The impact of Ordinals on Bitcoin mempools & transaction size

The impact of ordinals on bitcoin mempools and transaction size The impact of ordinals on bitcoin mempools and transaction size
The impact of ordinals on bitcoin mempools and transaction size

Cover/illustration via Cryptooshala

The introduction of the Ordinals protocol, which allows the development of Bitcoin-based NFTs, coincided with significant changes in mempool activity and transaction size, new data from Cryptooshala and the Glassnode show.

What are bitcoin ordinals?

The ability to mint non-fungible tokens directly on the Bitcoin blockchain with all related content such as images and videos is made possible by ordinal NFTs, also known as digital artifacts or inscriptions.

The Ordinals protocol, launched in January 2023, allows users to interact and exchange individual Satoshi, which may contain unique recorded data. This new approach to creating NFTs in Bitcoin uses the changes included in the Bitcoin Taproot update. It involves placing all NFT content directly on the chain, providing a new way to explore, transfer and receive such tokens.

Coupled with the SEC’s decision to declassify Bitcoin as a “safety,” some experts say, a bullish outlook for Bitcoin is starting to emerge, which could positively impact the entire cryptocurrency ecosystem.

Quantitative Analysis

According to the latest data from Glassnode, jointly with Cryptooshala, the effects of the Ordinals had a positive effect on Bitcoin. However, the data shows that there are factors to consider regarding the “health” of the Bitcoin network. For example, the average transaction size increased by more than 100%, from 600B (bytes) to 1100B.

Average size of transfers
Average transfer size (source: Glassnode)

However, the chart below shows that order transactions have a low Satoshi fee (purple color dominates).

Bitcoin mempool total transaction size by cohort
Total Bitcoin mempool transaction size by cohort (Source: Glassnode)

The total fee (USD value) of transactions pending in the mempool, in different size cohorts (vByte) increased after the FTX crash, and subscriptions raised the base fee from 1 satoshi to 4 satoshi. The congestion in mempools has increased in part due to the increase in space required to store sequence number labels compared to standard transaction data. Also, a surge in bitcoin usage during the FTX saga played a role in the November surge, with investors leading the massive exodus of the exchange-held cryptocurrency.

Bitcoin: Total Mempool Fees by Cohort
Bitcoin: Total Mempool Fees by Cohort (Source: Glassnode)

Glassnode data shows that the upper range of Bitcoin’s average block size has increased significantly since the launch of Ordinals, rising from 1.5-2.0MB to 3.0-3.5MB within a few weeks. The increase correlates with the fact that not only images, but also larger files such as audio and video, are starting to be stored as sequential numbers.

Notably, on February 1, Inscription 652, the first part of the Taproot Wizards collection, set a new record as the largest block and transaction in Bitcoin history, reaching 4MB. Also, on Feb. 17, Cryptooshala reported a fart that was uploaded to the Ordinal network. inscription 2042.

Qualitative Analysis

Glassnode shows that while the Ordinal network had a significant impact on the size and cost of bitcoin transaction hashes, qualitatively this could be due to a broader crackdown on stake verification mechanisms.

Most of the other Tier 1 crypto protocols, which are base-level blockchains that have their own tokens, are built on the Proof-of-Stake consensus mechanism, including Ethereum.

However, with the SEC crackdown on the Kraken staking service in the United States, which suggests that only highly experienced retail investors can participate in the verification of such blockchain networks, it looks like investing in ETH and similar tokens could become the exclusive domain of institutional players. which led to improvements in the Ordinal network.

As a result, the Ordinals protocol is hailed as a game-changer for the Bitcoin blockchain. By allowing the creation of Bitcoin-based NFTs, it has given the world’s most famous cryptocurrency a new purpose beyond simply facilitating peer-to-peer transactions. This is especially important given that Bitcoin’s attractiveness may be hampered by factors such as banking regulation and erratic price fluctuations.

According to Glassnode data, intense bullish activity is forming around the Ordinal network.

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