Bitcoin signups have been available for a few more weeks, so we’re monitoring the fee market and blocking usage to see what’s changed after 100,000 signups.
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Address Bitcoin decentralization and block space concerns
New users flock to Bitcoin to create what are known as tokens, often called NFTs (non-fungible tokens) on other blockchains. These image files, for the most part, were increasing the demand for Bitcoin block space, causing some network participants to worry about the future decentralization of Bitcoin. If the cost of running a full node increases substantially because users need storage space and bandwidth to download all this data that is not related to monetary transactions, fewer people could run full file nodes, centralizing the ledger of Bitcoin.
The amount of cumulative storage used by enrollments continues to increase with nearly 3 GB of storage specifically related to enrollments at the time of writing.
If the block space is constantly used to its full 4MB span, you’ll add about 210.24GB of data to the chain each year, which isn’t a major cost hurdle for running a full node, but can still be considered expensive. in some places. where the technology is not so cheaply available. There is the possibility of running a pruned node that does not require the storage of any of this token data and only keeps track of Bitcoin currency transaction data. However, to create a deleted node, users still need to download all of the data initially. This is where concerns about insufficient bandwidth come into play. In areas of the world where there is no high-speed Internet access, it may take so long for the initial block to download that it will not be possible to synchronize with the top of the chain.
That being said, the expectation for Bitcoin’s block space was always that it would be full at some point, which is partly why there is a limit on block size. This limit was raised during the SegWit soft fork and included discounting fees for witness data, such as enrollments, that is not related to Bitcoin’s financial ledger and its Unspent Transaction Output (UTXO) set.
Bitcoin has been compared to a decentralized clock because of the way it tracks the order of transactions as they happen around the world. The nature of inscriptions in Bitcoin uses this order to number the inscriptions as they are written to the blockchain, also known as the time chain. As the signup count approached 100,000, people scrambled to confirm their signups before or exactly at that number. We saw the biggest rate increase right now, shown above in dark green. Taking a quick look at the fee rate table, it becomes clear when the 100,000th enrollment was made due to the highest number of fees above 25 sat/vByte.
After this monumental sign-up number, the rush to create Bitcoin NFTs has slowed dramatically. While there is still a backlog of transactions in the mempool, the fees required to confirm a transaction in the next block have dropped considerably and the total daily fees spent on creating signups are “only down.”
Although the fees have gone down along with the total amount of money spent on signups per day, the number of pending transactions in the mempool remains high and constant, with no sign of abating any time soon.
In this bygone mining era, blocks are mined so fast that a difficulty adjustment of almost +11% is expected.
“The expected increase in mining difficulty will remove some of the relief that operations have felt in recent weeks, due to the increase in dollar-denominated revenue. Revenues for miners denominated in bitcoin terms will once again hit new lows.” — State of the Mining Industry: Public Miners Overtake Bitcoin
This fast rate of block mining has allowed some of the lowest fee rate enrollment transactions to be mined because blocks were being mined faster than new transactions were being transmitted to the network.
Now that the initial rush to be an early signer is probably over, one theory for signups is that they will become a buyer of last resort for block space at a time when fees are low and fewer people are transacting on chain.
We will see if this thesis is fulfilled. People who open Lightning channels may also take advantage of lower fee times, which is one of the arguments against signups, as they potentially crowd out Bitcoin’s financial use cases.
Final note
There are unanswered questions about the bandwidth requirements to download a full file node, as well as the cultural questions of whether these non-monetary transactions should be done on the Bitcoin base layer or if it’s possible to move them to Layer 2.
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