Bitcoin Community Divided Over BRC-20 Meme-Coin Fever Causing Congestion

That’s why we can’t have nice things.

Just when we thought we had learned our lessons from the explosions of FTX, Three Arrows Capital, Celsius et al., meme coin fever strikes again.

Crazy cryptocasinos are back! People make ridiculous amounts of money on tokens based on a frog image, while others stand to lose massively when irrational bidding takes hold. And this time, the fever not only infects greedy human minds, but messes with the functioning of the most valuable blockchain in the world.

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The ability to create tokens based on the new BRC-20 standard, which was enabled by Bitcoin’s Taproot upgrade, has fostered a number of new Bitcoin-based meme coins, many mimicking those released on other chains that have recently experienced wild price movements. (This past week, Ethereum-based Pepecoin rose nearly 5,000,000%, then lost 50% of its highs.) This follows the creation of the Ordinals protocol, which gave rise to Bitcoin-based data inscriptions that act as non-fungible tokens ( NFTs).

These use much more data than a basic bitcoin transaction, which means they increase Bitcoin fees. Bitcoin miners have recently earned more from transaction fees than from their routine 6.25 bitcoin block reward. And that means if you want to send a small amount of bitcoin on the chain, it won’t be accepted, or you’ll have to pay a prohibitively high price to do so.

I can hear Elizabeth Warren’s “anti-crypto army” snickering: “These crypto bros are so obsessed with going into lambos that they are destroying what they claim to be this technology’s core purpose as a better form of money and value exchange.”

Unsurprisingly, this is causing a stink in the Bitcoin community. The battle for the scarce resource blockspace has long created tensions – most memorably during the Block Size Wars of 2016-2017 (a piece of crypto history to be featured in CoinDesk’s 10th anniversary coverage). It motivated the founding of the Lightning Network, which allows small transactions to be processed off-chain to save valuable block space for larger ones.

The potential for tension is arguably even greater in this case. Purists who believe Bitcoin’s sole purpose is as an alternative currency are outraged to see it being used for frivolous frog JPGs. On the other hand, those building and using these new BRC-20 and Ordinals-based tokens counter that no one can say what Bitcoin is for. It is, after all, an open protocol.

We can all agree that increasing transaction fees and blockchain load are a problem. It goes to the heart of Bitcoin’s resource efficiency and utility. But what can be done about it?

Echoing Bitcoin Policy Institute Fellow Troy Cross’ views on taxation and energy policy — on our podcast this week he said the White House proposal to tax bitcoin mining discriminated against one person’s energy choices over another — I’d say Bitcoin’s community doesn’t can limit which forms of value exchange Bitcoin’s blockchain is used for.

What’s fair game – in my humble opinion – are code upgrades that will take pressure off the block space limits to improve the overall functioning of the system in an exploit-agnostic way.

If Lightning is not sufficient to improve Bitcoin’s scalability, is there anything to learn from the various Layer 2 scaling projects of the Ethereum community, such as Zk rollups or Optimistic rollups?

Or might it be possible, or even appropriate, for the protocol to build in time-locked constraints or costs on certain speculative activities that challenge the liquidity of the entire system? I’m thinking specifically of short-term asset turnover. (Note: this may only be relevant for non-fungible tokens. You cannot impose a limit on the exchange of BRC-20 tokens, precisely because the owner can only sell another one. Money cannot be limited in this way.)

People much smarter than I will, I’m sure, point out flaws in these suggestions. Indeed, if someone were to say that by singling out asset flipping—which, after all, brings liquidity to the market—

I’m no different than Luke Dashjr raging against meme coins, they wanted a point. I judge one person’s activity over another’s.

Yet the core problem here is not that Bitcoin is used to represent frog images per se, but that its value as an efficient, disintermediated settlement system for the transfer of value of all kinds is undermined by block space congestion. (As CoinDesk columnist David Z. Morris wrote this week, Bitcoin would experience the same problems if, as its proponents hope, millions more people used Bitcoin for monetary purposes.) That’s where the governance conversation needs to focus.

The question of how to balance the rights of the individual with the interests of the group is the core challenge of any blockchain community. Bitcoin is no different.