Bitcoin miners made nearly $600,000 in 2 months thanks to controversial new NFT protocol Ordinals. Meanwhile, user activity spiked during the same time period.
Bitcoin ordinal what is that?
Sequence numbers allow users to write data to images and other media types in newly mined blocks on the blockchain, which are primarily used for peer-to-peer (P2P) currency transactions.
Fees for recording NFT serial numbers on the Bitcoin blockchain | Source: Dune Analysis
According to Cointelegraph, since the launch of Ordinals in mid-December 2022, users have written nearly 74,000 NFTs to the Bitcoin blockchain, and miners have racked up a total of $574,000 in BTC transaction fees to date. data From Dune Analytics.
These NFTs include “digital artifacts” from replicas of items such as the CryptoPunks and Bored Ape Yacht Club collections.
The growing need for space jam bitcoin
Ordinals Protocol was created by Segregated Witness (SegWit) and Taproot, and the Bitcoin network soft fork upgrade began in 2017 and 2021, respectively.
For example, the SegWit update increased Bitcoin’s block size to four megabytes (4 MB).
Likewise, the Taproot update facilitates batching and verifying multiple transactions, as long as they do not exceed 4 MB in size. This feature allows writing data, such as images and videos, in Bitcoin blocks.
acceptance Bitcoin taproot in recent weeks | Source: Dune Analysis
The birth of Ordinals coincided with the increase in Bitcoin’s average block size from a typical 1.5-2 MB to 3-3.5 MB in early February.
Bitcoin average block size | Source: Glassnode
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At the same time, the number of pending SegWit and non-SegWit blocks in the Bitcoin mempool has also increased significantly — the highest level since the FTX crash.
The number of pending blocks in the Bitcoin mempool | Source: Glassnode
In some cases, sequence number data allegedly accounts for more than 50% of Bitcoin block space BitMEX Research.
“This is indicative of growing user base and increasing pressure on the fee market for usage beyond typical remittance and investment functions. Ordinals is a new frontier(…) to watch how it impacts and manifests on-chain networks and investor behavior,” Glassnode said. notes in the weekly.
Orders: a new revenue stream excavator Bitcoin?
Bitcoin miners earn most of their income from the network’s block grants, the finding or “mining” of new blocks. In contrast, miners’ revenue share from transaction fees is only around 3%.
Currently, the Bitcoin network rewards miners with 6.25 BTC per block. However, with the halving event that occurs every four years, this grant will be reduced by 50% to 3.125 BTC in the spring of 2024. Therefore, miners’ share of revenue from transaction fees is expected to increase over time as block rewards decrease.
For some, Ordinals introduced the concept of miner-extractable value (MEV), formerly commonly known as mining on Ethereum.
Simply put, MEV is the maximum value miners can obtain after creating a new block, in addition to block rewards and transaction fees.
However, critics suppose i think Ordinals are an “attack” that would overestimate real financial activity, thereby damaging Bitcoin’s image as a trusted P2P payment network.
“Bitcoin is designed to be censorship resistant. However, we have to comment on the waste and stupidity of coding. At least do something productive. On the other hand, it’s a proof of block space consumption,” Blockstream’s co-founder and CEO Adam Back commented.
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As reported by Cointelegraph