New study suggests Bitcoin Ordinals not a threat to transaction blockspace
Despite the surging use of Bitcoin Ordinals since their introduction in February 2023, concerns about them congesting the network seem to be unfounded.
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Minimal evidence for congestion
According to on-chain analytics firm Glassnode, in their report published on September 25, inscriptions used in Bitcoin Ordinals are not wrestling blockspace away from higher-value Bitcoin monetary transfers. Instead, they are acting more as a “packing filler,” filling up the remaining space once the essential monetary transactions have been logged.
The report dispels the fears of Bitcoin maximalists that Ordinals are clogging up the network, suggesting “There is minimal evidence that inscriptions are displacing monetary transfers”.
Ordinals make up only 20% of transaction fees
Bitcoin Ordinals have become a significant part of the daily transaction count on the network, accounting for a large portion of it. However, their impact hasn’t been mirrored in mining fees, which remain an essential revenue stream for miners. Inscriptions only contribute to about 20% of the Bitcoin transaction fees, as per Glassnode.
Despite their number, these inscriptions tend to set lower fee rates, showcasing a preference to wait for confirmation in contrast to urgent monetary transfers. According to the report:
“Inscriptions appear to be buying and consuming the cheapest available blockspace, and are readily displaced by more urgent monetary transfers.”
The increasing use of inscriptions has indeed boosted the base-load demand for blockspace, which has spiked miners’ fees. However, it’s not all roses, as Glassnode notes an escalated competition among miners since Bitcoin’s hash rate has amplified by 50% since February.
The heightened competition among miners is timed with the approaching halving event, stirring anxiety regarding income stress for miners. Unless Bitcoin prices ascend in the near term, miners could face a challenging profitability scenario. At the time of publication, the valuation of Bitcoin stands at $26,600.
Introducing RUNES
Recently, Bitcoin Ordinals creator Casey Rodarmor presented an alternative dubbed “RUNES” to the BRC-20 tokens, which currently form a bulk of the inscriptions.
The proposal came on September 25, when Rodarmor proposed the RUNES fungible token protocol, which is based on unspent transaction outputs. This concept could potentially reduce the quantity of “junk” unspent transaction outputs on the Bitcoin network.
The emergence of Bitcoin Ordinals was followed by the introduction of BRC-20 tokens just a month later. Most inscriptions so far have been a result of these tokens, which were brought in after Rodarmor unveiled the Ordinals protocol.
The continuous evolution within the Bitcoin network aims to enhance transactional efficiency while maintaining a balanced co-existence of various transaction types. The findings from Glassnode present a sigh of relief to those fearing a blockspace crunch due to the proliferation of Bitcoin-based NFTs.
