Bitcoin Ordinals and inscriptions are the talk of the town this year. Not only have they accounted for the lion’s share of network activity in terms of daily transactions since their introduction in February 2023, but also drove up miner revenue by increasing transfer fees.
But there’s a catch. The current design of Ordinals protocol tends to clog the network—so much so that crypto exchange Binance was forced to close Bitcoin withdrawals in May.
On-chain analytics firm Glassnode disagrees, though. In its “week on-chain” report on September 26, the analytics provider cleared the air over whether or not Ordinals and inscriptions have pulled blockspace away from higher-value BTC money transfers.
“There is minimal evidence that inscriptions are displacing monetary transfers,” Glassnode said. It noted that inscription users have a propensity for low fee rates, and they’re happy to wait for longer duration for confirmation of their transactions.
“Inscriptions appear to be buying and consuming the cheapest available blockspace, and are readily displaced by more urgent monetary transfers,” Glassnode explained in the Sept. 26 report.
Glassnode said that its own Bitcoin memepool has been witnessing a surge in the number of pending transactions since May—a majority of which have a very small data footprint. It added that the proliferation of text-based inscriptions is in line with the significant increase within its memepool.
“This confirms that these small-size text inscriptions have become a significant source of demand for blockspace.”
Glassnode
Although inscriptions have given a fillip to base-load demand for blockspace and caused an uptick in transaction fees, Glassnode points out that Bitcoin’s hashrate has also climbed up by 50% since Bitcoin Ordinals and inscriptions entered the scene in February. This, in turn, has made life difficult for miners as their income is still low amid increasing competition.
With the next Bitcoin halving approaching, which will cut mining rewards in half, miners could potentially face income stress and unprofitability unless there’s an exponential growth in BTC prices, Glassnode warned.
A September 22 Todayq News report also delved into how Bitcoin miners are witnessing a drop in their mining profits. In the wake of declining mining profits, miners embraced renewable energy and efficiency at the World Digital Mining Summit 2023, held last week in Hong Kong.
For the unversed, Ordinals Inscriptions are NFT-like digital assets inscribed on a Satoshi—the lowest denomination of BTC. At the moment, most inscriptions are issued on the Bitcoin blockchain through the BRC-20 token standard.
However, the creator of Bitcoin Ordinals protocol, Casey Rodarmor, recently proposed “Runes” – a new Bitcoin-based fungible token protocol – as a potential alternative to BRC-20s, arguing it would reduce “junk” unspent transaction outputs (UTXOs) on the Bitcoin network.