How Ordinals Inscriptions Affect Bitcoin
Bitcoin NFTs, better known as Ordinals, have become almost unavoidable lately, with more than 89,000 inscriptions in existence. For the first time in Bitcoin’s 14-year history, the blockchain is being used for something other than peer-to-peer transfers, but not everyone is happy. While a significant portion of Web3 is excited about the way this new area of the NFT market is growing, others have raised concerns about the new technology behind this burgeoning sector.
While opportunities abound as more users find it possible and desirable to shift their fundraising and trading efforts to Bitcoin, the blockchain itself may suffer as a result. While the barrier to entry into Ordinal’s ecosystem continues to lower as its popularity increases and more creators look to enter data on Bitcoin, network congestion has emerged as a potential symptom of Bitcoin NFTs creating strain on the chain.
Bitcoin blocks are booming
The new Ordinals protocol, launched by software engineer Casey Rodarmor on January 21, allows users to enter data direct on the blockchain, unlike NFTs on other chains, such as Ethereum, which often point to off-chain data hosted on a decentralized file storage system. This data can include smart contracts, which in turn enable the creation of NFTs. While this on-chain capability has led to much fanfare, with Ordinals being referred to as “true NFTs”, it also means that Bitcoin NFTs take up a a lot of space.
Anecdotally, Bitcoin block storage capacity has not been a concern because until now the chain has only been used for peer-to-peer monetary transactions. But as Ordinals continue to gain prominence, and NFT enthusiasts either learn the ins and outs of inscription or find ways to onboard the Ordinals ecosystem via developer tools, more usage has meant more traffic and has ultimately led to network congestion.
To put that in perspective, although Bitcoin blocks – the sequential groups of transaction data packed together – can theoretically go as high as 4MB in size, they more often limit the 1 – 2MB range. Some have even dictated 2MB as a more realistic maximum size for Bitcoin blocks because a 4MB block size represents absolutely maximum size of a block of data that can be added to the blockchain.
Still, according to Glassnode, since Ordinals launched, the upper range of the average Bitcoin block size has increased from 1.5-2.0MB to 3.0-3.5MB in a matter of weeks. In fact, on February 1st, Inscription 652, the first in the Taproot Wizards collection, made history as largest block and transaction in Bitcoin’s history of 4MB.
Short-lived peaks
Since Ordinals arrived on the scene, mining large blocks became both common and necessary, leading to, as reported by Bloomberg, higher transaction fees on the Bitcoin blockchain. The day before the protocol’s launch, transaction fees peaked at 3.28 percent. While on 13 February the fees saw a peak of 5.68 per cent. While this may seem like a worrying pattern, Glassnode reports that these are “short-lived spikes” and we have yet to see a significant increase.
Perhaps as a reason for this effect, Glassnode reports that the total number of Bitcoin wallet addresses that have assets (those with a non-zero balance) has pushed to a new all-time high of over 44 million. As the report notes, this shows a short-term increase in Bitcoin network usage, with the main source of this activity due to new users and Ordinals data rather than coin volume.
While this increase in numbers has been welcomed by some Bitcoin maximalists who have very publicly embraced the booming Ordinal market, others have expressed concern about the diminishing accessibility of the blockchain. One Twitter user in particular, who goes by the name Bitcoin savesnoted that those in developing countries may be affected to a much greater extent with higher transaction fees than those in the US. A claim that seems to be reinforced by the fact that counties such as Vietnam and the Philippines were found to have the highest rates of crypto adoption in 2022, while the US and China maintained their Bitcoin mining statuses. powerhouse, accounting for around 30 and 60 percent of all Bitcoin mining in 2022, respectively.
While surely only time will tell if short-term concerns such as rising transaction fees become a cause for long-term concern, it appears that – as was the case with other NFT trends such as PFPs and open issues – nothing can slow the spread of Ordinals throughout NFT – the ecosystem. Still, given the environmental concerns raised in response to the early Ethereum NFT boom, Bitcoin NFTs will be in for a similar period of uncertainty and doubt.
