Inscriptions: Just a Fad or a Real Threat to Bitcoin as Decentralized Money?
The flood of inscriptions raises old debates 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 CEO of Swan Bitcoin International.
So we recently saw that a bitcoin transaction occupies almost an entire block and Standard mempools (300 MB) are populated. What is this obsession with ordinals and inscriptions all about?
Ordinals are an invented way to track sats (a fraction of a bitcoin) across transactions. Well, I stress it’s a made up way of tracking sats as it doesn’t significantly affect bitcoin’s fungibility. As creator Casey Rodarmor explains in my podcast, it’s a convention to number sats in the order in which they came into existence and track them across transactions on a first-in, first-out (FIFO) basis. Thus, since bitcoin transactions consist of inputs and outputs, the first satoshi in the first input is considered transferred to the first output of a transaction. There are conventions about which ordinals are uncommon, rare, epic, etc.
<figcaption><em>Quelle</em></figcaption> </figure><p> </p><h2>Was ist eine Inschrift? </h2><p>Eine Inschrift ist eine weitere erfundene Konvention, bei der Sats mit beliebigem Inhalt beschriftet werden können, eine Art Bitcoin-natives digitales Artefakt oder NFT. Unter Verwendung der Konvention können sie herumgesendet und in einer Ausgabe von nicht ausgegebenen Bitcoin-Transaktionen (UTXO) gespeichert werden. Da sie nun so kodiert sind, dass sie in Transaktionszeugen geschrieben werden, gelangen sie nie in den UTXO-Satz. Das UTXO-Set gilt als erhöhte Aufmerksamkeit für das Netzwerk, weil <em>jeden</em> Knoten (sogar beschnittene Knoten) müssen diesen UTXO-Satz beibehalten. Also ich denke es hätte schlimmer kommen können...</p><h2>Was ist der Bull Case für Ordnungszahlen und Inschriften?</h2><p>Um den Fall ein wenig zu stählen: Der Fall pro Ordnungszahlen und Inschriften könnte allgemein verstanden werden als: „Komm für den Spaß, reiche Kunst, bleib für das dezentrale digitale Geld.“
You might also agree with some of the criticisms of Shitcoin NFTs and see this as a way to argue that “Bitcoin does it better”, e.g. B. Bitcoin inscriptions are immutable, always on chain, simpler and more secure than Shitcoin NFTs.
Concerns expressed with inscriptions
The main concerns here are:
- Reduced accessibility to transactions with Bitcoin due to inscription/NFT degens creating a transaction backlog and paying a lower fee per real byte due to the witness rebate
- Reduced ability for users to run a full bitcoin node due to the increased storage and bandwidth requirements
- The possibility of illegal material entering the Blockchain being absorbed by bitcoin, which may discourage some users from running a bitcoin node
Of course there are also counter-arguments:
- Bitcoin eventually wanted to develop a fee/blockspace market anyway, and this could contribute to the long-term viability of the network. Enrollments can only form a “minor backlog” of transactions.
- Bandwidth and storage costs have come down over the years since 2017. Although bandwidth over Tor can arguably still be an issue for those syncing a full node in a more private way. It could also be argued that everything still falls within the conservative design boundaries that the network effectively embraced in 2017.
- Illegal material on the chain has always been possible because you cannot completely stop steganography on Bitcoin. Steganography is when you represent information in another message in a way that the presence of the information is not obvious to normal human examination.
Revisiting Old Debates in Bitcoin: Purpose, Scaling, and More
Some argue that “we shouldn’t have increased the block size with SegWit and the witness discount in 2017,” and to some extent this latest trend in ordinals and inscriptions raises similar questions to those in the OP_RETURN wars of 2014.
What is bitcoin for? And should arbitrary data not related to financial transactions be encouraged or discouraged on Bitcoin’s blockchain?
Taproot is not to blame
Some commenters initially made the Taproot-soft-fork responsible for inscriptions. But Taproot only seems to save about 4% on the cost of inscriptions.
It’s also worth noting that something like this was possible with SegWit, and before that with OP_RETURN, and even before that with fake signatures, as explained by Adam Back here:
Some ETH-Huffers and crypto people are enjoying this moment because they can “hold it to the maxis” in their eyes and those of a more “bitcoin fundamentalist” persuasion, i.e. the people who believe bitcoin should be money.
I myself am closer to the “fundamentalist” camp and see my mission as promoting Bitcoin as money. And after all the efforts of bitcoin developers to optimize blockspace and use it more efficiently, the inscriptions on the chain appear to be wasteful and unnecessarily reducing bitcoin’s accessibility for use in financial transactions.
Some argue that taking action against bitcoin enrollments is “censorship” and that considering these transactions “spam” is wrong since they pay a bitcoin transaction fee. But in the end it comes down to the purpose of the project. Yes, while it is true that Bitcoin is designed to be censorship resistant and that NFTs arguably “started with Bitcoin” in years past, Bitcoin arguably is destined to be more via decentralized and peer-to-peer electronic cash.
Can this trend realistically be stopped?
Probably not without drastic measures. At least, that’s what Andrew Poelstra spelled out in a recent post on the Bitcoin Dev mailing list:
Source: Crypto News Deutsch