Ever since Casey Rodarmor unveiled software to order, number, and inscribe data onto Bitcoin’s blockchain earlier this year, speculators have bid up the price of rare satoshis to breathtaking heights.
Rodarmor’s so-called Ordinals inscribing project and its associated ORD Bitcoin node and wallet software ascribe unique characteristics to bitcoin’s smallest denominations.
Believe it or not, there are standing bids to purchase an individual satoshi — 1/100 millionth of one bitcoin — for multiple bitcoins. One of the earliest, and arguably the most expensive, satoshis is the dickbutt — the first inscription that unveiled Rodarmor’s Ordinals project. Its inscriber once offered it for sale for over 50 bitcoin (more than $2 million at today’s price).
Like collectible coins, certain satoshis have numismatic value. For example, satoshis mined on Satoshi Nakamoto’s computers are valuable. Similarly, satoshis from the first year of Bitcoin also have collectible value. Satoshis with unusual numbers like palindromes are also desirable. Likewise, satoshis created immediately before and after major Bitcoin events, like a halving, carry sentimental value.
Yet there is a limit to these basic, numismatic characteristics. Earlier this year, Ordinals software expanded them dramatically, granting users the ability to inscribe up to 4MB of arbitrary data onto satoshis. Using Rodarmor’s software, users added pictures, music, and even video games onto satoshis. Some enterprising users even created recursive inscriptions to exceed the 4MB data limit.
These inscribed assets, now nicknamed simply Ordinals, became de facto NFTs on Bitcoin. A trading frenzy ensued.
This year, a burgeoning industry of trading venues for individual satoshis and their Ordinals emerged. Already, secondary marketplaces like Magic Eden have cleared millions of dollars worth of trades for rare satoshis.
With so much value ascribed and inscribed onto particular satoshis, large holders of commingled bitcoin smell a profit opportunity.
Sifting through bitcoin for rare satoshis
In particular, Bitcoin developer Mononaut believes that at least one major Bitcoin company is sifting through its clients’ bitcoin to search for rare satoshis.
About 40% of the hashrate provided by miners uses this custodian. Popular mining pools Antpool, BTC.com, Luxor, Poolin, and Binance Pool are its clients.
Mononaut couldn’t confirm the custodian with certainty yet suspects that it’s institutional digital asset custodian Cobo, which boasts over 500 institutional clients and a million registered users.
A look at the Bitcoin wallet that Mononaut referenced does seem to indicate that it is batching many of the transactions it sends out. Batching is a way to send different amounts of bitcoin to multiple addresses in a single transaction, usually to save on transaction fees. This is useful for consolidating small amounts of bitcoin that would normally be uneconomical to send piece by piece.
However, Mononaut believes that the activity of the wallet indicates that it is retaining certain types of satoshis — so-called ‘Uncommons.’
Because secondary markets for reselling specific satoshis are underdeveloped and many Bitcoin users are unaware that particular satoshis even have numismatic value whatsoever, large Bitcoin companies have a temporary opportunity to sift through their clients’ bitcoin and collect them.
Is it legal to swap out rares for commons?
Although keeping their found treasure might be unethical, it might be legal. Depending on their terms of service, as long as Bitcoin custodians return the proper quantity of satoshis to their clients, they might legally be allowed to keep the rares and return the commons to clients.
Most exchanges simply promise to return customers’ bitcoin with no promises to return the exact satoshis they deposited. Similarly, most mining pools simply distribute coinbase and transaction fee earnings to their participating miners with no regard to specific satoshis.
However, awareness of the numismatic value of individual satoshis is spreading quickly.
For example, in Luke Dashjr’s relaunch of his old mining pool Eligius as Ocean, Dashjr is attempting to make his Ordinals policy clear. According to Ocean, the miner with the highest hashrate contribution prior to Ocean’s coinbase reward earns the Uncommon satoshi from that block.
Rare satoshis like Uncommons can be resold over-the-counter (OTC) to speculators or can be listed on Ordinals/Inscriptions markets. Magic Eden, for example, supports listings for various types of rare sats. Some ‘palindrome’ satoshis are aspirationally listed for millions of dollars.