A Non-Technical Guide to Understanding Bitcoin's Inscription Principles

BRC20 gained significant popularity on Labor Day this year. After the holiday, I felt as though I had missed out on an opportunity, prompting me to revisit and explore this trending topic.Initially, my understanding was limited despite studying it for a while, leading me to temporarily give up.In November, interest in inscriptions surged once more, reigniting my research.There is one point that impressed me this time: Bitcoin ecology.

Bitcoin has always been mainly used as a means of storing value. It can be called ecological only because Ethereum can support a large number of applications and value exchanges. With BRC20, Bitcoin can also issue standard tokens similar to ERC20 Token. In the past, it was unimaginable that tokens could be issued on Bitcoin. BRC20 allowed people to see the unlimited space for imagination, and also made everyone re-attention that Bitcoin can execute logic (because it does not support loop statements and cannot execute complex logic). In this case, Can develop ecology. By the way, it solves the problem of motivation for miners to continue to maintain the network system after mining Bitcoin - to earn transaction fees. In addition, Bitcoin scripts are not Turing-complete. Compared with Ethereum smart contracts, although they are not advanced, they are more valuable in terms of security.

Following this idea, I learned more about the Ordinals protocol and the BRC20 standard. The Ordinals protocol and the BRC20 standard were proposed by the same person, but they solve different problems.

The Ordinals Protocol: Numbering, Inscription, and Indexing

1. Defining Satoshi Numbering in the Ordinals Protocol

Just like the smallest unit of RMB is the cent (1 Yuan = 0.01 cents), a Satoshi is the smallest unit of Bitcoin (1 BTC = 10^8 Satoshis). Since Bitcoin operates on a UTXO model, every Satoshi is unique.

Example:

The genesis block mined 50 Bitcoins. Address A received these 50 BTC, equivalent to [0->4,999,999,999] Satoshis. When Address A transfers 20 BTC to Address B, the UTXO’s input is the [0->4,999,999,999] Satoshis of Address A. The output becomes [0->2,999,999,999] Satoshis for Address A and [3,000,000,000->4,999,999,999] Satoshis for Address B. This transaction process uniquely sequences each Satoshi.

At this time, the Satoshis owned by Address A and Address B are a whole. When they continue to initiate transfers, the whole is divided into parts, and Satoshis further have serial numbers. In this way, Cong determined the order in the process of continuous transfers. I have to say, this method is very clever. When there is no transfer, the internal satoshis are homogeneous. After the transfer, the satoshis have order.

The Ordinals protocol defines 5 numbering methods for Satoshis (sats) and artificially creates scarcity for Satoshis (sats).

5 numbering methods for Satoshis:

• Integer Symbol: For example, 2099994106992659, the sequential number assigned to a Satoshi.
• Decimal Notation: For example, 3891094.16797; the first number is the block height, the second is the Satoshi’s number within the block.
• Degree Symbol: For example, 3°111094′214″16797‴; the sequence includes period, halving epoch block index, difficulty adjustment period block index, and the Satoshi’s block index.
• Percent Symbol: For example, 99.99971949060254%, representing the Satoshi’s position in the total Bitcoin supply.
• Name: Such as ‘Satoshi’, using characters a to z to encode the sequence number.

Scarcity of Satoshis:

• Common: Any Satoshi except the first in a block (total supply: 21 trillion).
• Uncommon: The first Satoshi of each block (total supply: 6,929,999).
• Rare: The first Satoshi of each difficulty adjustment period (total supply: 3437).
• Epic: The first Satoshi after each halving (total supply: 32).
• Legendary: The first Satoshi of each cycle (total supply: 5).
• Mythic: The first Satoshi of the genesis block (total supply: 1).

If the BTC you own contains rare satoshis, you need to extract the rare satoshis in a special way when making a transfer to avoid mistaken transfers. It should be noted that the naming and classification of Satoshi by Ordinals is an artificial rule. Scarcity is truly established when everyone agrees with this definition.

1. Inscription Functionality of the Ordinals Protocol

The Ordinals protocol allows attaching additional data, known as “inscriptions,” to Satoshis.

• When the additional information is digital artwork, such as pictures, video games, music, etc., non-fungible tokens (NFT) can be issued.
• When the additional information is of a unified standard, fungible tokens (FT) can be issued.

The content engraved by Ordinals exists entirely on the blockchain, while NFTs on Ethereum are implemented using smart contracts, and the assets they represent are generally stored off-chain. Compared with NFT on Ethereum, Ordinals NFT inherits the simplicity, immutability, security and durability of Bitcoin itself.

The inscription process is carried out on the first satoshi corresponding to the UTXO of its input, and the inscription content is included in the input of the displayed transaction.

Assume that address A owns [5->10] satoshis. When he inscribes, the inscription is attached to the 5th satoshi. If the 5th satoshi happens to be a rare satoshi (uncommon or rarer category), then this rare satoshi is given more meaning.

(The inscription process also uses Segregated Witness and Taproot technology, so non-technical people will not go into details.)

1. Indexing Functionality in the Ordinals Protocol

Indexing services are crucial in the Ordinals ecosystem. Since the inscribed content is stored in the Bitcoin public key script, unified indexing rules need to be followed to ensure there are no index conflicts in order to determine ownership. Ordinals provides a retrieval tool to retrieve the metadata information in the corresponding public key output script based on the UTXO’s index number sequence number.

Initially, UniSat provided very critical indexing services and promoted the development of the Ordinals ecosystem.

BRC20: A Standard Token Format

As mentioned earlier in the introduction of the inscription function, when the inscribed information is of a unified standard, homogeneous tokens (FT) can be issued.

BRC20 is a standard token format that defines 5 keywords

• p: Defines the protocol type (e.g., brc-20 for BRC20).
• op: Specifies event types (Deploy, Mint, Transfer).
• tick: Names the BRC-20 Token (four-letter format).
• max: Sets the maximum supply.
• lim: Limits the number of BRC-20 Tokens per inscription (e.g., 1000).
• dec: Determines decimal precision (default is 18).

@domodata, the founder of the Ordinals protocol and BRC20, launched the first BRC20 token, called ORDI. The issuance method is free casting, first come first served, with a total amount of 21 million, and each inscription contains 1,000 ORDI. The inscription reads as follows:

So far, more than 70,000 BRC-20 tokens have been deployed (2023/12/6), which can be understood as more than 70,000 tokens have been issued.

Some people laughed and said that this is no different from me writing “I sent a token” on paper, but it is written on Bitcoin.

In Conclusion:

Having researched up to this point and observing the crazy market trends of ORDI, I find it somewhat unbelievable. I recently joined a group focused on minting inscriptions, and everyone is extremely excited. It feels like earning a billion a day, and earning as soon as you mint. This reminds me of the ICO craze in 2017. Although it was also a time of worthless coins flooding the market, early coin launches were relatively more prepared in terms of concepts and technology. Back then, a white paper was a standard part of launching a coin, and projects aimed to align closely with protocol layers. The design of economic models sought to reflect the token’s utility value, rather than being just another coin.

It must be acknowledged that Ordinals have torn open a rift in the Bitcoin ecosystem, but the future should focus on unique and valuable applications.

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