Bitcoin Ordinals are a rapidly growing trend in the world of digital assets and blockchain. Their rise is met with both excitement and controversy. Some people believe that Ordinals are a new and innovative way to use the Bitcoin blockchain, while others believe that they are a waste of block space and resources. 

Despite the controversy, the popularity of Bitcoin Ordinals has continued to grow. In February 2023, Yuga Labs, the creator of the Bored Ape Yacht Club (BAYC) Non-Fungible Tokens (NFTs) collection, announced TwelveFold, its Bitcoin Ordinal collection. This announcement helped to drive even more interest in Ordinals, and the number of Ordinals inscribed on the Bitcoin blockchain has continued to grow.

Criminals exploited their Ethereum counterparts for millions of dollars last year. As law enforcement investigators, understanding and investigating this phenomenon is essential to protecting customer assets and staying ahead of illicit activities on the Bitcoin blockchain. 

What are Ordinal Inscriptions?

Ordinals are kind of like NFTs, but with a twist. Instead of separate tokens and smart contracts, they let you add extra metadata directly to individual satoshis within the Bitcoin blockchain. It’s like putting cool little engravings on your Bitcoin. The action of attaching data to satoshis or sats is called inscription. Inscriptions can be in any format under 4 MB.

What can you attach to these Ordinals? Pretty much anything – from texts and images to videos. According to data from Dune Analytics, there are more than 17.7 million Bitcoin Ordinal Inscriptions.

Dune Analytics: Bitcoin Ordinals by Type

History

Back in 2012, a brilliant mind named Mike Hearn introduced the concept of colored bitcoins. It was a way to assign unique metadata to individual bitcoins, making them stand out. However, it wasn’t until 2017 that the SegWit protocol came into play, enabling the storage of more data within Bitcoin transactions. This breakthrough laid the foundation for the birth of Ordinal inscriptions.

Fast forward to 2021 when the Taproot upgrade was activated, further expanding the possibilities of Bitcoin transactions. Taproot is a major update to the Bitcoin network that enhances privacy, security and flexibility by introducing new smart contract capabilities. This development was instrumental in making Ordinal inscriptions more intricate and sophisticated. 

Then, in 2022, Casey Rodarmor unveiled the Ordinals protocol, a game-changer for Bitcoin enthusiasts. This protocol allowed users to inscribe any data type onto their satoshis, turning them into Bitcoin NFTs (Non-Fungible Tokens). The world of Bitcoin was about to witness a remarkable transformation. Finally, on December 14, 2022, Rodarmor brought the first-ever Ordinal inscription to life. 

Before long, the popularity of Ordinal inscriptions skyrocketed. Throughout 2023, over 10 million inscriptions were created, each one marking a unique moment in time. These inscriptions became a way to celebrate birthdays, anniversaries, and even the launch of new products.

Despite still being in their early stages, Ordinal inscriptions had the power to revolutionize how we interacted with Bitcoin. They had the potential to create an entirely new market for digital collectibles, where each inscription represented a valuable and irreplaceable piece of history. Moreover, they could be used to track the ownership of assets securely, adding a layer of transparency to the world of finance.

Ordinals vs NFTs

Ordinals and NFTs are both types of digital assets that can represent ownership of unique items. However, there are some key differences between the two, including their storage, metadata, fungibility, and applications.

Read Also: Understanding The Hype Behind NFTs And Risk Of Fraud

In an interview, Rodarmor helps demystify the core concepts of Ordinals and differences with NFTs.

Storage

Ordinals are stored directly on the Bitcoin blockchain, while most NFTs are created using the ERC-721 standard on the Ethereum blockchain. 

The NFT is a contract that establishes ownership of another thing and includes metadata with a reference to the real file or piece of artwork not kept on the blockchain. Since the file is not rooted in the blockchain, it can be changed.

Ordinals are NFT counterparts but are also technically distinct. The complete data file is directly integrated into the blockchain because it is present in the witness signature field of Bitcoin transactions. 

Fungibility

Ordinals can be either fungible or non-fungible, depending on the owner’s wishes. This means that an Ordinal can be traded like any other Bitcoin, or it can be treated as a unique asset with its own value. NFTs, on the other hand, are always non-fungible.

Applications

Ordinals are still a relatively new technology, so their applications are still being explored. However, they have the potential to be used for a variety of purposes, such as representing ownership of digital art, music, or other collectibles. NFTs are already being used for a variety of applications, such as gaming, ticketing, and real estate.

Block Size Limit

Bitcoin Ordinals: The 4MB block size limit in Bitcoin could theoretically limit the number of “Bitcoin NFT mints” that can occur if all block space were used for Ordinals.

Lack of Smart Contract Functionality and Infrastructure

Ethereum and other blockchain platforms supporting NFTs have smart contract functionality, enabling dynamic interactions and programmability. Ordinals, however, cannot leverage such features as Bitcoin does not have native smart contract capabilities, leading to limitations in trading and managing Ordinals. Trading occurs mostly through over-the-counter (OTC) methods due to the lack of decentralized exchanges and user-friendly wallets.

Investigating Crimes Involving Ordinals

Wherever opportunities for financial activity are found, there’s always a risk of fraud and illicit activities. Even modern and innovative systems like Ordinals have not been immune to criminal attacks.

The rising popularity of Ordinals serves as a warrant for investigators to shift their attention toward the involved risk and learn how to protect users from illicit attacks. Let’s start with the basics, how do users acquire Ordinals? Investors can buy existing Ordinals at Ordinals marketplaces, or inscribe their own by following the steps below.

Inscribing Ordinals

1. First of all, the user needs to obtain a Taproot Bitcoin address (starting with “bc1”) by downloading Xverse, UniSat, or Hiro Wallet.
2. They should visit Gamma.io/Ordinals and select the type of Ordinal they want to create, such as “Single image.”
3. Using Gamma, they should upload their inscription.
4. They need to provide their Bitcoin address (starting with “bc1p”) where they want the Ordinal inscription to be sent.
5. Finally, the user should pay the Bitcoin fee using any Bitcoin wallet and wait for around 10 minutes for the inscription to appear in their Bitcoin wallet.

Once created, the Ordinal is now live and can be sold on Ordinals marketplaces.

Inspecting Ordinals

As an investigator, to start your investigation, you will need access to the Bitcoin transactions (the blockchain). You can use blockchain explorers or relevant tools to navigate and explore the Bitcoin network. Your primary objective is to trace the flow of transactions related to Ordinals and gather crucial information.

Ordiscan.com and Ordinals.com allow you to identify the Inscription ID, which is crucial to validating the authenticity of Ordinals, owner’s wallet address and other valuable information. You can also use blockchain.com to view a plethora of information related to each Ordinals transaction.

Blockchain.com: Bitcoin Ordinals transaction

As the child of rapidly maturing blockchain technology, inscribing and trading Ordinals have quickly gained traction, boasting nearly an impressive 18 million unique inscriptions. 

While this burgeoning ecosystem offers exciting possibilities, investigators must remain vigilant. Criminals are drawn to new frontiers, where they can potentially outpace investigators. 

To safeguard the integrity of this space, investigators must act swiftly and decisively, adapting to the ever-changing landscape of digital assets. By staying proactive, we can ensure that the world of Ordinals continues to flourish while deterring illicit activities and fostering a secure environment for creators and collectors alike.