Bitcoin NFTs Ordinals – Analysis

Bitcoin has sparked a cryptocurrency revolution, inspiring blockchain technology enthusiasts. In recent years, it has been surpassed by various exciting developments and applications. Recently, a new type of NFT based on Bitcoin and its ability to decorate individual parts of a bitcoin block have emerged – Bitcoin NFTs called Ordinals.  

What are Bitcoin Ordinals 

Ordinals Inscriptions are digital assets similar to NFTs, such as images, games and other digital content inscribed on smallest units of Bitcoin  Satoshis. To create Ordinals, users must download Bitcoin Core and sync the node to the blockchain. Upon completion of the sync, a wallet for Ordinals is created and some satoshis sent to it. The first of these appeared in December 2022 (2022-12-17 04:49:30 UTC) with an exponential increase in interest since then.  

The introduction of Ordinals has brought about a lot of changes related to Bitcoin transactions. It also allows for more varied use cases due to its capacity to represent digital assets like artworks or music collections via tokens recorded on the blockchain. 

The impact of Ordinals on block size 

The introduction of Ordinals has had a pronounced impact on the size of Bitcoin blocks. In February, the average block size increased to 3.46MB, more than 80% higher than it was from October 2022 to January 2023. The top block mined was a size of 3.95MB. This is due to decorative elements such as colours being added or enriched when creating an Ordinal. 

The chart below illustrates the fluctuation in average block size over the last 150 days. It clearly shows that there has been significant growth in block size since the introduction of Ordinals. The data suggests that this trend will likely continue in the future as more features are incorporated into Bitcoin transactions using these enhanced signatures.  

Update 08 May 2023

The impact of Ordinals on bitcoin transactions 

The popularisation of Ordinals has also affected transaction numbers, with the average number of transactions per block declining recently since February 2023. Alongside this downward trend, there is a visible increase in transaction size, with the average number being more than 2x higher in February compared to the previous 150 days. Although this trend is promising for Bitcoin users, it remains to be seen how it will affect overall transaction costs and speed in the future.  

Ordinals have had a considerable impact on Bitcoin’s transaction sizes and rates.  

Update 08 May 2023

Impact of Ordinals on transaction fees 

The growing interest in Ordinals and the impact on block size and transaction volume has a real impact on the average Transaction Fee. In February of 2021, its value was 20% higher than it had been during the previous 150 days. When adjusting this figure for volatility due to market fluctuations in November – when FTX’s collapse saw a spike in both transactions and their associated fees – that number jumps significantly to over 40%. This is largely attributed to a rise in transactions size and decrease in transactions number per block. 

UPDATE 08 May 2023

It seems that their impact has only continued to grow! BRC20 transactions, based on Ordinals, are not only gaining traction but are now a primary driver of activity on the Bitcoin Blockchain.

Our blockchain analytics team is continuing research on Ordinals and will publish an updated analysis next week. Recent data shows a significant growth in Bitcoin blockchain usage, affecting the average transaction fee per transaction in Satoshi. Since our latest update (Feb 2023), average transaction fees have increased by 40% from 6.4k to 8.9k Satoshis, reaching a maximum of 25,369 Staoshis on the 3rd of May 2023.

This data strongly suggests that the increase in Bitcoin blockchain activity can be attributed to the growing popularity of BRC-20 transactions, largely driven by Ordinals.

Will the Ordinals stay

It is difficult to judge whether Ordinals are another passing fad or something that will stay with us in the market longer. What is certain is that now and in the near future BTC transactions will become more expensive but on the other side more transaction fees go to miners who secure the network. Ordinals will have an impact on the economics of BTC.  

Coinfirm Analytics and Ordinals Coverage

We are proud to announce that Coinfirm Analytics is the first blockchain analytics solution with early coverage of Ordinals.

Coinfirm Analytics helps to identify transactions and risks associated with Ordinals.