Bitcoin activity highest since May 2021 as NFTs get Steam

On-chain data shows that Bitcoin network activity is now at its highest level since May 2021, as Ordinal’s NFTs have grown rapidly in popularity.

CryptoQuant’s Bitcoin Network Activity Index has shot up lately

According to data from on-chain analytics firm CryptoQuant, the BTC network has seen a significant increase in activity. The relevant indicator here is CryptoQuant’s “Network Activity Index”, which evaluates the activity of the Bitcoin network using four metrics.

The four indicators it uses are the total number of active addresses on the network (that is, the addresses are involved in at least 1 send/receive transaction), the number of transactions, the number of unused transaction outputs (UTXOs) (UTXOs are basically the amount left in wallets after that a transaction takes place), and the block size.

Here is a chart showing how the value of the CryptoQuant Network Activity Index has changed over the past few years:

Looks like the value of the metric has been pretty high in recent days | Source: CryptoQuant

As shown in the graph above, Bitcoin network activity according to CryptoQuant’s index has seen a significant increase recently and has reached the highest level since May 2021. The reason behind this increase in activity is that BTC non-fungible tokens (NFTs) have rapidly become popular.

These NFTs have been made possible on the BTC blockchain thanks to a system called “Ordinals.” This protocol stores images directly on-chain using Taproot transactions.

Since these NFTs are directly “inscribed” on the blockchain itself (a fact that has given them the name “inscriptions”), the Bitcoin block size is inflated when these are added to transactions. The “block size” here refers to the total amount of data that is stored in a BTC block.

With the increase of NFT transactions on the network, the average block size has observed an increase and has reached new all-time highs. Since the network activity index uses block size as one of the components to measure activity, the increased block sizes have naturally led to the index also seeing an increase.

“Apparently, due to inscriptions, some recent Bitcoin blocks in recent days have exceeded the 4MB block size limit,” notes CryptoQuant. “These blocks were the largest in Bitcoin’s history.”

The number of daily BTC transactions, another factor the index considers, has also grown on the network recently, reaching peaks not seen since April 2021.

Since these images take up a large amount of BTC block space, whether or not they are useful has become a hot topic of debate around the community. CryptoQuant believes that NFTs can drive more demand on the network, thereby increasing the fees that miners receive.

In the future, miners will depend on transaction fees as their primary source of income, so any increases in that could help them become more sustainable in the long term.

However, the research firm also notes that writing non-fungible aspects like these into satoshis could lead to a negative effect on the privacy and fungibility of BTC.

BTC price

At the time of writing, Bitcoin is trading around $22,700, down 4% in the last week.

BTC has declined in the past day | Source: BTCUSD on TradingView

Featured image from Jievani Weerasinghe o Unsplash.com, Charts from TradingView.com, CryptoQuant.com