The surge in listings raises old debates about Bitcoin’s “true” purpose and ability to become internet money.
This is an opinion piece by Stephan Livera, host of the “Stephan Livera Podcast” and Managing Director of Swan Bitcoin International.
Thus, we have recently seen a bitcoin transaction occupies almost an entire block And the default mempools (300 MB) are full. What’s going on with all this craziness of ordinals and inscriptions?
The Quick Explainer
Ordinals are an invented way of tracking sats (a fraction of bitcoin) through transactions. Now I insist that this is a made up way of tracking sats, as it does not significantly impact the fungibility of bitcoin. As explained by creator Casey Rodarmor on my podcast, it is a convention of numbering sats in the order they are mined and tracking them through transactions on a first-in, first-out (FIFO) basis. Thus, since Bitcoin transactions are composed of inputs and outputs, the first satoshi of the first input is considered transferred to the first output of a transaction. There are conventions around which ordinals are uncommon, uncommon, epic, etc.
What is a registration?
An inscription is another coined convention where sats can be inscribed with arbitrary content, a sort of native Bitcoin or NFT digital artifact. Using the convention, they can be sent and stored in an unspent bitcoin transaction output (UTXO). Now, because they are coded in such a way that they are written to transaction cookies, they never enter the UTXO set. The UTXO set is considered to have increased consideration for the network because each node (even pruned nodes) must maintain this UTXO set. So I guess it could have been worse…
What is the Bull case for ordinals and inscriptions?
To harden the case a bit: the pro case of ordinals and inscriptions could be broadly understood as: “Come for the fun and rich art, stay for the decentralized digital money.”
You might also agree with some of the criticisms of shitcoin NFTs, and see this as a way of saying “Bitcoin does it better”, e.g. bitcoin signups are immutable, always on-chain, simpler and more secure than shitcoin NFTs.
Concerns raised with listings
The main concerns here are:
- Reduced accessibility to transact Bitcoin due to sign up/NFT people creating a backlog of transactions and paying lower fees per actual byte due to witness surrender
- Reduced ability for users to run a full Bitcoin node due to increased storage and bandwidth requirements
- The possibility of illegal material being stored on Bitcoin’s blockchain, which could discourage some users from running a Bitcoin node
Of course, there are also counter-arguments:
- Bitcoin would eventually develop a space fee/block market anyway, which could help the long-term viability of the network. Listings may simply constitute a “low value backlog” of transactions.
- Bandwidth and storage costs have come down over the years since 2017. Although, arguably, bandwidth on Tor can still be problematic for those syncing a full node more privately. One could also argue that everything is still within the conservative design boundaries that the network actually accepted in 2017.
- Illegal material on the channel was always possible because you can’t completely stop bitcoin steganography. Steganography is when you represent information in another message in such a way that the presence of the information is not obvious to normal human inspection.
Revisiting Old Bitcoin Debates: Purpose, Scaling, and More
Some argue that “we shouldn’t have increased the block size with SegWit and cookie reduction in 2017” and to some extent this latest ordinal and enrollment trend raises similar questions as the OP_RETURN wars of 2014.
What is bitcoin used for? And should arbitrary data that does not relate to financial transactions be encouraged or discouraged on the Bitcoin blockchain?
The taproot is not to blame
Some commenters initially blamed the Taproot soft fork for the signups. But Taproot only seems to save about 4% on the cost of signups.
It’s also worth noting that this kind of thing was possible with SegWit, and before with OP_RETURN and even before, with fake signatures, as Adam Back explains here:
Some ETH and cRyPtO enthusiasts enjoy this moment because in their eyes they can “stick to the maxes” and those of a more “Bitcoin fundamentalist” persuasion, i.e. people who believe bitcoin should be money.
I myself am closer to the “fundamentalist” camp, seeing my mission as advancing bitcoin as a currency. And surely, after all the efforts of bitcoin developers to optimize and use block space more efficiently, on-chain listings seem unnecessary and unnecessarily reduce the accessibility of bitcoin for use in financial transactions.
Some argue that taking action against bitcoin listings is “censorship” and that it is wrong to consider these transactions “spam” given that they pay bitcoin transaction fees. But ultimately, that’s the goal of the project. While yes it is true that Bitcoin is designed to resist censorship and NFTs arguably “started on Bitcoin” in the past, Bitcoin is arguably meant to be more on decentralized and peer-to-peer electronic money.
Can this trend be realistically stopped?
Unless drastic action is taken, probably not. At least, that’s what Andrew Poelstra explained in a recent post on the bitcoin-dev mailing list:
It’s also the wrong game to be too reactive on signups and try to take drastic measures to soft fork or make signups technically unviable. There are arguably bigger fish to fry, such as helping improve the adoption of bitcoin as a currency and helping to encourage greater decentralization in bitcoin custody, bitcoin mining, scalability and the verifiability of Bitcoin, etc.
Ossification? Not yet
Some even go so far as to claim that “Oh, this is a mistake and we need to ossify the Bitcoin protocol now to stop any further mistakes”. I think that would also be a mistake. There are various soft fork ideas that are opt-in, do no harm to non-users, and could help evolve bitcoin self-custody. For example, ANYPREVOUT Or OP_VAULT.
ANYPREVOUT in particular interests me because one day, with global adoption, we may have about 80,000 times transactional demand that we have now. In this world, ANYPREVOUT enables an upgrade to “Eltoo” Lightning, giving us a way to share the cost of on-chain transactions autonomously. If we want Bitcoin to be used in a more autonomous way, we ideally want people to be able to afford to take their custody on-chain. Without this, they risk being confined to guard platforms because the cost of self-guarding is too prohibitive. Eltoo also has various advantages for Lightning, such as simplified backups.
Yes, we should be conservative, but we should also consider technologies that help bitcoin be the best you can be to be digital hard money.
While I’m “against” registrations in a sense and would prefer them to be socially discouraged, I also don’t think it’s worth worrying too much about at this time. As far as we know, they might be a short-lived fad.
But even if it’s not a short-lived fad, what’s the most likely outcome here? Low value listings will likely be valued by financial transactions over time as more people adopt Bitcoin. It’s just that adoption happens in a “lumpy” way and focuses on periods of high usage (as seen in 2013, 2017, and 2021) and then periods of slump relative to as transaction volume decreases and new technologies and scaling techniques are applied.
Or as a meme eloquently here:
In the medium to long term, financial transactions will eventually dominate in Bitcoin. Other uses of Bitcoin will be contingent on its use as a decentralized currency for the internet.
This is a guest post by Stephan Livera. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.