The appearance of the inscription rekindles an old debate about the “true” purpose of Bitcoin and its ability to become the money of the internet.
This is an opinion editorial by Stephan Livera, host of the “Stephan Livera Podcast” and managing director of Swan Bitcoin International.
So, we recently saw Bitcoin transactions taking almost all blocks and standard mempools (300 MB) get filled up. What happened to all this madness of Ordinals and inscriptions?
Quick Explanation
Ordinal is a way to track sats (bitcoin fractions) in a transaction. Now, I insist that this is the way to track sats, because it has no significant effect on the fungibility of bitcoin. As explained by the creator Casey Rodarmor in my podcast, it is a convention of the number of sats in the order they were mined into existence, and tracking them through transactions in the first in, first out (FIFO) method. So, since a Bitcoin transaction is made up of inputs and outputs, the first satoshi in the first input is considered to be transferred to the first output of the transaction. There are conventions around Ordinals that are uncommon, rare, epic, etc.
What is an Inscription?
Inscriptions are another convention created where sats can be written with arbitrary content, a kind of native digital artifact of Bitcoin or NFT. Using the convention, they can be sent around and stored in unspent Bitcoin transaction output (UTXO). Now, because they are coded in the way they are written to witness transactions, they never enter the UTXO set. UTXO set is seen as having a heightened insight for the network because per nodes (even pruned nodes) must maintain this set of UTXOs. So, I guess it could be worse…
What’s the Bull Case For Ordinals and Inscriptions?
For small steel people: The case of pro Ordinals and inscriptions can be broadly understood as: “Come for fun, rich art, stay for decentralized digital money.”
You can also agree with some criticism of shitcoin NFTs, and see this as a way of arguing that “Bitcoin is better” for example, Bitcoin inscription is immutable, always in the chain, simpler and safer than shitcoin NFTs.
Concerns Announced With Inscriptions
The main concerns here are:
- Reduced accessibility to transactions in Bitcoin due to inscriptions / NFT degens creating a backlog of transactions and paying a lower fee per real byte due to witness discounts.
- Reduced ability for users to run full Bitcoin nodes due to increased storage and bandwidth requirements
- The possibility of illegal material being recorded on the Bitcoin blockchain may discourage some users from opening Bitcoin nodes.
Of course, there are also counter arguments:
- Bitcoin will eventually develop a fee/blockspace market and this may help the long-term viability of the network. Inscriptions can only form a “low value backlog” of transactions.
- Bandwidth and storage costs have decreased over the years since 2017. Although, bandwidth over Tor may be a problem for those who synchronize full nodes in a more private way. You could also argue that everything is still within the conservative design limits that networks have effectively accepted in 2017.
- Illegal material on chain is always possible because you cannot stop steganography in bitcoin. Steganography is when you represent information in another message, in such a way that the information is not visible to normal human inspection.
Revisiting the Old Debate on Bitcoin: Purpose, Scale and More
Some argue that, “We shouldn’t raise the block size with SegWit and witness discounts in 2017” and, to some extent, this latest trend of Ordinals and inscriptions raises the same questions as the 2014 OP_RETURN battle.
What is Bitcoin for? And should arbitrary data unrelated to financial transactions be encouraged or discouraged on the Bitcoin blockchain?
Taproot Is Not To Blame
Some commenters initially blamed Taproot’s soft fork for the inscription. But Taproot seems to only save about 4% on inscription fees.
It is also important to note that this can happen with SegWit, and before with OP_RETURN and before, with fake signatures, as explained by Adam Back here:
Cultural Issues
Some ETH huffers and cRyPtO people like this time because, in their eyes, they can “keep it to the maximum” and the more “Bitcoin fundamentalist” persuasion, that is, people who believe that bitcoin should be money.
I’m closer to the “fundamentalist” camp myself, seeing the mission as about advancing bitcoin as money. And of course, after all the efforts of Bitcoin developers to optimize and use blockspace more efficiently, inscriptions on the chain seem wasteful and unnecessarily reduce the accessibility of Bitcoin for use in financial transactions.
Some argue that taking action against Bitcoin inscriptions is “censorship” and that it is wrong to see these transactions as “spam,” because 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 was designed to be censorship resistant and NFTs may have “begun in Bitcoin” in the past year, Bitcoin may be called apart about decentralized and peer-to-peer electronic cash.
Can This Trend Realistically Be Stopped?
Short of drastic action, probably not. At least, that’s what Andrew Poelstra wrote in a recent post on the bitcoin-dev mailing list:
It is also a mistake to be too reactive about the inscription and try to take some drastic action to soften the fork or make the inscription unviable on a technical level. There are arguably bigger fish to fry, such as helping to increase the adoption of Bitcoin as money and helping to encourage further decentralization in bitcoin custody, bitcoin mining, Bitcoin scalability and verification, etc.
Ossification? Not yet
Some even say that, “Oh, this is a mistake and we need to ossify the Bitcoin protocol now to stop another mistake.” I think this would also be a mistake. There are various soft fork ideas that are chosen, do not harm non-users and can help measure bitcoin’s own custody. For example, ANYPREVOUT or OP_VAULT.
ANYPREVOUT is particularly interesting to me because one day, with global adoption, we may have about 80,000 times the current transactional demand. In the world, ANYPREVOUT enables the upgrade to “Eltoo” Lightning, giving us a way to share the cost of on-chain transactions in a self-custodial way. If we want Bitcoin to be used in a more sovereign way, ideally we want people to be able to take their own custody of the chain. Without this, they may be confined to a custodial platform because the cost of custody itself is too high. Eltoo also has various benefits for Lightning, such as making backups easier.
Yes, we have to be conservative, but we also have to consider the technology that helps bitcoin be the best you can be in becoming digital hard money.
The line below
When I “tell” the inscription in the sense and prefer to be socially discouraged, I also do not think it is worth taking too much worry about it for now. For all we know, they can be a short-lived fad.
But even if they are not a short-term mode, what is the most likely outcome here? Inscriptions that are low in value are likely to be priced in financial transactions over time as Bitcoin is adopted by more people. It’s just that the Adoption happens in a “lumpy” way and it is concentrated into a period of high use (as seen in 2013, 2017 and 2021), and then a relatively long period of doldrums as the volume of transactions subsides, and new technologies and scaling techniques are applied.
Or as eloquently meme here:
Over the medium to long term, financial transactions will dominate Bitcoin. Other uses of Bitcoin will be subordinate to its use as decentralized money for the internet.
This is a guest post by Stephan Livera. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.