What is the impact of Ordinals on the BTC network? (Research)
NFTs have arrived in Bitcoin – and they are quickly taking the network by storm.
On Wednesday, the BitMEX blog reviewed the adoption of Ordinals, the NFT-enabling protocol that has been the subject of heated debate in the Bitcoin community for the past week. How much steam does the new function generate on the chain?
Ordinals: The data
Based on BitMEX’s numbers, the number of Ordinals transactions per block skyrocketed in February 2023, surpassing an average of 225 on February 5th. For context, a Bitcoin block is produced approximately every ten minutes.
Like the report explained, Ordinal transactions are identifiable by a “word” OP_Push string in their Taproot input script. Taproot was a Bitcoin upgrade that was activated in late 2021, giving Bitcoin more privacy and smart contract capabilities.
However, ordinals were an unforeseen consequence for developers – allowing individual satoshis (the smallest unit of Bitcoin) to be identified on the network, and inscribed with data such as images or videos. Transactions of this type are NFTs that circulate on blockchains like Ethereum – except their image data is embedded directly into Bitcoin’s blockchain.
The first order transaction located by BitMEX took place on December 14 and was embedded with the face of a scary looking skeleton. However, the cumulative number of Ordinals transactions did not begin to increase until late January.
As of February 7 – when BitMEX’s report was published – over 13,000 Ordinals transactions had taken place. However, data from Dune analysis shows that the inscriptions increase exponentially every day. There are over 49,000 registered inscriptions at the time of writing – the vast majority involving image data.
Just like with other blockchains, people are buying these images: an Ordinals punk was sold for 9.5 BTC (~$200,000) earlier this week.
Earlier this week, blockchain intelligence firm Glassnode could identify the popularization of Ordinals through an increasing number of Taproot transactions noticeable on the chain. The proportion of transactions using this technology had almost tripled compared to a month earlier.
Concerns about Ordinals
With new file types finding their way into Bitcoin, many Bitcoin developers are concerned that Ordinals could have unintended consequences. One of their main concerns is blockchain bloat – filling up block space that could otherwise be used for purely financial transactions, thereby making the network slower and more expensive for standard users.
BitMEX’s data shows that Ordinals are now taking up over 500 megabytes of cumulative block space, after just a few weeks of significant usage.
Followers argue that higher fees could be good for Bitcoin in the long term, giving miners a more sustainable source of fee income as the network produces less new BTC over time.
BitMEX declined to comment on the pros and cons associated with Ordinals in its report.
