How do Ordinals Marketplaces Work?
Non-fungible tokens have been at the forefront of the crypto ecosystem for a while now, but a new development has recently taken crypto news by storm: Bitcoin Ordinal NFTs. The Ordinals protocol was launched in February 2023, and it was only a matter of a few days and weeks for startups in the space to join the hype and build inscription services, ordinals wallets, and marketplaces.
Introduction to Ordinal NFTs
Ordinal inscriptions are essentially Bitcoin NFTs, made possible by Bitcoin's recent Taproot upgrade. The Ordinal Theory Handbook, which describes the protocol released by Bitcoin Core software engineer Casey Rodarmor, states that "individual satoshis can be inscribed with content, creating unique Bitcoin-native digital artifacts that can be held in Bitcoin wallets and transferred using Bitcoin transactions. Inscriptions are as durable, immutable, secure, and decentralized as Bitcoin itself."
Satoshis are the smallest unit of bitcoin, and each bitcoin is made of 100,000,000 satoshis. Each one of those satoshis is serially numbered and can now be inscribed with data. Since bitcoin is capped at 21 million, we'll let you do the math, but that's a lot of satoshis.
Because the data is inscribed directly onto the satoshi, the Ordinal inscription lives on-chain. Block size on the Bitcoin network is limited, so the size of an inscription is also limited.
Although blockchains such as Ethereum and Stacks aim to improve upon Bitcoin's limitations and help with the creation of dApps, DeFi and more, adding smart contract functionality to the mix, Ordinal inscriptions have been a massive development in the Bitcoin blockchain ecosystem. They are a trending topic in the NFT market and are sometimes controversial, but already offer many benefits including high security, true immutability, the growth of the Bitcoin ecosystem and increased adoption.
How do NFT marketplaces usually work?
With "traditional" NFT marketplaces, NFTs are minted and verified via token standards. NFT standards (or token standards) describe how to build NFTs on a particular blockchain protocol. There are many different standards on different blockchains, you may have heard of the ERC-721 standard for Ethereum NFTs, or the SIP-009 standard for Stacks NFTs. The NFTs built on top of those standards can be traded on NFT marketplaces that support such standards: for example, OpenSea, the leading marketplace on ETH, supports the ERC-721 token, but doesn't support the SIP-009 token, which is however supported by Gamma, the leading NFT marketplace on Stacks. Transactions that meet those standards will also require wallets which support them (not all wallets support all standards or are compatible with all blockchains).
NFTs are enabled by smart contracts, and while the non-fungible token itself lives on the blockchain, its metadata generally points to off-chain decentralized storage services such as IPFS. With some NFT marketplaces, there is an option to refresh metadata, i.e. creators can update the metadata associated to the NFT if need be. The NFT metadata describes its features: name, description, visual traits and trait types, and anything else the author deems important. NFTs can range from generative digital art to game items and anything in between including use cases in the metaverse.
The rise of Ordinals marketplaces
Before the launch of marketplaces, inscribing services were the first to appear on the market, with Gamma.io's no-code Launchpad, Ordinals Bot, and a few others. Users can easily upload their content and inscribe it directly on the Bitcoin blockchain without needing to run a Bitcoin node or any particular technical skills. All they need is a compatible wallet to store their digital assets, and enough BTC cryptocurrency to cover the cost of transaction fees and the purchase itself.
Major NFT projects such as Yuga Labs and Taproot Wizards joined the movement and launched NFT collections as Ordinals, bringing even more attention to the trend.
Soon after, many players in the space including Gamma.io, Ordinalswallet and Magic Eden, added functionality to their platforms to support the trading, selling and buying of Bitcoin Ordinals. It should be noted that because Ordinals live directly on the Bitcoin blockchain, the way marketplaces work is a little different. There are a few technical solutions in the background that marketplaces can decide to implement, but all in all, Ordinals marketplaces offer users a similar experience to purchasing Ethereum, Stacks, Polygon or Solana-based NFTs.
Partially Signed Bitcoin Transactions
Most Ordinal marketplaces use a PSBT solution to facilitate trading Ordinal NFTs. A Partially Signed Bitcoin Transaction is a standard that facilitates portability of unsigned Bitcoin transactions, which means multiple parties can easily sign the same transaction.
PSBT was introduced by BIP-174 (Bitcoin Improvement Proposal) as a community standard. The original intention behind the development of PSBT was to improve the compatibility between Bitcoin wallets and other software, streamlining the process of constructing a transaction in one wallet, transferring it to another for signing, and ultimately transmitting it to a Bitcoin node for broadcasting.
By utilizing PSBTs, it is possible to create a transaction using a watch-only wallet that lacks the necessary private keys to sign it. The watch-only wallet can generate a PSBT file, which can then be imported into a wallet that does possess the requisite private keys. After the transaction has been signed, the signing wallet can produce an updated PSBT file, which can be transmitted to a Bitcoin node for broadcasting.
PSBT is a valuable tool for facilitating collaboration among multiple parties who intend to sign a single transaction. This is particularly relevant in scenarios such as multisig outputs, which necessitate the participation of numerous actors in signing the transaction. The PSBT format offers a mechanism for crafting the transaction, transferring it between the various signers, and ultimately constructing the final transaction that will be transmitted. BIP 174 is currently widely adopted as a community standard.
Gamma's trustless marketplace
At Gamma, we put creators and user safety first. The marketplace is built directly on Bitcoin L1 infrastructure and insures that the platform's solutions will remain trustless over time, also using a PSBT solution. Gamma does not leverage another chain such as Ethereum or Stacks to enable trading Ordinals, nor does it need to employ tools such as Emblem Vault. Users can confidently participate in decentralized exchanges without compromising their assets.
However, not all PSBT solutions are created equal. PSBTs enable trust-minimized trades without a central custodian, but some other design choices like on-chain unlistings, are necessary to ensure a truly trustless solution. While on some marketplaces, unlisting an ordinal doesn't require transaction fees, on-chain unlistings are crucially important for user safety, which is why Gamma.io implemented them.
The Ordinals marketplace allows users, collectors and creators to explore, sell, trade and buy crypto assets directly on the Bitcoin blockchain. The platform also offers a crypto on-ramp, allowing users to purchase BTC with their fiat, directly from the platform. BTC can also be purchased through cryptocurrency exchanges such as Binance and Coinbase, which allow for several payment methods such as credit card, other crypto, stablecoins, apple pay, and more. Ordinal wallets compatible with Gamma include Hiro, Xverse and Sparrow Wallet.