The sudden appearance of inscribed Bitcoin blocks has received criticism, but it offers an insight into how the Bitcoin block space will evolve.
This is an opinion editorial by Zack Voell, a bitcoin mining and markets researcher.
A specter haunts the Bitcoin blockchain: the specter of JPEG files.
Using data storage features of the Bitcoin network that were introduced with the Segregated Witness (SegWit) update in 2017 and the Taproot update in 2021, Bitcoin node operators are pushing images, GIFs, and other files multimedia in Bitcoin blocks. In fact, one of these Bitcoin memes included the largest single block and the largest transaction in Bitcoin history last week. This now famous block and transaction was mined by Luxor Technologies in the midst of the ongoing Bitcoin NFT mini-craze, which has centered around the NFT project. ordinals.
To say that posting memes on Bitcoin has divided the community is an understatement. But this practice has also resurfaced a conversation of growing importance: miner’s extractable value (MEV) in Bitcoin. Readers will remember a June 2022 article on this topic by this author. Ordinals are Bitcoin data inscriptions that give miners an idea of what the future of Bitcoin MEV could be. This article reviews Bitcoin MEV in the context of the latest controversy surrounding JPEG transactions.
Background on Bitcoin MEV
The Bitcoin network today is not a total MEV wasteland, but it is still very early days.
“There is more MEV to Bitcoin than Bitcoiners like to admit,” Robert Miller, Product Lead at FlashBots, saying in a live broadcast on MEV. “And there is some MEV in Bitcoin that miners are not exercising right now,” she said. aggregate.
For example, Lisa Neigut, a Lightning Network engineer at Blockstream, extended Bitcoin’s overton window on MEV with a article on Lightning Network MEV. Neigut theorizes about opportunities for seekers and miners from using the Lightning Network, and considers how Bitcoin miners can affect on-chain transactions for Lightning Network channels.
For now, most of the MEV talk is focused on non-Bitcoin networks like Ethereum. But a robust Bitcoin-based decentralized finance ecosystem can change that quickly. A sustained NFT-related chain of activity craze could have the same effect. For example, one particularly well-known instance of NFT MEV (on Ethereum) occurred when a search engine paid $7 million to buy each Cryptopunk NFT at their floor prices.
Unpacking the Bitcoin NFT craze
Bitcoin historians know that collectibles and chain art originated from Bitcoin. In December 2012, Meni Rosenfeld published “Abstract of colored coins”, which explained that “it is possible to color a set of coins to distinguish it from the rest”. And the NFTs were born.
Casey Rodarmor ushered in the modern era of Bitcoin NFTs with his ordinales.com registration project. in a blog post explaining Inscriptions, Rodarmor explained that “inscriptions are digital artifacts native to the Bitcoin blockchain… They do not require a separate token, sidechain, or Bitcoin exchange.”
Images, audio, video, HTML, SVG, JS, CSS – anything can be a record transaction. Some node operators even signed up seed phrases on the blockchain. (Listen to Rodarmor’s interview on the Galaxy Digital podcast to learn more about his journey to release Ordinals).
Taproot: The Long-Awaited Bitcoin Update Came Out live three days after Bitcoin reached its all-time high price of $69,000, it is largely accredited with the ongoing outbreak in on-chain NFT activity in Bitcoin. But components of the SegWit upgrade to the protocol several years earlier set the stage for excess data to slip into Bitcoin blocks. Frankly speaking, Eric Wall wrote on Twitter that all the craziness is “essentially possible by mistake.”
But several data points make it clear that this is a legitimate trend:
- Data shared by Arceris, a pseudonymous Bitcoin researcher, shows that the first 435 “failed” NFTs on Bitcoin paid 15.3 million sats in fees and used 18.7 million bytes of space, which equates to approximately 218 blocks.
- In a single weekend, moreover, the registrations pushed the average fee per vbyte from 1 satoshi to 15.
- On-chain data compiled by another pseudonymous crypto researcher, Dataalways, estimates more than 2000 ordinals have been “coined” into Bitcoin to date.
Relatively speaking, the spikes in fees stem largely from the fact that no one is striving to compress their enrollment size due to continued low fees for Bitcoin transactions. but rodarmor noted on Twitter that “rich formats, compression, and recursion/composition mean significant inscription content can end up being very small.”
Excitement and controversy over ordinals rose after Luxor Technologies mined the largest block in Bitcoin history that contained the largest transaction in Bitcoin history: an ordinal. Together with long-time cryptocurrency investor and consultant Udi Wertheimer, Luxor listed the 3.94-megabyte transaction. 0301e0480b374b32851a9462db29dc19fe830a7f7d7a88b81612b9d42099c0ae In block 774,628, which weighed 3.99 million weight units. (The Bitcoin protocol limits block weights to 4 million weight units.)
What did Luxor do? enroll? A modified version of the iconic Bitcoin internet money magic wizard that was created around 2013 in Microsoft Paint. The wizard from Luxor, however, is evangelizing Taproot and the “magic JPEGs of the Internet” on Bitcoin. in a blog post On Bitcoin NFTs and mining, Luxor research head Colin Harper said: “Ordinal NFTs are not going away. It’s just a matter of how much impact they have.”
Criticism of Bitcoin ordinals
For every person who thinks the Ordinals project is exciting and entertaining, at least one Bitcoin enthusiast is strongly opposed to the idea. A multitude of prominent voices in the Twitter-based Bitcoin community have not minced their time in expressing their view of introducing JPEG files into Bitcoin blocks.
For example, a notorious Bitcoin debater who goes by the pseudonym Mr. Hodl expressed his disapproval of ordinals by saying, “I would censor the shit of anyone who clogged the network.” Blockstream CEO Adam Back also reminded fans of him in a now removed He tweeted that these NFTs embedded in Bitcoin are “fair game for miners to censor crap as a form of discouragement.” Bitcoin Twitter Personality Peter Rochard joined the melee by suggestion with apparent sarcasm that node operators who enrolled an NFT in Bitcoin should “apologize to their node and not do it again.” Jimmy Song, former couple in the crypto fund Blockchain Capital and former tutor in now closed LVL crypto exchange, simply tweeted“Luxor will be punished by the market.”
Alex de Vries, a longtime Bitcoin cynic and self-styled environmentalist, joined these pro-Bitcoin personalities in his harsh criticism of the Ordinals. Taking on LinkedIn, de Vries reclaimed that the “carbon footprint” of the famous block mined by Luxor was “equivalent to the carbon footprint per passenger of taking a flight from New York to Tokyo and vice versa 446 times”. (It should be noted that de Vries is not known for his intellectual rigor.)
On a slightly more technical level, Luke Dashjr, creator of the Bitcoin Knots client and outspoken critic of Ordinal, wrote on Twitter that ordinals are only possible because Bitcoin users “lie” and “cheat the code.” Bob McElrath, a long-time Bitcoin consultant and blockchain developer, also suggested that inscriptions compromise Bitcoin’s censorship-resistant qualities when struck Luxor for “using [Bitcoin] like a bathroom wall.” As enthusiasm for ordinals grows grew uprochard too voiced his desire to switch to Bitcoin consensus by altering the validation rules such that signups are no longer possible.
Bitcoin Core pseudonymous contributor 1440000bytes summed up the criticism of Ordinals by tweeting“It seems that some bitcoiners have just discovered that bitcoin can also be used by people they don’t like.”
The future of Bitcoin MEV
Okay, so how do polarizing NFTs from a Taproot “accident” affect MEV? Great question, astute reader.
The size and types of revenue for miners of any blockchain grow as the demand for block space increases and the number of applications with real users increases. For now, users who spend UTXO demand Bitcoin block space. But Ordinals hints at a future where other Bitcoin users come up with creative reasons to demand the same space, forcing these competing users to find themselves in the market for fees for the limited space within a block.
Critics of Ordinals have apparently unintentionally highlighted this benefit to miners. Registrants “would have to bribe me to undermine those (transactions),” Hodl said in a cheep. These “bribes” (commonly called “transaction fees”) could be paid in different ways. Of course, a registrar could add a hefty fee to your transaction, which would incentivize a miner to include it in a block. Or an out-of-band payment (fees paid outside of the typical network process for collecting fees) could be coordinated between a transactor and a block builder.
Rochard, who indirectly fired Ordinals as an immoral waste of resources, later saying Ordinal creators should “pay up or shut up”. And they are paying for it, at least. Since Ordinals appeared on the Bitcoin scene, enrollers are already paying handsomely to have their data fit into new blocks. For example, a Bitcoin user paid $200 to enter a gif of nyan cat. And how other Ordinal NFT projects are launched on Bitcoin, the extractable value for miners from this on-chain activity will certainly increase.
Bitcoin doesn’t care
Bitcoin Ordinals generated a wave of creativity and controversy that could linger indefinitely. These digital collectibles mark “the latest flaw in the new vision of what Bitcoin philosophy can and should be.” saying CoinDesk TV host Zack Seward. Many Bitcoin users hate ordinals, many more enjoy them. Ultimately, Bitcoin doesn’t care. But in the depths of a turbulent bear market, one objectively intriguing alternative use for Bitcoin’s block space, the creativity surrounding this use case, and the opportunities for mining extractable value this craze suggests should not be ignored. Not everyone needs to be an enroller, but they should pay attention.
This is a guest post by Zack Voell. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
