So... now that the fuss has died down a little bit, I have had a bit of time to think and hear more about Ordinals (aka. NFTs on Bitcoin). For those who haven't heard the hype and shrillness from CryptoTwitter and those who know what they need to talk about to get the clicks... well, Ordinals is a way of implementing NFTs (data storage) on the Bitcoin blockchain, and it was enabled by Taproot fork that happened in 2022.

Now, my first impression was similar to many of the more hardcore Bitcoiners... this is bad for Bitcoin. Clogged blockspace and well... I'm still not sold on the idea of NFTs as they stand, and when they are essentially making some sats even more non-fungible (sats already have a history which is technically non-fungible, but close enough) and people were exchanging multiple sats for... one sat? It did make me think, what is the purpose of this... Bitcoin will have lost its way with whatever it was being designed to be doing. Store of value, right?

However, many of the hardcore Bitcoiners came on the side of proposing that miners censor Ordinal transactions... so, a sort of social layer governance. But that is completely at odds with the ethos of Bitcoin (but not all chains...) in that... if it is possible, then it is possible. Plus, it really exposed one of the problems with Bitcoin... that being, the miners are really one the ones with the real power here. You would need a majority of them to agree to this to have it work... and when the economic incentives for including an Ordinals block is far better than the zero of NOT doing it then you have a problem. And that is the problem of best wishes, hopes, and dreams versus real economic incentives.

So, censorship is really out the question... which leads to... is this going to be a net good or bad for the Bitcoin network?

The first part of this balance is that is the negative... congested blockspace being taken up by "non-economic" transactions. That is poop for the network... IF it is designed to be a pure store of value or currency.... and I think that is what most of the hardcore Bitcoiners thought, and it was my first instinct as well.

However, if we look a little bit deeper... the incoming problem of reduced miner subsidies for securing the network (the issuance or the coinbase) is decreasing faster than the fees from block inclusion are increasing. This means that UNLESS Bitcoin gets a huge hike in usage... well, this is going to go bad as miners will not be incentivised to secure the network in a manner that is economically rational.

... but Ordinals HAVE suddenly pushed up the usage of Bitcoin... and the fees paid to miners for inclusion have also gone up significantly! This means that these NFTs MIGHT be the solution to the longer term block reward vs transaction fee problem... the only question is, is this sustainable... or is it just a flash in the pan that will die out and leave the problem unsolved?

My sense is that most of the Ordinal activity is NOT sustainable... and that it is mostly coming from people that are more interested in other chains, and either inscribing Ordinals to troll... or just out of curiosity.

So... in the end, this Ordinals thing will die down... and I think it will die out. Perhaps there will be future waves of hype activity again... but I don't think that this will be the solution to the longer term problem of Bitcoin's security model.

... but as always... hedging!

I can also be found cross-posting at:
Hive
Steem
Publish0x

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