What are Bitcoin Smart Contracts? Ordinals, NFTs, Runes Explained

Bitcoin has long been recognized as the foundational cryptocurrency, renowned for its security, decentralization, and reliability. However, the platform’s smart contract capabilities have historically been overshadowed by other programmable blockchains like Ethereum. Yet recent innovations, including Ordinals, NFTs, and Runes, have begun reshaping what’s possible with Bitcoin. In this article, we’ll examine the nature of Bitcoin smart contracts, how new developments are enabling advanced use cases, and what this means for users and developers.

---

Understanding Bitcoin Smart Contracts

Smart contracts are self-executing agreements with the terms directly written into code on a blockchain. On Bitcoin, these contracts are possible, but their design and flexibility differ significantly from those found on blockchains like Ethereum. Bitcoin’s scripting language—Script—is intentionally limited and non-Turing complete, prioritizing security and simplicity over arbitrary programmability. As a result, while Bitcoin cannot support the wide array of decentralized applications (dApps) seen elsewhere, it offers a solid foundation for trustless transactions and programmable money.

Bitcoin’s smart contract primitives include:

• Pay-to-Public-Key-Hash (P2PKH): The standard mechanism securing most Bitcoin transactions by requiring proof of ownership of a private key.
• Multisignature (Multisig): Transactions that require signatures from multiple parties, ideal for shared wallets and institutional custody.
• Hashed Time Lock Contracts (HTLCs): Powering atomic swaps and payment channels, these contracts enable conditional payments based on time or cryptographic proofs.
• Discrete Log Contracts (DLCs): Support conditional agreements reliant on external data, such as oracle-fed information.
• Pay-to-Taproot (P2TR): Introduced with the Taproot upgrade, this enables more complex scripts with enhanced privacy and efficiency, revealing contract logic only when necessary.

For a technical deep dive, see this overview of Bitcoin smart contracts, capabilities, and limitations.

---

Programmable Bitcoin: Layer 2 Solutions and Sidechains

While native Bitcoin smart contracts are intentionally simple, Layer 2 solutions have been developed to expand Bitcoin’s programmability:

• Lightning Network: A layer 2 protocol enabling instant, low-cost Bitcoin transactions off-chain through payment channels. It leverages HTLCs to facilitate complex payment logic and atomic swaps. The Lightning Network is also home to advanced smart contracts, such as Discreet Log Contracts (DLCs), that enable new types of financial agreements and micropayments. For further reading, refer to this comprehensive guide to Lightning Network smart contracts.
• Stacks: An independent blockchain that settles on Bitcoin and uses the Proof of Transfer (PoX) consensus to build decentralized applications, including NFTs and DeFi, while inheriting Bitcoin’s security. Stacks enables developers to leverage Bitcoin as a secure base layer while introducing richer programmability and new user experiences. Explore more about Stacks and its smart contract model.

---

Bitcoin Ordinals: NFTs on the Original Blockchain

One of the most exciting recent developments on Bitcoin is the rise of Ordinals. Ordinals is a protocol that allows for arbitrary data—such as images, text, or even code—to be inscribed onto individual satoshis, the smallest unit of Bitcoin. This innovation effectively brings NFTs (Non-Fungible Tokens) to the Bitcoin network, enabling unique, verifiable digital objects to be created and transferred directly on the Bitcoin blockchain.

Unlike Ethereum NFTs, which rely on smart contract standards like ERC-721, Bitcoin Ordinals utilize a simple, native approach: each NFT is an “inscription” attached directly to a satoshi, ensuring immutability and maximal decentralization. This method leverages Bitcoin’s security without introducing external dependencies or increased attack surfaces.

Learn more about Ordinals and the emergence of Bitcoin-native NFTs in this deep dive by CoinDesk.

---

Runes: The Next Evolution in Bitcoin Fungible Tokens

While Ordinals brought NFTs to Bitcoin, Runes is a new protocol designed to bring fungible tokens (like ERC-20 tokens on Ethereum) to the Bitcoin network. Launched in 2024, Runes enables users to create, trade, and manage fungible tokens natively on Bitcoin without relying on off-chain solutions or additional blockchains.

By utilizing Bitcoin’s existing security model and avoiding the complexity of previous approaches (such as Counterparty or Omni), Runes aims to make tokenization simple, efficient, and secure. This opens the door for a wide range of applications, from stablecoins to community tokens and on-chain games.

For a technical breakdown of Runes and their impact, check out this analysis on Decrypt.

---

Security and Self-Custody—Why Hardware Wallets Matter

As Bitcoin’s functionality expands through smart contracts, NFTs, and tokenization, the need for secure self-custody becomes even more critical. Storing assets like Ordinals, Runes, and other Bitcoin-based tokens demands robust protection against both physical and digital threats.

OneKey hardware wallet offers a seamless, secure way to manage your Bitcoin and its emergent ecosystem. With support for complex transactions, multisig, and advanced Bitcoin features, OneKey empowers users to interact confidently with the latest developments—whether you're inscribing an NFT, experimenting with Runes, or utilizing smart contracts. Its open-source design and user-centric interface make it a reliable choice for safeguarding your digital assets while engaging with the future of Bitcoin.

Discover more about secure self-custody and why hardware wallets are essential in the age of Bitcoin smart contracts and NFTs by visiting Bitcoin.org’s security best practices.

---

Conclusion

The landscape of Bitcoin smart contracts is rapidly evolving, propelled by innovations like Ordinals and Runes. While the Bitcoin network remains rooted in simplicity and security, new protocols and layer 2 solutions are enabling a broader spectrum of applications—bringing NFTs, fungible tokens, and decentralized logic to the world’s most trusted blockchain. As these features mature, ensuring the safety and sovereignty of your assets has never been more important. Hardware wallets like OneKey are an essential part of this new era, providing the foundation for secure participation in Bitcoin’s expanding universe.