Bitcoin (BTC) miners have made nearly $600,000 in two months thanks to a controversial new NFT protocol called Ordinals that has caused a spike in user activity..
What are bitcoin Ordinals?
Ordinals allow users to enroll data in the form of images and other types of media into newly mined blocks on the bitcoin blockchain. which is otherwise mainly used for peer-to-peer monetary transactions.
However, Since Ordinal’s launch in mid-December, users have enrolled nearly 74,000 NFTs on the bitcoin blockchain, bringing miners a cumulative total of $574,000 in BTC transaction fees to date.according to data from Dune Analytics.
These NFTs include “digital artifacts” coming from the spin-off projects of Ethereum’s CryptoPunks Collection and Bored Ape Yacht Club in February.
The NFT community is moving to BTC, where Ordinals have brought true scarcity to collectibles.
I forever inscribed “The Blonde Don” BAYC #1626 on the world’s scarcest and most secure chain burning him off ETH forever using TeleBurn.
It’s done. Over. Not coming back to ETH. pic.twitter.com/jmKpSSPybm
— Jason A. Williams (@GoingParabolic) February 12, 2023
The NFT community is moving to BTC where ordinals have brought real scarcity to collectibles.
I forever enrolled “The Blonde Don” BAYC #1626 on the world’s scarcest and most secure chain by burning it from ETH forever using TeleBurn. It’s done. It’s over. I will not return to ETH. pic.twitter.com/jmKpSSPybm
Increased demand for bitcoin block space
The protocol Ordinals was made possible by Segregated Witness (SegWit) and Taproot, the 2017 and 2021 Bitcoin network soft fork updatesrespectively.
For example, SegWit upgrade effectively increased bitcoin block capacity up to 4MB.
Similarly, the update taproot helps to bundle and verify multiple transactions together as long as their size does not exceed 4 MB. This function allows the inscription of data such as images and videos in the bitcoin blocks.
The arrival of Ordinals has coincided with the jump in the average size of bitcoin blocks from its usual average of 1.5-2 MB to between 3 and 3.5 MB in early February.
Simultaneously, the number of pending SegWit and non-SegWit blocks in the bitcoin mempool has also increased significantly; is the highest since the FTX collapseas it’s shown in the following.
Sometimes, Ordinals data has been comprising more than 50% of bitcoin’s block space, according to BitMEX Research.
“This describes a growing user base and upward pressure on the usage fee market beyond typical investment and money transfer use cases,” Glassnode noted. in his weekly report, adding:
“Ordinals are a new frontier […] We have to observe how it affects and manifests itself both in the on-chain network and in the behavior of investors.”
Ordinals: The new source of income for BTC miners?
Bitcoin miners generate most of their income from block grants from the network, that is, by finding or “mining” new blocks.. By comparison, the share of miners’ income from transaction fees is only around 3%.
At the moment, the Bitcoin network rewards miners with 6.25 BTC per block. But this grant will be reduced by 50% to 3,125 BTC in the spring of 2024 in an event called halving., which occurs every four years. As a result, the share of miners’ income from transaction fees is expected to increase over time as block rewards decline.
For some, ordinals introduce what is called miner extractable value, or MEV, which has previously been associated with mining on Ethereum.
In a nutshell, MEV is the maximum value miners can earn from producing new blocks beyond block rewards and transaction fees.
If Bitcoin Ordinals will take off (and I think it will) it’s really good news for Bitcoin mining companies’ revenue, something that’s not reflected in their valuations yet.
—Marc van der Chijs (@marcvanderchijs) February 6, 2023
If Bitcoin Ordinals takes off (and I think it will) it is very good news for the revenue of Bitcoin mining companies, something that is not yet reflected in their valuations.
Critics, however, contend that Ordinals as a “stroke” which will put a price on actual financial activity and thus damage bitcoin’s image as a reliable P2P payment network.
“Bitcoin is designed to be resistant to censors,” said Adam BackBlockstream co-founder and CEO, adding:
“[Esto] does not prevent us from commenting lightly on the waste and stupidity of a codification. At least do something efficient. If not, it’s another test of block space consumption.”
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