Bitcoin is evolving constantly. After being primarily touted as digital money, a store of value, and an inflation hedge for more than a decade, the launch of a new protocol earlier this year called Bitcoin Ordinals allows Bitcoin to be used in a way many never thought possible – as a platform for digital art, collectibles, and NFTs.
If you’ve been following the crypto space, you’ve likely heard buzz about “Bitcoin NFTs” or “Ordinals inscriptions.” But what exactly are Bitcoin Ordinals, and why are they causing such a stir in the crypto community?
What Are Bitcoin Ordinals?
Bitcoin Ordinals are a method of inscribing data like images, text, or videos, directly onto individual satoshis (the smallest unit of Bitcoin). Consider it as inscribing digital content onto the Bitcoin blockchain itself.
Here's How It Works:
The Ordinals protocol assigns each satoshi a serial number based on the order in which it was mined, a concept known as “ordinal theory.” With the satoshis numbered, a user can inscribe data onto a satoshi, effectively creating an NFT on Bitcoin.
Unlike NFTs on Ethereum or Solana, which rely on smart contracts and off-chain storage, Bitcoin Ordinals exist entirely on-chain. That means the content itself, not just a link, is permanently stored on Bitcoin’s blockchain.
Also Read: Bitcoin Options Trading Guide for 2025
How Do Bitcoin Ordinals Work?
To understand Ordinals, you must understand two primary concepts: ordinal theory and inscriptions.
- Ordinal theory: Every Bitcoin consists of 100 million satoshis. The Ordinals protocol assigns each satoshi a unique identifier, allowing it to be tracked, traded, or inscribed individually.
- Inscriptions: Once a sat has its unique identifier, users can “inscribe” data onto it. This data can include:
- Images (JPEG, PNG, GIF)
- Text documents
- Audio files
- Video content
- Even code or HTML pages
This is made possible through Taproot, an upgrade to Bitcoin introduced in 2021, which expanded the blockchain’s capacity to store larger and more complex data securely.
Bitcoin Ordinals vs Traditional NFTs
|
Aspect |
Traditional NFTs |
Bitcoin Ordinals |
|
Storage Location |
Usually stores only a reference or link to the content on the blockchain; the actual file is hosted on IPFS or centralized servers. |
The entire content is stored directly on the Bitcoin blockchain, ensuring full on-chain storage. |
|
Immutability |
Vulnerable to broken links or lost metadata if external storage becomes unavailable. |
Fully immutable and permanent, as the Bitcoin network itself secures the data. |
|
Use of Smart Contracts |
Rely on smart contracts (typically on Ethereum or similar platforms) to manage ownership and interactions. |
Do not use smart contracts; rely on Bitcoin’s existing protocol and inscription system. |
|
Complexity |
More flexible due to programmable smart contracts, allowing advanced features. |
More straightforward and limited, focused only on inscribing data onto Bitcoin. |
|
Cost Considerations |
Transaction fees vary by blockchain and are usually moderate. |
It can be expensive when Bitcoin network fees are high, as costs depend on the data size inscribed. |
Why Are Bitcoin Ordinals Controversial?
The introduction of Bitcoin Ordinals has split the Bitcoin community. Advocates think Ordinals represent a novel use case that may deliver additional utility to Bitcoin, while critics believe they are simply putting unnecessary data on the blockchain.
Critics Say
- The ordinals increase bloat on the blockchain
- Raises transaction costs for users
- Changes the original purpose of Bitcoin as a peer-to-peer electronic cash system
In 2023, when Ordinals first exploded in popularity, Bitcoin fees skyrocketed, frustrating everyday users who just wanted to send or receive Bitcoin.
Supporters Say
Supporters would counter that Bitcoin naturally allows for anyone to use the block space freely, however they deem fit, as long as they pay the appropriate fees.
They see Ordinals as:
- Proof of Bitcoin’s versatility and technological evolution
- A new revenue stream for miners through increased fee income
- A way to attract creators and collectors to the Bitcoin ecosystem
Popular collections like Ordinal Punks and Bitcoin Frogs have already generated millions in trading volume, proving their growing appeal.
Popular Use Cases for Bitcoin Ordinals
Apart from digital art, Ordinals have led to a few more creative uses:
Digital Collectibles
Artists and creators are minting their own unique collections directly on Bitcoin. These collections vary from pixel art to generative art to profile picture (PFP) collections that mimic the likes of Bored Apes or CryptoPunks.
Gaming Assets
Developers are beginning to experiment with Ordinals to represent in-game items and assets that players will actually own. Since these assets are built on Bitcoin, they’re censorship-resistant and transferable across platforms.
Domain Names
Projects are using Ordinals to create decentralized naming systems on Bitcoin, similar to Ethereum Name Service (ENS).
Historical Preservation
Some users inscribe essential documents, messages, or cultural artifacts onto Bitcoin as a way to preserve them permanently on the world’s most secure blockchain.
Tax Implications of Bitcoin Ordinals (2025 Guide)
If you’re creating, buying, or selling Ordinals, understanding the tax implications is crucial.
Creating Ordinals
In most cases, you are not triggering a taxable event if you simply mint an Ordinal. However, depending on how you got that Bitcoin, the fees you pay in Bitcoin may have tax implications.
Selling ordinals
When you sell an Ordinal for Bitcoin or fiat currency, it will generally be treated either as a capital gain or loss for your income tax return.
You’ll need to calculate the difference between your sale price and your cost basis (what you paid to create or purchase it).
Trading Ordinals
Swapping one Ordinal for another counts as a crypto-to-crypto trade, which is also taxable in most jurisdictions.
Tracking all these transactions manually can be overwhelming. That’s where KoinX comes in. It automatically populates your Bitcoin transactions, computes your gains and losses, and provides detailed tax reports, making tax season much less painful.
The Future of Bitcoin Ordinals
Bitcoin Ordinals represent a seismic shift in how we think about Bitcoin itself. Whether they become a lasting fixture or a passing trend remains to be seen.
What’s certain is that Ordinals have proven that Bitcoin can support more than simple value transfer. They’ve opened the door to new creative and technical possibilities while reigniting philosophical debates about Bitcoin’s purpose.
As tools improve and adoption grows, Bitcoin’s role in digital art and preservation could expand even further.
Get Started With Crypto Tax Management
Tax obligations related to Bitcoin, Ordinals, and other digital assets don’t have to be overwhelming. KoinX puts crypto tax reporting on autopilot. KoinX automatically tracks transactions across 25+ cryptocurrencies, generating accurate and compliant reports with just one click, freeing up your time.
KoinX enables artists to mint Ordinals, collectors to expand their portfolios, and investors to hold multiple cryptocurrencies, all while maintaining compliance and enjoying peace of mind during tax season.
Conclusion
Bitcoin Ordinals have opened a new chapter for the world’s first blockchain. Ordinals made a significant impact on Bitcoin by allowing users to inscribe digital content directly onto satoshis, elevating Bitcoin from a simple payment network to a network for digital ownership and creative expression.
If you view Ordinals as an innovative advancement or an unwarranted distraction, regardless, there is no denying that Ordinals are here to stay.
Whether you’re minting, trading, or collecting them, remember: every transaction carries tax responsibilities. KoinX will track your Ordinal transactions and automatically generate tax reports, allowing you to focus on what matters most to you.
Frequently Asked Questions
Are Bitcoin Ordinals the Same as NFTs?
No! While both are one-of-a-kind digital assets, Bitcoin Ordinals can store data directly on the Bitcoin blockchain. Traditional NFTs usually contain blockchain records that contain only a reference link or URI.
Ordinals do not use smart contracts and store data completely in Bitcoin transactions, making them much more permanent and less flexible in comparison to NFTs on Ethereum.
How Much Does It Cost to Create a Bitcoin Ordinal?
The cost is based on Bitcoin network fees and the size of your inscription. Inscribing a simple image might cost anywhere from $5 to $50 in transaction fees, but during periods of high network congestion, costs can spike to $100 or more.
Larger files, like videos, require more block space and therefore cost significantly more.
Can Bitcoin Ordinals Be Deleted or Removed?
No. Once an Ordinal is inscribed on the Bitcoin blockchain, it becomes a permanent part of the blockchain and cannot be deleted or altered. This immutability is both a feature and a responsibility. Whatever you inscribe will exist as long as the Bitcoin network exists.
Do I Need to Pay Taxes on Bitcoin Ordinals?
Creating Ordinals may not generate a tax liability, but selling or trading Ordinals likely will. The IRS treats Ordinals just like any other digital asset, which means you will likely incur capital gains tax depending on the number of Ordinals you sell or trade.
Likewise, trading one Ordinal for another is likely considered a taxable event. Tracking your purchases, trades, and sales is crucial for accurate tax records.
Where Can I Buy or Trade Bitcoin Ordinals?
Several marketplaces specialize in Bitcoin Ordinals, including Magic Eden, Ordinals Wallet, and Gamma.io. You will need a Bitcoin wallet that supports Ordinals, and enough BTC to pay for the Ordinals as well as a transaction fee.
Always do your own due diligence on the marketplace before purchasing an Ordinal, and ensure you understand the associated costs.
