Ordinals - Summary of the Raging Debate

Bitcoin ordinals and other inscriptions are causing a buzz. Here’s a summary of the debate that has been raging for the past few days.

Some Figures

Ordinals are a type of NFT. They are embedded within bitcoin transactions through “inscriptions.”

To summarize, we are dealing with scam professionals hyping what they claim to be digital art. As always, it’s about selling themselves ever-more expensive junk, waiting for naive people to succumb to FOMO and take the bait.

Besides ordinals, we also have “rare sats” or the “brc-20” shitcoins. These represent the bulk of the inscriptions:

if you’re against arbitrary data storage on #bitcoin, that’s fine

but do actually know what is happening

the vast majority of inscription activity is (and always has been) related to minting of FUNGIBLE tokens (“BRC-20”) and NOT JPEGs and NFTs
(h/t @Data_Always) pic.twitter.com/lfIj8Dt0HG

— Alex Thorn (@intangiblecoins) December 17, 2023

brc-20s have replaced ordinals, which are much more block-space hungry. It is more profitable to create brc-20s given the current market capitalizations.

More than 160 million dollars have already been spent on inscriptions of brc-20s, which now back a 3.5 billion dollar bubble.

Thus the recent rise in bitcoin transaction fees. It cost $20 to insert a transaction into the next block at the time of writing.

Wow, Bitcoin transaction fees just hit their highest level of all time.

$23.6 million of fees in one day. pic.twitter.com/xZ1mgLDNDA

— Reflexivity Research (@reflexivityres) December 18, 2023

The hype around ordinal collections is also significant. It now weighs four times more than the next two combined NFT markets (on Solana and Ethereum).

Many turn a blind eye for the time being, but the majority still acknowledge that these inscriptions are a nuisance.

How did we get here?

Inscriptions, an Old Practice

It has always been possible to insert a bit of arbitrary data into the blockchain.

Satoshi Nakamoto, for example, inscribed the famous newspaper headline “Chancellor on brink of second bailout for banks” in the coinbase of the genesis block.

In 2013, the entire white paper was inserted into the utxo set. That same year, the lyrics of the song “Never gonna give you up” were inserted via the Op_Return script.

By the way, Op_Return outputs are a good place to insert data as they can be pruned by nodes. However, the available space is extremely limited.

All these types of inscriptions predate the soft forks SegWit (2017) and Taproot (2021). But they were light. Since SegWit, it’s possible to insert much heavier data.

SegWit is a major update inherited from the “Blocksize war.” It greatly facilitated the emergence of the Lightning Network.

More interestingly for our purposes, SegWit transactions are separated into two distinct sections. Signature data are stored separately in a section called the witness, which can hold up to 3 MB of data.

The maneuver’s goal was to increase the number of transactions in the second 1 MB section. Before SegWit, a block could contain up to 1650 transactions, compared to 2700 transactions today.

All to say that the witness allows for cheap inscription of ordinals. A SegWit transaction can reach up to 0.4 MB. Above that, transactions are filtered by the mempool.

Only a pool can insert a larger transaction (up to 4 MB). Moreover, some pools do not hesitate to sell this service opaquely, depriving miners of transaction fees in the process.

Where’s the Problem?

Since the beginning of February, about 20% of the 80 GB of block space has been squatted by inscriptions. We are even oscillating around 50% since their recent resurgence:

Les transactions comprenant des inscriptions (ordinals, BRC-20, etc…) continuent de coloniser les blocs. pic.twitter.com/QxhmZR3efe

— Nicolas Teterel (@NTeterel) December 19, 2023

The problem is that it takes up space for nothing. The blockchain grows faster than normal (535 GB). And the more expensive in memory a node is, the less decentralized bitcoin becomes.

That said, only the full nodes are concerned. Others can prune the data contained in the witness.

Some argue that it’s better for these floods of shitcoins to pour in there rather than into the utxo set. This is precisely what the STAMPS protocol allows to do. The problem then becomes twofold.

Not only can these data not be pruned, but they also increase the need for RAM. Nodes indeed keep the entire utxo set to rapidly verify transactions.

The operating principle of the Stamps protocol is to encode the jpegs into a Base 64 string. This string is placed after the “stamp” suffix inside the transaction, posing as keys for “bare multisig.”

This stamp can be decoded into an image and downloaded on stampchain.io for users to view. We have recently exceeded the bar of 150,000 stamps, half of which have been inscribed in the last few weeks.

In the meantime, while the debate rages on about what should be done, the Ocean pool is offering miners the option to filter all this out.

Ocean Restores Power to Miners

The debate about inscriptions intensified when the Samourai wallet realized that the ocean pool was filtering its coinjoin transactions. Much ado about nothing, as it wasn’t actually Luke Dash Jr.’s intention.

Ocean simply uses the Knots client instead of Bitcoin Core. With Knot, the free Op-Return space is smaller, which poses a problem for Samourai that oddly uses this space for its coinjoin transactions.

Here’s a balanced explanation for English speakers:

⛏️ Has mining pool centralization finally gotten out of hand? Are concerns overblown? Is OCEAN a panacea?

👇 In my latest video we discuss: pic.twitter.com/Pg9mPradKe

— Ian Major ⚡️ 🌋 (@ian__major) December 18, 2023

Bit by bit, the debate shifted back to inscriptions. Some believe that moving shitcoinery on-chain is a DOS attack. The unpleasant consequence being that transaction fees could remain high until the bull run ends.

An attack that’s also free of charge since it’s funded by the hundreds of thousands of naive individuals manipulated through the same social engineering tactics used to sell NFTs and shitcoins.

A solution came from the ocean pool, which offers to filter the inscriptions, and has been accused of censorship as a result. Which is quite ridiculous when we know who Luke Dash Jr. is.

Mining pools can be accused of censorship as the hashrate doesn’t belong to them. But can a miner truly be accused of censorship? “Proof-of-work is essentially one-CPU-one-vote,” says the white paper…

By adopting Stratum V2, the ocean pool gives miners the ability to choose the transactions themselves, whether they contain inscriptions or not. Each miner will be free to filter the inscriptions.

Finally, note that the Ocean pool has the good taste to be No KYC and to redistribute the transaction fees directly via the coinbase.

It is hoped that the Ocean pool will grow in success when the OFAC comes knocking on its competitors’ doors. That would be real censorship, and not honest efforts to contain a new unforeseen vulnerability.