Despite concerns about the impact of Bitcoin Ordinals on the network, recent data from on-chain analytics firm Glassnode suggests that inscriptions are not displacing higher-value Bitcoin monetary transfers. In its weekly report titled “The Week On-chain,” Glassnode explained that users of inscriptions tend to set low fee rates, indicating that they are willing to wait longer for confirmations. As a result, inscriptions are buying and consuming the cheapest available blockspace and are readily displaced by more urgent monetary transfers.
Since their introduction in February 2023, Bitcoin Ordinals have accounted for the majority of network activity in terms of daily transaction count. However, this dominance has not translated into a significant share of mining fees, with inscriptions contributing to only about 20% of Bitcoin transaction fees. Glassnode provided a graph showing the distribution of inscription fees among different types of data, including images, text, audio, video, and other data types.
While inscriptions have increased fees for miners and strengthened the base-load demand for blockspace, Glassnode noted that Bitcoin’s hash rate has also increased by 50% since February. This has led to intense competition among miners for revenue fees, and the upcoming halving event is expected to test miners’ profitability unless BTC prices rise in the near term. With Bitcoin currently priced at $26,216, industry experts anticipate some degree of price appreciation ahead of the halving event scheduled for April 2024.
Most inscriptions currently come from BRC-20 tokens, which were introduced shortly after the launch of the Ordinals protocol by Casey Rodarmor. Rodarmor recently pitched “Runes” as a potential alternative to BRC-20s, proposing an unspent transaction output-based fungible token protocol that would reduce the number of “junk” unspent transaction outputs on the Bitcoin network.
In summary, despite concerns about network congestion, inscriptions are not taking blockspace away from higher-value Bitcoin monetary transfers. Their dominance in daily transaction count does not necessarily translate into a significant share of mining fees. However, the increasing hash rate and upcoming halving event may pose challenges for miners’ profitability. In the meantime, alternatives like Runes are being considered to address some of the limitations of current inscription protocols.