It’s possible that Bitcoin (BTC-USD) will experience another civil war. Although it wouldn’t be the first internal battle the Investment community has seen, this one might have an equal amount of influence. The belief that Bitcoin is a financial system free from censorship and usage authorization is in many ways what has given the concept of Bitcoin credibility.
However, the Bitcoin community encounters an internal challenge every few years, and I think we are currently facing a fresh one that may ultimately lead to a much deeper discussion about what Bitcoin and what its future will entail. In this post, we’ll examine what Ordinals is, why it exists, why it’s contentious among Bitcoiners, and how a conflict over Ordinals can ultimately affect the price of Bitcoin.
What exactly are Ordinals?
Basically, Ordinals is a Bitcoin NFT project. When blocks are created, it generates a numerals for every satoshi mined. A satoshi, also known as a sat, is the smallest element of division of a Bitcoin. At $24K BTC, each of them is worth a small portion of a penny. These sat identifiers cause some sats to possess more unique or unusual numerical qualities than others – similar to how paper dollar notes can be collectible relying on unique serial numbers.
By inscribing on this newer satoshi numbering system, Ordinals are now using Bitcoin’s block space to construct NFTs. Software developer Casey Rodarmor founded Ordinals after realizing the demand for NFTs that are kept on blockchains rather than off-chain.
This is a valid concern, and I’ve also looked into it in Blockchain Reaction. I’m not opposed to Bitcoin being used in other ways that are a little more interesting than just “stack sats and hope the price goes up,” even if I think there is a perfectly workable solution to the off-chain data problem that does not require using Bitcoin’s block space for monkey jpegs.
Some Prominent Bitcoin Voices Disapprove of This
The Bitcoin community is divided over how to best use the chain’s block capacity and which kinds of transactions are legitimate in light of Ordinals. For the purists, Ordinals is practically unacceptable and goes against Satoshi Nakamoto’s wishes, the man who created Bitcoin. That argument does have some merit. Due to the scalability issues that would arise from trying to cram too much data into a limited block size, Satoshi Nakamoto was not on board with the proposal to provide a DNS-like service using Bitcoin back in late 2010. Nakamoto stated the following in the Bitcoin Talk forum at the time:
BitDNS and Bitcoin can both be used independently. Users shouldn’t need to download both in full to use either one. Users of BitDNS might not want to download everything the subsequent cluster of unconnected networks decides to add either.
The idea that Bitcoin should be protected from potential spamming of the block space has even led some Bitcoin developers to consider the possibility that miners could censor transactions related to Ordinals; this would be a huge deal if it happened, as it could be argued that censoring what occurs on the chain goes against the original ethos of Bitcoin. However, censoring transactions on-chain would not be the first time Bitcoin has failed to strictly adhere to its original intent.
The Previous Civil War
Bitcoin’s original goal was to be a peer-to-peer payment network, but that has simply not happened. Indeed, one could argue that the HODL approach to Bitcoin works against the development of true utility through usage. In my opinion, one of the main reasons why some members of the Bitcoin community have taken a HODL approach to Bitcoin is that using the network for peer-to-peer transactions at the base layer is not feasible at scale. This is why the “Bitcoin is digital gold” narrative has surpassed the “Bitcoin is digital cash” narrative.
The Lightning Network exists because Bitcoin’s incapability to scale at the base layer. And the scaling issue is also the reason Bitcoin Cash (BCH-USD) exists. BCH is the result of the previous Bitcoin civil war, which consisted of two camps: “big blockers” and “tiny blockers.” At the time of its creation, BTC had a 1 megabyte block size limit. This is very small and only did allow approximately 7 transactions each second on the base layer chain.
The core developers debated increasing the block size from 1 MB to 20 MB in the years leading up to the 2016 halving. This maneuver was contested, and the “small blockers” eventually prevailed. The “big blockers” forked BTC and created BCH, a chain with an 8 MB block size limit. That brings us to the possibility of yet another Bitcoin fork. Is Ordinals a contentious enough topic that it could lead to another Bitcoin fork? I don’t think I’d go that far just yet. However, this debate over block space could potentially escalate in a different way.
It is more likely that there will be a fee war.
When a user wants to create an Ordinals NFT, they must pay a higher transaction fee in order for the data to be inscribed in a Bitcoin block. If Ordinals is successful, we will see an increase in transaction fees paid to Bitcoin miners. Those fees are typically a very small percentage of the total block reward, but that percentage has begun to rise since Ordinals was launched .
If Bitcoiners who oppose the Ordinals project want to stop network spam with a true free market remedy, they’ll ought to begin to use the base layer chain more often and be prepared to pay transaction fees large enough to incentivize miners to prioritize their transactions.
The risk of a fee war is that transaction fees get so onerous that only extremely large value transactions can take place on the chain. This could theoretically make it less appealing to open Lightning Network channels, slowing adoption of the chain’s scaling layer.
