From Beginner to Expert in the Bitcoin Ecosystem

Title: Delphi Digital: From Beginner to Expert in the Bitcoin Ecosystem

Chapter 1: What Are Ordinals and BRC-20

Introduction

2023 was one of the most transformative years in Bitcoin’s history. Before this, Bitcoin was known for its stagnant network, but with the emergence of inscriptions, Bitcoin entered an exciting technological revolution.

The first thing to talk about is Ordinals, the development of this new technology has led to a brand new market that people have quickly adopted and embraced. Through digital collectibles, meta protocols, and emerging Bitcoin token standards such as BRC-20, a vibrant ecosystem is rapidly growing, with its market value already exceeding 1.8 billion USD.

The once rigid Bitcoin network is now history; it is filled with many exciting new elements. But what exactly are inscriptions, what is their value proposition? How do Ordinals and BRC-20 work? Most importantly, how can you get involved?

Chapter 2: A Closer Look

Technical Overview

Satoshis (Sats)

Before diving into Ordinals, we need to understand its foundation: Satoshis.

Satoshis, often abbreviated as “Sats,” are the smallest denomination of BTC. One BTC equals 100 million Sats, and vice versa, 100 million Sats make up one BTC. The name comes from Bitcoin’s anonymous creator, Satoshi Nakamoto. The maximum supply cap of BTC is 21 million, so the maximum supply cap of Sats is 2.1 trillion Sats.

What is the significance of Sats?

Sats are the native currency of the Bitcoin network. Thus, they are used to pay transaction fees, and because of their small denomination, they enable micropayments.

Not all Sats are the same!

During Bitcoin’s operation, several key mechanisms hardcoded into Bitcoin’s technology result in recurring events. These recurring events provide us with a simple way to categorize Satoshis, that is, through their scarcity.

How can you find everything you want in this ecosystem?

Demystifying Jargon

One of the most confusing parts of crypto is the jargon (terminology), which is indeed a labyrinth of unfamiliar slang. To eliminate confusion, all crypto-native terms in this article are written in italics and are explained immediately or defined in the glossary at the end of the article.

Ordinal Theory: Value Proposition

How do we track rare Sats?

This is where Ordinal Theory, introduced by former Bitcoin core contributor Casey Rodarmor, comes into play. In summary, Ordinal Theory focuses on assigning a unique identifier to each Satoshi.

The theory proposes a numbering scheme for Satoshis, assigning a unique number to each Sat based on the order they were mined. This makes tracking, transferring, and collecting Sats a reality, paving the way for a new market based on rarity.

Inscription: The Birth of Ordinals

In 2021, Bitcoin underwent a crucial upgrade called “Taproot,” aimed at aiding network expansion. Casey Rodarmor pioneered a unique method of embedding data onto the Bitcoin blockchain, specifically on Satoshis, giving birth to inscriptions. Sats with inscriptions are now commonly referred to as Ordinals.

The simplest way to understand Ordinals is to imagine someone engraving artwork on a coin. If the coin’s holder chooses, they can still spend the coin (for a bowl of snail noodle soup), but the artwork remains engraved on the coin forever. Similarly, once someone binds data to a single Sat, they can spend that Sat to transfer the associated data.

With the new ability to track and identify Sats using Ordinal Theory, a craze began for inscribing arbitrary data onto Sats, birthing a whole new ecosystem.

By early February 2023, the total number of inscriptions exceeded 60 million, showcasing the burgeoning momentum of this ecosystem.

The arbitrary data inscribed on Sats can include images, GIFs, videos, or even HTML code. The only limitation is the Bitcoin block size limit (4MB). It’s worth noting that each inscription requires a fee, just like any other transaction on the Bitcoin network. The transaction fees for inscribing Sats usually vary with the file size; the larger the file, the more expensive the fee.

NFTs vs. Ordinals

Ordinals with inscribed images are similar to NFTs on Ethereum. Thus, they began to be referred to as Bitcoin NFTs. Despite similarities, there are four distinct differences between Ordinals and NFTs:

Ordering: Ordinals are inscribed on Sats, and Sats are numbered in the order they were mined. Unlike NFTs, each Sat has a true order.

Limitations: As mentioned, when inscribing data on Sats, there’s a bottleneck due to the Bitcoin block being limited to 4MB in size, restricting the data capacity for all Sats in a block. However, theoretically, NFTs based on smart contracts have no clear data capacity limit.

On-Chain: Ordinals are stored entirely on-chain, meaning inscriptions on Sats exist forever on the distributed ledger and are immutable. NFT metadata, on the other hand, is often stored on centralized servers, meaning if the server goes down, the NFT’s path can be lost, making it impossible to point to the correct data source.

Concurrency: A Sat can allow inscribing multiple different files. Since inscriptions can be any data, unique digital products can be created. For example, a Sat could be inscribed with HTML code pointing to different files on the same Sat, enabling features like internal hyperlinks, giving the inscribed Sat web page-like characteristics.

Mempool

Understanding the Bitcoin mempool is crucial before interacting with Ordinal-supporting applications.

Bitcoin transactions don’t get added directly to the Bitcoin blockchain. Instead, transactions first enter a queue, known as the mempool. All valid transactions sit in this waiting area, then get verified and packaged into a block, a process that takes about 10 minutes. During busy times, a surge of transactions into the mempool can overwhelm miners, leading to congestion and longer transaction times. The direct consequence is increased transaction fees.

Bitcoin miners receive transaction fees as a reward for validating and adding transactions to the blockchain. Users can choose the transaction fee for each transaction, meaning to encourage miners to prioritize their transactions, users can increase the fee. The higher the fee offered to miners, the greater the incentive, hence the higher the transaction’s priority in the mempool.

Below is a screenshot of a mempool browser.

Here, you can view several metrics, such as current gas fees, block height, and average block time. The mempool block explorer also provides a visual representation of the Bitcoin blockchain, with pending blocks in orange and confirmed blocks in a blue-purple gradient. In the top right corner, you can enter any transaction ID or wallet address to obtain more detailed information, such as the transaction’s position in the queue or the specific address’s token holdings. Overall, the mempool is an essential tool for tracking transactions when interacting with applications.

BRC-20: A New Token Standard

Shortly after the appearance of Ordinals, a Twitter user named redphone initially kicked off a new token standard. Domo implemented this idea and designed the new token standard: BRC-20. The BRC-20 inscriptions quickly became popular and started to dominate the transactions related to Ordinals.

BRC-20 is an Ordinal inscribed with JSON data, capable of creating and transferring Tokens. It includes three Token functions: deployment, minting, and transfer. The ownership of a Token is proven by the latest transfer receipt, and in practice, wallets and other applications read these transfer receipts and allocate the BRC-20 balance to the addresses that hold the transfer receipts.

The BRC-20 token contract originally created by Domo is $ORDI. Initially, the minting fee for each batch of 1,000 ORDI was $5. Recently, the market value of $ORDI exceeded $1.4 billion, with the current token trading price at $67.72! This means if someone minted a batch of the original 1,000 ORDI at $5, their value now exceeds $67,000.

nterested in learning more about the complexities of BRC-20 tokens? Check out these in-depth discussions by Delphi Digital:

• “BRC-20: Past, Present and Future”
• “The Current State of Bitcoin”

Chapter 3: How to Get Started

This chapter will introduce how to create and use a Bitcoin wallet, as well as the advantages and disadvantages of various wallets for interacting with inscriptions. If you are already an expert in this area, please skip this section.

How to Create a Bitcoin Wallet Supporting Ordinals

The primary task is to create a Bitcoin wallet and fund it. The Bitcoin wallet will store your Sats and Ordinals, as well as interact with various applications.

The most important point here is: your wallet must integrate a separate address for Ordinals, or have the capability to freeze the Sats that have been inscribed. As mentioned before, Sats are the native currency of the Bitcoin network, used to pay transaction fees. Ordinals are just Sats inscribed with data, which brings the risk that you might accidentally use your precious Ordinal Sats to pay for transaction fees.

Therefore, it is strongly recommended to use a wallet that supports two addresses or can freeze Sats to prevent losing Stas inscribed with inscriptions.

Two decent wallets that support this feature are Unisat and Xverse. Unisat offers better application interoperability, while Xverse focuses more on user experience. The choice is yours! In the tutorial below, we used the Xverse wallet.

Installing Your Bitcoin Wallet

Visit the Xverse website. The Xverse wallet is available as a mobile application or a browser extension. For better interaction with applications later, it is recommended to use the browser extension. To install the browser extension, click to download and add the extension to Chrome.

Creating Your Bitcoin Wallet

Once installed, click the icon under the browser extension, then click “create wallet”. Each new wallet will generate a unique mnemonic phrase, usually consisting of 12 words.

This is your wallet private key, and it is the only way to recover your wallet if it is lost. Therefore, it must be kept safe! Anyone who gets this mnemonic phrase can fully control your wallet and assets. It is usually recommended to write down the mnemonic phrase physically (e.g., in a notebook) rather than storing it electronically (e.g., in a computer document or mobile photo album) to avoid unauthorized access due to device damage.

After backing up the mnemonic phrase, please select the correct words to confirm that the mnemonic phrase has been stored.

Finally, create a password. It will be used every time you want to access the wallet from the browser extension.

Meeting Your Bitcoin Wallet for the First Time

Your wallet displays your token balance and allows you to send, receive, exchange, and purchase tokens. In “Settings,” you can access the mnemonic phrase and change the display currency. Currently, my token balance is zero.

When you click “Send” or “Receive,” your wallet displays three different Bitcoin addresses, similar to bank accounts, which must be provided when sending or receiving funds. Here, the user-friendliness of Xverse comes into play.

The first address is your BTC address, which should always be used to fund your wallet. Your BTC is stored here for paying transaction fees. Never use this address to manually receive Ordinals or BRC-20 tokens to avoid paying transaction fees with ordinal Sats.

The second address is only for Ordinals and BRC-20 tokens. When deploying and minting inscriptions, Xverse automatically ensures that Ordinals and BRC-20 tokens are sent to this address. However, if you are performing a peer-to-peer transaction (direct receipt), make sure to provide this address to receive Ordinals and BRC-20.

The third address is for Stacks NFT and SIP-10 tokens, which is beyond the scope of this guide and will not be elaborated on.

Funding Your Wallet

You can fund your wallet in several different ways:

• Directly purchase BTC from your wallet: By clicking the “Buy” button, you can directly purchase BTC through third-party service providers like Moonpay or Transak. These gateways allow you to use debit or credit cards to buy Bitcoin. Please note that using third parties carries additional potential risks.
• Send BTC from a centralized exchange: If you use centralized exchanges like Coinbase and Robinhood, you can directly fund your wallet from your exchange account. Even if you do not have an exchange account, creating one might help avoid additional risks associated with other funding options. When sending BTC, provide your Bitcoin wallet address (the first address). Transactions typically take about 10 minutes to confirm.
• Cross-chain bridges: If you are a cryptocurrency native and already have wallets on networks like Ethereum, you can bridge BTC to your Bitcoin wallet from your existing wallet. Please note that this method may carry some security risks, counterparty risks, and smart contract risks. Research carefully before using these applications!

If you want to interact with any of the applications listed below, we recommend trying with a small amount of funds until you are fully comfortable with the process.

Chapter 4: Ordinals and BRC-20 Ecosystem Guide

Despite the Ordinals ecosystem still being relatively young, there are several applications that support the trading of Ordinals and BRC-20 tokens. Here are some applications worth trying:

OKX, Unisat, and Magic Eden: Ordinals Markets

The Ordinals markets facilitate the buying, selling, and exchanging of Ordinals and BRC-20s. Through these platforms, you can effortlessly sell your Ordinals and BRC-20 tokens and scout for various collectibles. Moreover, these markets often allow users to deploy, mint, and transfer inscriptions.

If ranked by scale and trading volume, the top three markets are OKX, Unisat, and Magic Eden. Although OKX currently leads in this race, it restricts some functions to users who only use the native OKX wallet. On the other hand, Unisat and Magic Eden offer a more user-friendly experience.

Quick Recommendation

While you can trade Bitcoin NFTs on these markets, Ordinals Market and Ord.io cover a wider range of NFT collections and are excellent tools for tracking trends over the past 24 hours, 30 days, 90 days, etc.

Ordinals Bots: Deploying, Minting, and Transferring Ordinals

One of the simplest ways to create inscriptions and deploy any type of Ordinal is through the OrdinalsBot application. With an integrated API, users can generate inscription orders in bulk, which is particularly convenient when creating entire collections. Payment for the API service can be made using the Lightning Network or directly on Bitcoin.

It supports all types of inscriptions, with additional features including engraving on specific Satoshi types, such as only on uncommon sats.

Magisat: Rare Sats Market

Magisat is a market specifically for trading Rare Sats. You can trade, buy, and sell Satoshis, covering any rare and unusual Sats, such as pizza Satoshis. Pizza Satoshis are a very typical case in the Bitcoin community, related to the 2010 pizza event (where a programmer bought 2 pizzas with 10,000 BTC, claiming it to be the first time BTC was used as real money to purchase physical goods).

Additionally, Magisat allows you to scan any Sats in your wallet to see their rarity.

Ordinalhub: Aggregator and Analysis Tool for Ordinals

Ordinalhub is an aggregator, a tool that aggregates Ordinals from different markets onto a single platform and provides features like trends, recent sales, and lowest price displays. It simplifies trading by helping users find the most favorable prices, as usually, BRC20 tokens and collectibles have different prices on different platforms.

Liquidium: Ordinals Lending Platform

Liquidium is one of the first Ordinals applications to support decentralized finance (DeFi). The protocol allows peer-to-peer lending of Bitcoin using Ordinals inscriptions as collateral.

Currently, the top tier of the lending market includes NodeMonkes, Bitcoin Frogs, and RSIC.

Alex Go: Leading DeFi

AlexGo’s total trading volume has exceeded $800 million, with a TVL of $122 million, making it one of the leading protocols for DeFi on Stacks on Bitcoin L2. It supports Ordinals through four applications:

• AMM DEX: A native decentralized exchange using Automated Market Maker (AMM) to facilitate the trading of various Bitcoin ecosystem assets.

• B20: A native trading application that supports order book trading of BRC-20 tokens.

• Kickstart: A launchpad for various projects, including Ordinals and BRC-20.

• Connect: Supports asset bridges for Bitcoin, BRC-20, and EVM-compatible networks.

Chapter 5: Highlights of Ecosystem Development

Recursive Inscriptions

One of the earliest breakthrough developments in the field of inscriptions was the introduction of recursion. Recursive inscriptions first gained attention in June 2023, and the total number of recursive inscriptions has recently surpassed 350,000.

In summary, recursive inscriptions allow new inscriptions to call and reference data from existing inscriptions. This might sound boring, but its impact is profound! First, recursion offers a practical way to circumvent the 4 MB limit of Bitcoin blocks. By splitting data into multiple inscriptions that reference each other and are located in different blocks, it allows us to easily upload large files to the Bitcoin network. Another two significant benefits of recursion are improved storage efficiency and reduced transaction costs.

Most importantly, recursion has been the origin of a vast array of developer tools. Through recursion, codebases can be built with inscriptions. Therefore, Ordinals have truly reached the next level of optimization. For example, we can now use recursion to create high-quality NFT collections on Bitcoin, as recursion allows creators to leverage an existing library of inscriptions, thereby aggregating the traits of collectibles to simplify the creation process of thousands of unique NFTs, without the need to create thousands of individual NFT collections as before.

Alternative Token Standard

The BRC-20 token has only three functions (deployment, minting, and transfer), which are not only limited in functionality but also static in development. Consequently, new experimental token standards have emerged one after another, aspiring to be improved versions of BRC-20. Here is a quick look at two current alternative solutions:

CRBC-20

Named Cybord, the CRBC-20 token standard leverages the characteristic of inscriptions to directly store any data. Thus, the cost of inscriptions is significantly reduced, and the indexing process is greatly simplified, making CRBC-20 a cheaper and faster alternative to BRC-20.

ORC-20

Like CRBC-20, ORC-20 addresses the limitations of BRC-20 and focuses on enhancing security and flexibility. Unlike BRC-20, ORC-20 supports a wider range of data formats, allows for transaction reversals, and is backward compatible with BRC-20. Additionally, ORC-20 saves on transaction fees by running reusable inscriptions, making it a more cost-effective option.

Chapter 6: The Road Ahead

Key Points

At the beginning of 2023, Bitcoin underwent significant developments centered around inscriptions, giving rise to immutable digital assets: Ordinals and BRC-20 tokens. Despite the nascent stage of Ordinals, its market capitalization has already surpassed $1.7 billion, undeniably driving Bitcoin’s innovation by enabling users to store various data on Sats.

The ecosystem currently includes centralized and decentralized exchanges, marketplaces, popular token standards, and protocols based on its technology. With the emergence of new token standards, the speculation and enthusiasm of Ordinals supporters have soared, and even DeFi applications have begun to explore the financialization of Ordinals.

Furthermore, the recent approval of spot Bitcoin ETFs marks a milestone in institutional adoption. Though the long-term effects are debated, the Ordinals and BRC-20 ecosystem is expected to benefit from Bitcoin’s widespread adoption and growing demand.

Future Outlook

Despite the flourishing ecosystem, skepticism has never ceased, with some Bitcoin enthusiasts advocating for the elimination of Ordinal technology and its related elements. This criticism, multi-faceted as it may be, stems from the technology’s drawbacks and its impact on the Bitcoin network, with some even considering inscriptions as systemic loopholes.

Detailing this discourse is beyond the scope of this guide. However, it’s crucial to acknowledge that Ordinals and BRC-20 transactions have led to an explosive demand for Bitcoin block space, potentially negatively impacting Bitcoin’s network health. Congested mempools resulting in unreasonably high transaction fees and long confirmation times are just one of the negative consequences. On the other hand, inscriptions serve as an important source of income for miners protecting the network. The upcoming Bitcoin halving, expected to occur in late April 2024, when miners’ block rewards are halved, will further fuel this debate.

Although the future of Ordinals and BRC-20 remains uncertain, the enthusiasm surrounding its ecosystem continues unabated. This guide hopes not only to spark your interest but also to encourage further exploration of Bitcoin’s Ordinals world. To keep your curiosity alive and guide your potential research paths, here are two upcoming trends worth paying attention to:

Trac Network: A Pioneer in Decentralized Indexing

For Ordinals to function properly, Ordinals indexing is necessary. Without delving into the technical complexities, it’s crucial to understand that Ordinal and BRC-20 transactions are completed through off-chain indexing of on-chain data, making indexing a key infrastructure.

To exchange inscriptions between parties, both entities must run the same indexer. Currently, the vast majority of projects are using ord indexers to resolve compatibility issues, making this crucial infrastructure highly centralized. Dependence on a single indexer poses serious technical risks, hence some protocols are striving to build viable competitors. One of them is Trac Network.

Trac Network’s core product, Trac Core, offers a value proposition: a decentralized, open-source indexer. It achieves decentralization through the introduction of governance token $TRAC, allowing $TRAC holders to influence direction and manage the development of Trac Core by voting on key development projects.

$TRAC’s current trading price is $4.65, with a market cap of $97m, yet the decentralized indexer has not been fully released to date.

For more information, please check “Many Words On Trac Network.”

Rune: A Homogeneous Token Protocol

Casey Rodarmor, the creator of Ordinal Theory, is developing a homogeneous token protocol expected to be released in April. This new Bitcoin token protocol, named Rune, based on the Ordinals technology stack, aims to address many issues with the current BRC-20 token standard. For instance, tokens created using the Rune protocol will not require off-chain infrastructure, eliminating many points of contention against BRC-20.

As it is built by the same person who proposed Ordinal Theory, speculation about an official token issuance for Ordinals is widespread in the community. Such a token standard could have the real potential to replace BRC-20.

Aaron has summarized Casey Rodarmor’s latest podcast on Rune here, which is a goldmine of alpha.

Glossary

Aggregator: Aggregators integrate products, activities, data, and information from various markets and exchanges, collecting them on a single platform. By using aggregators, users can effectively determine the best prices.

Automated Market Makers (AMMs): AMM is an algorithm that facilitates decentralized trading of digital assets. In summary, AMM automatically exchanges assets using liquidity pools (smart contracts containing two or more cryptocurrencies).

Bitcoin Halving: Bitcoin halving is a key mechanism built into the core design of Bitcoin. Approximately every four years, the block reward is halved to control Bitcoin’s supply, scarcity, and inflation. Miners protect the network by solving complex mathematical equations and are incentivized through block rewards to validate and maintain the state of the Bitcoin network. After each halving, miners’ rewards are halved.

BRC-20: BRC-20 is a token standard designed to generate and manage fungible tokens on the Bitcoin blockchain. It utilizes the Ordinals protocol for data engraving and is a variant of Ordinal.

Bridging & Bridges: In crypto, bridges are applications that allow users to exchange assets between two different networks. Thus, bridging refers to the transfer of assets across networks.

Decentralized Finance (DeFi): Decentralized finance refers to the use of blockchain technology to provide financial services without the need for intermediaries. DeFi allows you to trade assets, earn interest, borrow, and more without the need for a third-party intermediary.

EVM-compatible: EVM refers to the Ethereum Virtual Machine, the computational engine of the Ethereum network. It controls the network’s state and enables smart contracts to run. EVM compatibility refers to the ability of a network or protocol to write and deploy code compatible with the Ethereum Virtual Machine.

Floor Price: The floor price refers to the lowest market price of an asset, meaning the cheapest price at which one can purchase an item.

Governance Token: Governance tokens are utility tokens that grant holders the right to participate in project decisions. Typically, voting on governance proposals that affect the project’s development trajectory is required.

L2: L2 stands for Layer 2, referring to networks built on top of a base layer, such as a second-layer network on the Bitcoin network. Generally, the existence of L2 networks is to introduce enhancements and extend the functionality of the underlying blockchain, such as reducing transaction fees.

Ordinals: Ordinals are specific Sats on Bitcoin with arbitrary data inscribed. Data can include text, images, videos, GIFs, audio, even code.

Satoshis (Sats): Satoshis, commonly abbreviated as Sats, are the smallest denomination of BTC. One BTC equals 100 million Sats. The name comes from Bitcoin’s pseudonymous creator, Satoshi Nakamoto. Sats are used to pay transaction fees and facilitate micropayments. Bitcoin’s maximum supply cap is 21 million, hence the maximum supply cap of Sats is 2.1 quadrillion.

TVL: TVL stands for Total Value Locked, a common metric in cryptocurrencies, used to define the total value of digital assets locked in an application.

Special thanks to Redphone and Gutz for their valuable feedback and contribution to this report.

Disclaimer：

1. This article is reprinted from [techflow], Forward the Original Title‘Delphi Digital: From Beginner to Mastery in the Bitcoin Ecosystem’,All copyrights belong to the original author [Delphi Digital]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
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