Key terms

Bitcoin Ordinals: A method for creating non-fungible tokens (NFTs) directly on the Bitcoin blockchain. Unlike traditional NFTs, Ordinals embed data like images, videos, or even code onto individual satoshis, the smallest unit of Bitcoin.

Satoshis: The smallest denomination of Bitcoin, named after its creator, Satoshi Nakamoto. There are 100 million satoshis in 1 BTC.

UTXO (Unspent Transaction Output): A core concept in Bitcoin transactions. It represents the output of a previous transaction that hasn't been spent yet. When sending Bitcoin, you don't deduct from a balance, but rather send specific UTXOs to the recipient. Ordinals leverage UTXOs for inscription.

Inscription: A technique enabled by the Taproot upgrade that allows attaching data to satoshis within a Bitcoin block. This data becomes the content of an Ordinal NFT.

Ordinal Number: A unique identifier for each Ordinal. It's based on the order in which the satoshi it's inscribed on was mined. This adds another layer of uniqueness compared to simple sequential numbering.

Taproot Upgrade: A significant upgrade to the Bitcoin protocol implemented in November 2021. It improved transaction privacy and flexibility, paving the way for Ordinals by enabling inscriptions.

On-chain vs. Off-chain Storage:

  • On-chain Storage: The data itself (image, video) is directly inscribed onto individual satoshis within a Bitcoin block. This benefits from the same security and immutability as the Bitcoin blockchain itself.

  • Off-chain Storage: The NFT acts as a pointer referencing the actual data stored elsewhere, often on a decentralised storage network like IPFS. This approach keeps transaction fees lower but introduces complexity and potential risk if the off-chain data becomes unavailable.

Mempool: A temporary pool holding pending Bitcoin transactions waiting to be included in a block. When congested, transaction fees rise as users compete for faster processing. Monitoring the mempool can help with cost-effective Ordinal transactions.

Sat Rarity: A classification system for Ordinals based on the satoshi used for inscription. Categories include "Legendary" (first satoshi after a halving event) and "Mythic" (first satoshi in the Ordinal genesis block).

Scalability: The ability of a blockchain to handle an increasing number of transactions. The inclusion of large data within Ordinals can potentially impact Bitcoin's scalability and transaction fees.

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