Ordinals is an innovative approach to creating non-fungible tokens (NFTs). It uses color coins to assign unique Ordinal numbers to each satoshi based on the time it was mined. This additional data creates NFTs or "inscriptions" that are unique.
Working Principles of Ordinals
Without modifying the initial Bitcoin protocol, the Ordinals approach is an exceptionally economical and comprehensive method compared to others. The working principle of ordinals is quite simple. Every time an Ordinal NFT is created within a transaction, it's recorded on the first satoshi of the first output. As such, the Ordinal NFT can be transferred like traditional bitcoins.
Ordinals use a first-in-first-out algorithm to allocate each satoshi to the outputs in every transaction. In the event of any absent Ordinals, the miner receives them as a reward.
By employing OP_IF and OP_ENDIF opcodes, Ordinals can store the entire NFT content on-chain. This provides up to 4MB of storage capacity for the inscription content.
Furthermore, while Ordinals can function on Bitcoin SV (BSV) and Bitcoin (BTC), it is more effective on BSV. This is because BSV has significantly lower fees and a more extensive data size limit. BSV fees are roughly 0.05 sat/byte, whereas BTC fees are approximately 10 sat/byte, making minting the same NFT over 100,000 times cheaper on BSV.
BSV has a much larger data size limit, allowing for more sophisticated NFT protocols to be developed without the need for SegWit and Taproot.
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