim it’s theirs without your permission. This is similar to what happens when you mint an NFT.

Use Cases Of NFTs

NFTs have found a wide range of applications, from digital art and music to gaming items and collectibles. NFTs were reportedly born in 2014 when Kevin McCoy minted the first token named Quantum. 

The ability to prove ownership of a digital item without a central authority has opened up new economic opportunities for creators. For instance, musicians can use NFTs to tokenize their music, allowing them to sell unique digital items and earn royalties directly from fans. The direct artist-to-fan interaction can also include real-world perks like concert tickets.

In the fashion sector, brands create digital clothing items as NFTs, which consumers can collect or wear in virtual environments. The market extends to fancy items like designer bags because NFTs can prove that the items are real and not fake.

Gaming is another field where players can own unique in-game items as NFTs, which could be anything from outfits to weapons. The digital assets can be bought, traded, or sold to enhance the gaming experience.

Meanwhile, the real estate market comprising emerging virtual worlds or “metaverses,” also benefits from NFTs. It’s like having a deed for a piece of land, but in a video game world, where you can build wealth or invest.

The NFT ecosystem includes marketplaces like OpenSea, Rarible, and Foundation. These platforms function as hubs where users can engage in buying, selling, and trading NFTs. 

They also offer tools for creators to generate, or “mint,” their own NFTs. Creators can establish specific guidelines on these platforms for how their digital assets are distributed and how royalties are handled, allowing them to earn ongoing revenue from their work whenever it is sold to new owners. The setup not only facilitates the trading and collection of digital assets but also empowers artists and creators by giving them control over their content and its monetization.

What Are Ordinals

Ordinals Fundamentals

In 2023, the popularity of NFTs led to a new kind of NFT called Ordinals, which are made on Bitcoin, the very first blockchain. Casey Rodarmor, a software developer, was the creator of Ordinals.

Unlike regular NFTs that use a special format or standard on their own blockchain like a digital record book, Ordinals do something different. 

They write, or “inscribe,” information directly onto the smallest pieces of Bitcoin, called satoshis. Each satoshi can carry a little bit of data, such as an image or text. Hence, whatever is inscribed becomes a permanent part of that tiny Bitcoin piece, directly part of the chain itself.

Technicalities Of Bitcoin Ordinals

As Ordinals embeds data directly into the Bitcoin blockchain using its original features (leverage the extra space created by Taproot and SegWit), the method sidesteps the need for complex smart contracts used in platforms like Ethereum. This ensures the data benefits from Bitcoin’s strong security and widespread use, but it also means what you can do is simpler because you’re not using advanced programming features. 

The Ordinals protocol became possible due to the Taproot upgrade on the Bitcoin network. Taproot was implemented in November 2021 and led to improvements in transaction efficiency and privacy. Enhanced capabilities after the upgrade also allowed including additional data in transactions. This led to Ordinals which inscribes data directly onto individual satoshis.

For example, If you engrave your name on a silver coin, it’s there permanently, visible to anyone who handles the coin. That said, there are constraints to Bitcoin’s existing structure. Each tiny part of Bitcoin or satoshi is numbered in the order it was created and can carry data up to 4 MB on a block. Therefore, each satoshi becomes a unique digital artifact. But creators can require technical know-how or assistance from third-party platforms to inscribe. 

Key Differences Between Ordinals And NFTs

Differences between Ordinals and NFTs are discussed in the table below:

While both Ordinals and NFTs allow for unique digital items to be owned and traded, Ordinals embedding directly in the Bitcoin blockchain makes each satoshi uniquely identifiable.

How Ordinals And NFTs Differ On The Basis Of Technology

The most apparent difference between Ordinals and NFTs is the blockchain on which they are hosted. NFTs are mostly associated with chains like Ethereum, Solana, or Avalanche, which support smart contracts and have several decentralized applications (dApps). 

In contrast, Ordinals are inscribed directly on the Bitcoin blockchain, which is simpler and does not support smart contracts but benefits from Bitcoin’s network security and adoption. Essentially, Ordinals use a straightforward, highly secure system, while NFTs benefit from the greater flexibility and features of smart chains.

How Ordinals Differ From NFTs In Terms Of Functionality and Flexibility

Due to the absence of smart contracts, Ordinals are simpler but less flexible. They focus on permanence and security, embedding media directly into the blockchain. NFTs offer more functionality thanks to smart contracts, enabling more complex transactions and interactions. 

This includes programmable royalties, ownership history, and more, which can enhance user engagement and possibilities. For example: instead of buying an NFT outright, NFT rentals offer digital asset ownership temporarily on some platforms.

How Do Market Dynamics Differ Between Ordinals And NFTs

The market dynamics of NFTs and Ordinals also differ significantly. NFTs are traded on numerous marketplaces that provide user-friendly interfaces and additional services such as auctions, bundles, and more. 

While NFTs can be more expensive to interact with, especially on networks like Ethereum due to high transaction fees, they are also more diverse in their use and potential applications. On the other hand, trading Ordinals is currently more technically demanding, requiring a deeper understanding of Bitcoin transactions and often peer-to-peer exchanges. However, the Ordinals market is evolving, and simpler tools are being developed.

Conclusion

Ordinals and NFTs are concepts in digital ownership and asset tokenization. The NFT market is bigger when it comes to applications and community engagement. 

In contrast, Ordinals capitalize on the popularity and security of the Bitcoin network, offering a more secure on-chain approach to digital artifacts. Both appeal to different segments of the digital asset market but artists have a keen interest.

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About the Author

Shraddha Sharma

Shraddha has around five years of experience as a financial journalist, focusing largely on the Asian markets. Starting her career in Mumbai, India, as a news trainee and producer, she quickly found her niche in crypto. She is keen on learning how emerging technologies affect the broader markets and enjoys explaining complex financial ideas in a way that's easy to understand.

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