The surge in coinbases raises old debates about the “true” purpose of bitcoin and its potential to become internet money.
This is an opinion editorial by Stephen Livera, host of the “Stephen Livera Podcast” and Managing Director of Swan Bitcoin International.
Therefore, we have seen recently that a bitcoin transaction takes almost an entire block and the default mempool (300MB) is filled, What’s up with all this ordinance and inscription craziness?
the quick explainer
Ordinals are a built-in method of tracking sat (a fraction of a bitcoin) during a transaction. Now, I stress that this is a made-up way of tracking the coinage, as it does not meaningfully affect the arbitrage of bitcoin. As explained by producer Casey Rodarmore on my podcast, this is a sequence of numbering sets in the order they are supposed to exist, and tracking them in a transaction in a first in, first out (FIFO) method. Therefore, as bitcoin transactions are made up of inputs and outputs, the first satoshi in the first input is considered transferred to the first output of the transaction. There are conventions around which ordinals are uncommon, rare, epic, etc.
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What is an inscription?
An inscription is another made-up convention, where saints can be inscribed with arbitrary material, a type of bitcoin-native digital artifact or NFT. Using convention, they can be sent to and stored in bitcoin untapped transaction outputs (UTXOs). Now, because they are coded in such a way that they are written into the witnesses of the transactions, they never enter the UTXO set. The UTXO set is seen as an enhanced consideration for the network as every node (even the sorting nodes) must maintain this UTXO set. So, I guess it could have been worse…
What is Bull Case for Ordinances and Inscriptions?
A bit of the Man of Steel case: The Pro Ordinals and Inscription case can be summed up roughly: “Come for the fun, rich art, stay for the decentralized digital money.”
You might even agree with some of the criticisms of shitcoin NFTs, and see it as a way to argue that “Bitcoin does it better”. For example, bitcoin coins are immutable, always on chain, compared to shitcoin NFTs. are simpler and more secure.
Expressed concern with inscriptions
Here are the main concerns:
Reduced access to transact on bitcoin as scrip/NFT creates a backlog of transactions and pays lower fees per actual byte due to witness discounting, resulting in increased storage and bandwidth requirements for users in full The capacity to run a bitcoin node is reduced. The possibility of illegal material being entered into bitcoin’s blockchain may discourage some users from running a bitcoin node.
Of course, there are opposing arguments as well:
Bitcoin was eventually going to develop a fee/blockspace market anyway and this may help with the long term viability of the network. Inscriptions can create a “low value backlog” of transactions. Bandwidth and storage costs have come down over the years since 2017. Although, arguably, the bandwidth on Tor can still be problematic for those syncing a full node in a more private fashion. It can also be argued that this is still within the conservative design limits that the network accepted in effect in 2017. Illegal content on chain was always possible because you cannot completely prevent steganography on bitcoin. Steganography is when you represent information within another message, in such a way that the presence of the information is not apparent to normal human inspection. Review of old debates in bitcoin: purpose, scaling and more
Some are arguing that, “we shouldn’t have increased block sizes in 2017 with SegWit and witness exemptions” and, to some extent, this latest ordinance and inscription trend is raising questions similar to the OP_RETURN wars of 2014.
What is bitcoin for? And should arbitrary data that is not related to financial transactions be encouraged or discouraged on bitcoin’s blockchain?
no root cause
Some commenters were initially blaming Taproot Soft Fork for the inscriptions. But it seems that Taproot only saves 4% on the cost of inscriptions.
It’s also worth noting that this sort of thing was possible with SegWit, and before that with OP_RETURN and even before that, with fake signatures, as explained by Adam Back here:
Some ETH huffers and cRyPtO people are enjoying the moment because, in their eyes, they can “stick it to maxi” and people of the more “Bitcoin fundamentalist” persuasion, ie, people who believe that bitcoin should be a money. .
I myself am closer to the “radical” camp, viewing my mission as furthering bitcoin as money. And of course, after all the efforts of bitcoin developers to optimize and use the blockspace more efficiently, the inscriptions on the chain are useless and unnecessarily reducing the accessibility of bitcoin for use in financial transactions.
Some argue that taking action against bitcoin scribbles amounts to “censorship” and that it is wrong to view these transactions as “spam”, given that they pay bitcoin transaction fees. But in the end, it comes down to the purpose of the project. While yes, it is true that bitcoin is designed to be censorship resistant and that NFTs arguably “began on bitcoin” going back years, bitcoin is arguably more about decentralized and peer-to-peer electronic cash. is more.
Can this trend realistically be stopped?
Short of drastic action, probably not. At least, so wrote Andrew Poelstra in a recent post on the bitcoin-dev mailing list:
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Being too reactive about the inscriptions and trying to take some drastic action to make the inscriptions technically unviable is also foul play. There are arguably bigger fish to fry, such as helping drive the adoption of bitcoin as money and helping encourage decentralization in custody of bitcoin, mining of bitcoin, scalability and verification of bitcoin, etc.
Ossification? not yet
Some even argue, “Oh, that’s a mistake and we should fix the bitcoin protocol to prevent further mistakes.” I think this would also be an error. There are many soft fork ideas that are opt in, do not harm non users and can help increase bitcoin self-custody. For example, ANYPREVOUT or OP_VAULT.
AnyPrevout is particularly interesting to me because someday, with global adoption, we could have nearly 80,000 times the transaction demand now. In that world, ANYPREVOUT enables the upgrade to “eltoo” Lightning, giving us a way to share the cost of on-chain transactions in a self-preserving manner. If we want bitcoin to be used in a way that is more self-sovereign, we ideally want people to be able to take self-custody on-chain. Without this, they may be confined to custodial platforms as the cost of self custody is too prohibitive. Eltoo also has several advantages for Lightning, such as making backups easier.
Yes, we should be conservative, but we should also consider the technologies that help bitcoin make the best of it when it comes to digital hard money.
ground level
While I am “against” inscriptions in a sense and would rather have them socially discouraged, I also don’t think it’s worth worrying too much about them right now. For all we know they can be a short lived fad.
But even if they aren’t a short-term fad, what’s the most likely outcome here? As bitcoin is adopted by more people, coins of lesser value will be eliminated from financial transactions over time. It’s just that adoption occurs in a “lumpy” manner and is concentrated in periods of high usage (as seen in 2013, 2017, and 2021), and is then followed by low transaction volumes and new technology. And there are periods of relative indifference when scalping techniques are applied.
Or as it has been eloquently stated here:
In the medium to long term, bitcoin will dominate financial transactions. Other uses of bitcoin would be subordinate to its use as decentralized money for the internet.
This is a guest post by Stephen Livera. The opinions expressed are solely his own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
