Home » Crypto » Bitcoin Ordinals and BRC-20 Problem – What do they mean?

Bitcoin Ordinals – What is it?

Bitcoin Ordinals defines a method for identifying, numbering, and recording data onto satoshis, which can then be converted into Non-fungible Tokens (NFTs). Satoshi (sat) is the smallest unit of Bitcoin, named after its creator, Satoshi Nakamoto. A bitcoin consists of 100 million sats, each worth 0.00000001 BTC. As a result, once all 21 million bitcoins have been mined, there will be approximately 2.1 quadrillion sats.

Each sat is distinct and can be easily differentiated from other sats. Additionally, as every sat holds the same value and is interchangeable, they are considered fungible.

The Ordinals protocol enables the unique identification and tracking of each sat, forming a fundamental building block for Bitcoin-based NFTs. When a new Bitcoin block is minted, a new Bitcoin is generated as a mining reward. The protocol assigns a unique number to each individual sat based on the time it was mined, with smaller numbers representing older sats.

Through subsequent transactions, each sat is traced using the Ordinals protocol in a “first-in-first-out” scheme. The identification numbers that represent sats are referred to as Ordinals. This naming stems from the fact that both the identification and tracking mechanisms rely on the chronological order of formation and transactions.

How do Bitcoin Ordinals work?

Ordinals Notation

Ordinals notation defines a system for identifying and tracking satoshis. Every sat is linked to a uniquely identifying number at the time of formation (minting). These identification numbers can be tracked through every subsequent transaction. 

The Ordinals protocol associates a number or integer to every sat based on the order in which they are formed. Additionally, it assigns a decimal based on the position of the sat in the block height of the Bitcoin block. The position of a sat in the entire Bitcoin supply is represented by a percentile, and its name is assigned using the letter a-z. The names of sats keep getting shorter with time, such as the name of the last sat ever mined will be “a”.  

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Ordinals can also be represented as degrees, a four-part notation that defines each sat based on where it is in the block:

  • Which cycle does the sat belong to?
  • When its block was formed in relation to the last Bitcoin halving. 
  • When its block was formed in relation to the last time the mining difficulty was adjusted.
  • What position the sat is in the block. 


Once the sat has been recognized by the Ordinals protocol, users can add arbitrary data to it through an inscription, resulting in a distinctive feature known as a digital artifact. This capability to incorporate arbitrary information into the sat was made possible through the upgrades introduced to Bitcoin Core, namely SegWit in 2017 and Taproot in 2021.

The process begins by inscribing the Ordinals, which is then linked to a unique type of taproot called a script-path spend script. In contrast to previous techniques for adding random data to Bitcoin, this new approach has an increased capacity to accommodate a larger volume of information within the inscription. To create and interact with the inscription, it is necessary to run a complete Bitcoin node and utilize a specialized wallet that supports ordinals.

Ordinals + Inscriptions = NFTs

By combining two key functionalities, namely identifying and tracing satoshis as Ordinals, and imprinting them with distinct arbitrary data, these satoshis acquire similar attributes to traditional NFTs. Remarkably, this is achieved without relying on smart contracts.

BRC-20 Tokens: What Are They?

BRC-20, known as Bitcoin Request for Comment 20, was introduced in March 2023 by an unidentified developer and is designed based on the Ethereum protocol’s Ethereum Request for Comment 20 (ERC-20). BRC-20 tokens are the counterpart of ERC-20 tokens in the Bitcoin ecosystem.

BRC-20, an experimental token standard, utilizes ordinal inscriptions and was introduced by an anonymous developer named Domo on March 09, 2023. BRC-20 tokens represent fungible tokens that are native to Bitcoin. Notably, unlike widely used token standards on Ethereum Virtual Machine (EVM) blockchains, the BRC-20 standard diverges from smart contracts and instead enables users to store a script file on Bitcoin to associate tokens with specific satoshis. Users can employ BRC-20 tokens to deploy, mint, and transfer tokens, incorporating JSON data within ordinal inscriptions.

Prominent examples of tokens built on the BRC-20 standard include pepe tokens, Ordi, and VMPX. Each of these token standards operates in its own unique way. Notably, BRC-20 tokens are non-fungible, meaning that every ordinal is distinct and possesses unique attributes that differentiate it from the previous ones.

Top BRC-20 tokens

  • ORDI – 

ORDI is a prominent BRC-20 token, known as Ordinals Request for Comment. It was the first token of its kind and serves as the government token for the Ordinals protocol. ORDI holders have the power to vote on proposals and parameters that impact the Ordinal’s ecosystem. Additionally, ORDI has a limited supply of 21 million tokens, which is similar to the scarcity of Bitcoin.

  • PEPE – 

One of the well-known BRC-20 tokens is PEPE, which draws inspiration from a renowned internet meme featuring a frog with different facial expressions. This token is characterized by its playful and enjoyable nature, enabling users to generate and exchange NFTs grounded on Pepe images on Bitcoin. Additionally, PEPE has a restricted supply of 21 million tokens, and its value has skyrocketed from under $1 in April 2023 to above $10 in May 2023, leading to a market capitalization of more than $200 million.

  • MEME, PIZA & DOMO – 

Several other noteworthy BRC-20 tokens exist, such as MEME, which allows users to generate and exchange NFTs based on memes on Bitcoin; PIZA, which serves as a token for purchasing pizza using Bitcoin; and DOMO, which is a token named after the creator of BRC-20 and Ordinals.

The creation and transfer of these BRC-20 tokens have resulted in a significant amount of activity and congestion on the Bitcoin network. Users generate and transfer these tokens using inscriptions, which necessitate a small Bitcoin fee to be paid. This aggregate amount of fees has consumed a large amount of block space through BRC-20 transactions. Consequently, Bitcoin transaction fees have increased, and wait times have lengthened, causing some exchanges to temporarily halt Bitcoin withdrawals.

  • The Bitcoin dilemma – 

For a long time, Bitcoin has been deemed the leading cryptocurrency. However, as we have recently witnessed, its future as a digital asset is being called into question due to the rising transaction fees and the proliferation of non-fungible tokens (NFTs) and other tokens. Bitcoin’s average transaction fees are notoriously high and are escalating further due to the augmented creation of tokens and NFTs on the Bitcoin network.

BRC-20 vs. Traditional NFTs

The BRC-20 tokens can be used as both fungible and non-fungible in the world of Bitcoin. The preservation of the distinctiveness of each Santoshi relies solely on the owner’s decisions. These ordinals can be transformed into fungible entities, capable of managing network fees or being used as payments.

In contrast, Ethereum NFTs have no resemblance to Ethereum coins, and they cannot be interchanged or traded. The Ethereum network treats tokens and NFTs as distinct entities.

Is BRC-20 impacting Bitcoin fees and transactions?

Yes, the creation and transfer of BRC-20 are more complex and need more space as compared to simple peer-to-peer transactions on the blockchain. The traditional Bitcoin transaction can be measured in kilobytes, while an ordinal inscription can require up to 4MB in size. 

One of the reasons an ordinal’s inscription is distinct is that all information is stored directly on-chain. In the case of conventional NFTs, the token generally consists of a link or data that directs to an external service where the artwork is stored.

This increased competition for block space and potentially leads to higher transaction fees for users asking for faster confirmation times. Meanwhile, the mempool, which is the combined storage area where unverified transactions are kept before processing, continues to expand. At the beginning of May, some traders had to resort to the replace-by-fee technique, wherein they competed to substitute an earlier version of an unverified transaction with a new one that offers nodes a higher transaction fee.

What makes BRC-20s controversial?

BRC-20 tokens and ordinals have sparked controversy for two main reasons. Firstly, they congest the network and increase transaction fees. Secondly, some argue that they contaminate the blockchain with information that does not align with Satoshi’s vision of a peer-to-peer system for transferring money. Bitcoin maximalists believe that anything other than this is an inappropriate use of the Bitcoin blockchain.

In contrast to Ethereum NFTs, which store the entire data file on an external server, Bitcoin ordinals NFTs store the entire data file in the witness signature field of Bitcoin transactions. This makes them more immutable than other NFTs, enhancing the asset’s integrity, but it also means that they are large. Due to the large file sizes, the ordinals are considered an “attack” on Bitcoin.

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