The unexpected value of wasted space
If Bitcoin actually works as intended, there is no wrong way to use it.
Check out my recent op-ed in Bitcoin Magazine: Free as in Freedom is not Free as in Beer
The unexpected value of wasted space
The price of Bitcoin is up ~160% over the last year, but transaction fees on Bitcoin have risen even more sharply. As of writing, average Bitcoin fees are almost $30/tx, the highest they’ve been since the peak of the bull market in 2021.
Fees are so high that block #821,485 paid 7.315 btc in transaction fees, more than (and on top of) the 6.15 btc block reward. This isn’t the first time fees have ever risen above the block reward but it has been pretty rare so far and building a healthy market for transaction fees is critical to the long term health of the network. I personally consider finding enough demand for transaction fees to be Bitcoin’s most existential long term challenge, so the arrival of new demand for Bitcoin blockspace is (from my perspective) a welcome one.
Not everyone feels the same way. High fees mean it is more expensive to use the network. For people who work or depend on cost-sensitive use cases like banking the unbanked in the developing world, higher fees are painful and frustrating:
Most of this new demand is for ordinal inscriptions, which we’ve talked about before. Ordinal inscriptions are (very briefly) a way of sticking arbitrary data into the witness of a transaction and then associating that arbitrary data with a particular satoshi.1 There are (in theory) many ways to use inscriptions, but the main use case so far has been Bitcoin NFTs and BRC-20 memecoins.
Both of these are different ways of using blockspace as a resource directly. Bitcoin NFTs are vanity objects that flaunt the owner’s ability to pay for the space used to inscribe them. BRC-20 tokens are minted using proof-of-wasted-blockspace for distribution.2 The details differ but they both take up blockspace that would otherwise have gone to more traditional bitcoin transactions.
Effectively, an underground casino has emerged on top of Bitcoin and is using blockspace to build slot machines, pricing out other more cost-sensitive transactions in the process. To some people, using Bitcoin transactions to power an imitation DeFi economy is ontologically evil, a corruption of Bitcoin’s true purpose and a displacement of other more legitimate use cases:
It’s perfectly reasonable to consider gambling on frog pictures a less worthy use of scarce blockspace than helping people escape poverty — but the Bitcoin network does not prioritize transactions by moral worth. It prioritizes by market demand, and the market demand for gambling is enormous:
NFTs are already a symbolic flashpoint, so they naturally draw a lot of focus in the conversations about ordinals, but in practice image inscriptions are large and expensive and have mostly been priced out by smaller, text-based inscriptions like those that create new BRC-20 tokens.3 You can see that pretty clearly in this graph of inscription types over time — the colorful stripes represent larger inscriptions that are quickly squeezed out by smaller text-based BRC-20 inscriptions.
Every new generation of use cases crowd out the previous ones (or make them more expensive). Demand for Bitcoin blockspace keeps growing with every new user and use case, but the supply is perfectly unyielding. Tick-tock, next block.
This is actually not the first time that gambling transactions have dominated the Bitcoin network: at one point in 2013 more than half of all on-chain transactions were coming from SatoshiDice. Similar to the debate over ordinals today, many people considered SatoshiDice to be a denial of service attack on Bitcoin.