Ordinals Proves Demand On Bitcoin, But Fees Will Push Users To Layer 2

This is an opinion editorial by Steven Hay, a writer, former businessman and art dealer.

The Ordinals controversy is still smoldering and looks set to flare up again soon. However block space use of ordinals running down Released from March 23, 2023 remarkable collection And the growing frenzy for the BRC-20 token has reversed that trend.

Should competition for block space remain high among ordinals, BRC-20 tokens, and purely monetary transactions, fees will therefore increase as well. and, should fees climb high enough, the ominous hues of block size war may rise once more to torment all bit-kind.

case against ordinance

Fees aren’t the only flashpoint. While bitcoin has certainly been in negative headlines over the past few years, the protocol itself has thus far escaped the same level of blame-game. Exchange failures, drug sales, countless scams – all these things people have done Together technique rather than any intrinsic defect of the technique. Not so with Ethereum, where sketchy smart contracts are literally part of the machine.

Along with popularizing the integration of the ordinals bitcoin’s blockchain to all sorts of infamous ethereum innovations (like NFTs, tokens and, perhaps soon, altcoins). smart contract), increases reputational risk for the bitcoin protocol. How long is a token issued on bitcoin directly that passes how test And so get away with the US Securities and Exchange Commission?

Further in this regard, Ordinals also greatly reduce the barrier to introducing illegal or classified material into bitcoin’s blockchain.

For loss of user money due to rig pulls, bugs, hacks and takedowns, all these boxes are already checked under the Ordinals. most recently, Ordinals Finance On the Ethereum side of the ledger though, the $1 million rug was pulled. just before that, unisat botched the launch of its BRC-20s marketplace, resulting in costly double-spend attacks and a prolonged market stall. Earlier HeSeveral major marketplaces succumbed to legal pressure Yug Labs and removed the monkey-related collections.

Moreover, all these “hiccups” occurred against the background of one worm Searched within the all-important indexing system of ordinals. Lastly – and I hate to say this – further problems of this nature are anticipated. consider one of the largest Market by Users and VolumeOrdinals Wallet as well as the major OrderSwap marketplace both have in-browser keys local storage, according to what I heard on Discord Runs contrary to recommended security practices (to say the least).

I believe the above paragraphs summarize the case against Ordinals from the perspective of many Bitcoin extremists – among whose ranks I count myself, at least until Ordinals. chastity spiral Became insane. And while these concerns have merit, there is one particular complaint that I believe deserves to be unaddressed; That the ordinance is a scam.

When willing buyers and willing sellers exchange goods with informational isomorphism, without any claims made as to future price increases, well, that’s the definition of honest business – and it’s within the Ordinals marketplace. Current status is. prove me wrong.

in defense of ordinances

One point in favor of ordinals is that It is possible to deduce their content from the stored blockchain data., Sorting solves the bloat issue of blockchain file sizes, which is fairly trivial, given that I would expect the bloat to be easily outweighed by the development of affordable data storage. More importantly, pruning ensures that anyone running a full node can choose to store any illegal material (which, to be fair, existed on bitcoin’s blockchain long before the ordinals ).

With respect to the reputational and legislative risks to bitcoin arising from ordinals material stored on the blockchain, these can be mitigated – but not eliminated – by proper communication. The point must be hammered home (and not just to the ordinals) that bitcoin’s censorship-resistant and permissionless structure has some inevitable drawbacks that, on balance, vastly outweigh its advantages.

On the technical front, it is possible that post-traumatic stress from the blockchain war is leading some to view Ordinals as a big-blockchain-style attack on bitcoin’s base layer… Bcash and its As compared to the Lightning Network has more in common. Granted, content entry into Witness Data is happening as well, but that process is driven by fees…

fees? lightning? Let’s not move on to the resolution of this ordinals dispute!

As far as loss of user funds to cyber bandits or technical gremlins goes, such losses are likely to be limited due to the relatively small size of the Ordinals economy. In form of net worth The collection of all ordinances at the time of this writing currently stands at around 1,628 BTC, worth some $45 million, something at this level is unlikely to approach the scale of the infamous fiasco that has plagued crypto:

So much for playing defense. The fact is that Ordinals is attracting new users, developers, artists, and companies to the bitcoin space. This will surely have many benefits apart from an immediate boost to the value and reputation of the entire ecosystem. Onboarding more users of all types is the surest way to accelerate hyperbitcoinization. And if bitcoin succeeds, the world will be freed from the death grip of central banking – but let’s put our ruby-quartz visors back on and refocus.

While most early bitcoiners got on board because of technical curiosity or ideological inspiration, later waves of adoption were driven by economic factors. Many of these stuck around for later entrants because they realized Bitcoin is a revolution disguised as a get-rich-quick scheme, While we await the next bull cycle, Ordinal is attracting a new group of users, largely made up of young creatives.

Should we really be throwing away these hopes, letting shitcoins wander through the quagmire?

Solution

Ordinals has proven strong demand for bitcoin NFTs, tokens and smart contracts. While such things have been tried on bitcoin in the past through whatever confluence of factors, now the time is clearly ripe for them. A quick glance The number of inscriptions over time (currently more than five million after about five months) is sufficient to confirm this. The associated effect on fees has been equally clear:

Note that the last two peaks, around 2018 and the beginning of 2021, largely coincided with the resolution of bullish markets. Since January this year, the markets have been fairly calm and the latest spike is attributed to ordinals. This begs the question of how awfully high fees will get if current ordinal volume holds at the climax of the second bull cycle…

In my view, this is the only important issue presented by the Ordinances; An emerging problem with the potential to outweigh the benefits of promoting adoption. Together Fees reach nosebleed levels of over 600 sats per virtual byte (vB) As last seen in late 2017 and early 2018, bitcoin could be losing as many (or more) users to other chains as it gained from Ordinals.

The solution to the high fees at the time was the SegWit soft fork, which greatly reduced conforming transaction sizes and fees. SegWit also enabled the launch of the Lightning Network, a layer on top of bitcoin designed to process low-value transactions. A quirk of bitcoin is its flat fee and data structure, whereby the cost and block space required to send $1 in BTC is equivalent to sending $1 billion in BTC. Offloading low-value transactions to Lightning frees up block space, which in turn reduces bitcoin fees. In combination, these two upgrades ensure that fees remain reasonable when bitcoin reaches its all-time high in 2021.

So, why should the solution to the high fees arising from Web3 stuff on bitcoin be any different?

RGB, taro, A lot – All of these technologies are meant to separate Web3 transactions and data from the bitcoin blockchain and at layer 2. While the approach seen in ordinals and stamps to write material directly onto the base layer provides unmatched durability and immutability, it is also prohibitively expensive. For example, one artist I spoke with recently told me that he spent $3,800 to compose the collection. Especially in these tough economic times, that’s a lot for a young creative to gamble in an unpredictable market!

Consider that, as of this writing, 200 collections are tracked. ordinalhub have seen Zero All-time volume, as in no sales at all. This figure barely scratches the surface of market failures. Over 1,000 collections being sorted best in slot The inverted weekly sales volume reveals hundreds with zero sales. see for yourself How many low value collections on Ordinals Wallet had 0 volume or sales over the past week. Pending a proper analysis, my intuition is that less than one in 100 scrips listed on the market will make a profit.

The novelty of the Ordinals will fade, but the high cost will remain. Given that Layer 2 solutions do not store data on the blockchain, they will cost much less to build. high end collections, such as Asprey Bugatti EggMay still label Ordinals as a perceived luxury and maximum-sustainability option, but most manufacturers will still opt for cheaper alternatives linked to bitcoin, albeit indirectly.

Cost is not the only factor behind the inevitable migration of most users to Layer 2. The size constraints of bitcoin blocks make storing heavy content (such as high-resolution images or audio, complex code and all but the smallest video clips) ineffective or even impossible. To mark out. With generative AI making it easier to create high-resolution image content – ​​and soon audio and video content too – how long will the average creator go to pay a relative fortune to hammer text and small, static images?

base layer to layer 2

The way I see things playing out, Ordinals has proven market demand for bitcoin-based NFTs, tokens, DeFi, etc – as demanding as some may find it. Regardless, the cost and relative slowness of these assets at the base layer will eventually lead most users to layer 2 solutions, which are already nearing completion. The base layer will probably become the digital equivalent of the Louvre, housing only the most important works under tight security. Layer 2 will host everything else.

Ordinary opponents should pay attention. Twitter has only fueled hilarity and encouraged disobedience, condemning the attackers as hackers for adding monkey JPEGs to the blockchain. The inscription fee of $100 or even $25 is a far more effective disinfectant, which is already installed and does not require keyboard bashing. To mitigate the emerging threat of high fees, a proactive strategy would be to contribute or donate to the development of Layer 2 solutions.

This is a guest post by Steven Hay. The opinions expressed are solely his own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.