Controversy Around Ordinals: 3 Things Have Gone Wrong in '24
The numerous benefits of Bitcoin Ordinals (i.e. Ordinal inscriptions, Ordinal NFTs, Bitcoin NFTs) have made them popular in the Bitcoin community. This is evident by the 12M inscriptions made so far. One reason for their popularity is the ease of creation. Inscription tools let you create Bitcoin Ordinals and trade them within the larger Bitcoin ecosystem.
And even though Ordinals are evolving for the better – like the recent development of BRC-721E that transforms Ethereum nonfungible tokens into Ordinal NFTs on the Bitcoin blockchain – fewer inscriptions are being made.
In this article, we will be discussing some of the reasons why Bitcoin Ordinals have been seeing a drop in activity since April which saw the highest number of inscriptions ever made.
1. The case of the “cursed” inscriptions
The topic of “cursed” inscriptions was first reported1 by Casey Rodarmor in late April. The issue involves the misuse2 of Bitcoin scripts3. We won’t delve into the technicalities. But the main idea was that users inscribed +70,0004 individual satoshis with negative values.
Ordinal protocol recognizes inscriptions by assigning each satoshi – the smallest unit of bitcoin – with a number. That’s where the term “ordinal” comes from: assigning a number to each item in a list. However, if a satoshi has a negative identification number – either by chance or design – the protocol can’t recognize it. It will forever be on the Bitcoin network. But it will never be tradeable.
And that was the case from April until June 6th, when the latest Ord update was released5 that would index negatively-numbered-cursed-inscriptions positively, and thus “bless” them. But for almost two months, users who had paid an inscription fee and network fee had these dormant, decorative inscriptions that they couldn’t trade, liquidate, nor include in Bitcoin transactions.
The Ordinals are a new development and edge cases and loopholes are to be expected. As one of the technical members of the Ordinals team says, the project “[is] a marathon, not a sprint” and future hiccups could be expected.
2. Bitcoin network moving away from being a pure P2P system
As Coin Telegraph puts it6
Bitcoin now suffers from many of the same problems that have bedeviled Ethereum for years, including scammy memecoins and ****coins, NFTs of monkey pictures hogging block space and skyrocketing transaction fees.
The Bitcoin blockchain, and its crypto namesake, were meant for pure, straightforward peer-to-peer financial transactions. However, the 5 main developments that brought NFTs to the Bitcoin blockchain, namely:
- Colored coins
- OP_Return function
- Segwit upgrade
- Taproot upgrade
- Ordinals protocol
It has given the crypto community the ability to store and trade digital art on Bitcoin, a feat formerly only possible on Ethereum, Solana, Polygon, and other blockchains. This has upset Bitcoin purists and Bitcoin maximalists who want to preserve Bitcoin blockchain for only P2P transactions.
The case against Ordinals revolves around two axis:
2.1. Bitcoin ordinals have increased transaction fees
A benefit of making Bitcoin a hospitable blockchain for Bitcoin native JPEGs, videos, games, and meme coins is attracting a larger audience. This:
- Brings more people to Bitcoin
- Incentivizes them to start trading
- Pushes them to bid more for the limited block space
One side-effect is miners charging a higher minimum fee rate for processing Bitcoin transactions. The figure shows how the total transaction fees have steadily been rising since March 2023, when Ordinal NFTs were introduced, with no slowing down. The situation was so dire that in May 2023, the total transaction fees exceeded Bitcoin’s daily market price, which hadn’t happened since 2017.
Figure: Total transaction fees have been rising since Ordinals’ release. Source: Blockchain.com
One argument in favor of higher transaction fees is that it improves the bitcoin security model, because it can encourage developers to secure the network as it increases their revenue. But that’s an argument for another day.
But as Mati Greenspan, Quantum Economics founder, puts it7:
I spoke to one miner yesterday who said his revenue has doubled, which is nice, especially ahead of the halving, so it’s good for miners, but it’s terrible for the countries of Nigeria and El Salvador, for example, where, suddenly, the average cost to send a transaction is $30. The dream of financial inclusion on Bitcoin has been temporarily postponed.
And while the average transaction fee has gone back to $5 from $30 in May, this issue raises an important point regarding the moving of Bitcoin away from pure financial services.
2.2. Bitcoin blockchain is congested and overflown
More people interested in something results in congestion and more people waiting in line.
Figure: The first McDonald’s in the former USSR saw queues that stretched whole blocks. Image source: Qminder
The average confirmation time – the time it takes for transactions to go through and be included in a block – has been increasing since late last year. The average time now is about 25 hours. That’s in stark contrast to what it was a year before to date: 30 minutes.
Figure: Average confirmation time has risen from 30 minutes to 25 hours. Source: Blockchain.com
Another way to look at it is to consider the number of transactions that are in the pipeline to be confirmed. The figure shows that the number of transactions included in the backlog has been increasing since November 2022, from over 20K to almost 150K now.
Lastly, we should consider the Bitcoin block space, which has increased from 1.4MB in June 2022 to almost 1.8MB today (Figure 7). Bitcoin block space is the finite capacity each chain has to include several transactions in it. But capping that limit, and waiting for new blocks to be mined, and bid to have your transactions on them, exacerbates the issues we’ve been discussing: higher transaction fees, longer waiting times, and more congestion.
Figure: Average Bitcoin block size has been increasing from 1.3MB to 1.8MB. Source: Blockchain.com
For more on Ordinal Inscriptions
To learn more about Ordinal Inscriptions, read:
- Top 5 Differences Between Ordinal Inscriptions vs NFTs
- What are NFT Royalties & How Bitcoin Ordinals Can Help
- A Deep Dive into Smart Contract NFT
Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.
Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.
Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.
He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.
Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.
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