How to fix Ordinals pushing Bitcoin into a congested version of Ethereum?

Nobody expected the Taproot upgrade to cause a surge in NFTs and memecoins on Bitcoin. Will they survive? Or can we fix the problems they raise?

The launch of BRC-20 tokens and Ordinals NFTs on Bitcoin turned the blockchain into a congested version of Ethereum overnight.

Core developers and miners never expected this outcome when they signed off on the network's Taproot upgrade in November 2021. Bitcoin is suffering from many of the same issues that have plagued ethereum for years, including memecoins, monkey-picture NFTs hogging block space, and skyrocketing transaction fees.

The network even had to deal with miner extractable value (MEV), where miners profit by reordering pending transactions.

” said Mati Greenspan, founder of Quantum Economics, a little annoyed that I didn’t realize it until these guys started bragging about JPEG images on Bitcoin: ‘Oh my god, what the hell did we do? Mati Greenspan from 2013 It is the holder of Bitcoin.

Some bitcoiners have referred to the impact of Ordinal NFTs and BRC-20 tokens on Bitcointalk and Twitter as an attack on bitcoin, an exploit on Taproot, or simply spam clogging the network.

This has sparked intense debate about whether there are unintended consequences of license-free agreements and whether steps are needed to undo them.

Why are bitcoin fees so high?

The BRC-20 token was launched by anonymous developer Domo on March 8. They use Ordinal based on Java Object Notation (JSON) data to deploy token contracts, mint tokens, and transfer tokens. It has been argued that this is highly inefficient and that transaction fees are four times higher than using binary.

In addition to being inefficient, there has also been a gold rush for minting memecoins. Someone would deploy a contract with a new token's ticker and maximum supply, and traders would race to mint as many tokens as possible, on a "first come, first served" basis, to get the priority rate. The tokens already have a market cap of more than $1 billion, though Domo said they would be worthless.

But they’re here to stay – at least in the short term – as some major wallets have started supporting BRC-20 tokens. And some new developments, such as the launch of the Uniswap fork that traded $500,000 in "BRC-20" tokens (SBRC-20) in a few days, show that building a new permissionless ecosystem on Bitcoin will Continuous development.

Exorbitant Fees Lose Hope for the Unbanked

Greenspan noted that while the surge in interest has seen bitcoin transactions reach an all-time high, the number of unique addresses has plummeted, meaning fewer people are accessing the network. While transaction fee revenue has surpassed block rewards — which many believe is the only way to ensure Bitcoin’s security after several other halvings — it has also created a host of problems.

“Talked to a miner yesterday and he said he doubled his income, which is good, especially before the halving, which is good for the miners, but a disaster for countries like Nigeria and El Salvador, all of a sudden The average cost of sending a transaction in time becomes $30, temporarily delaying the dream of financial inclusion on Bitcoin for the unbanked.”

Interestingly, this is not the first time someone has launched a token or NFT on Bitcoin. Counterparty is leading the way by launching NFTs on Bitcoin, including Spells of Genesis and Rare Pepes in 2015 and 2016. Additionally, the stablecoin Tether also launched a token on Bitcoin in 2014 through the Mastercoin protocol (which later became Omni).

Bitcoin Geek Calls for Ban on Spam

On Bitcointalk, there has been extensive discussion on how to deal with an “attack on Bitcoin,” which some claim is the work of malicious Bitcoin SV developers. Users discussed a soft fork to "enforce the Taproot verification script size limit," how the protocol would filter content they deem "spam," and even a hard fork to revoke Taproot.

Bitcoin developer Luke Dashjr said, "Action should have been taken months ago. Spam filtering has always been a standard part of Bitcoin core, and it has existed since day one. It is a problem that existing filters do not extend to Taproot transactions. Bug, because this is just a bugfix, there's really no need to wait for a major release."

Checkmate, a mainchain analyst at Glassnode, believes that such censorship is contrary to the overall philosophy of Bitcoin, noting that there are already optional mempool rules that can filter Ordinal if node operators choose.

“Any attempt to ban or censor these transactions is more of an attack on Bitcoin than allowing them to exist. They conform to the consensus rules, and that’s a real attack when a small group of people try to change the rules to prevent something they don’t like.”

Restricting transaction types is not censorship in order to ensure the health of the network, Chris Blec suggested on Twitter. "If it's not about the content of the message or who sent it, it's not censorship."

Hass McCook, a former member of the Bitcoin Mining Council and a staunch Bitcoin supporter, is not a fan of Ordinals, but thinks trying to get rid of them is overkill, saying:

"The only thing more important than bitcoin is freedom. My personal opinion is that I don't like it and don't think it has value. But I don't want to censor it. I think it could go down a very dark path .”

"If a protocol allows for a certain behavior, and someone is willing to pay for it, then it should exist."

Cannot ban Ordinal

Andrew Poelstra, director of research at Blockstream, is one of the inventors of Taproot. He also doesn't like the "toxic" offspring of this upgrade, but he doesn't see any practical way to stop them.

“As far as I know, there is no reasonable way to prevent people from storing arbitrary data in witness data without incentivizing worse behavior and/or undermining legitimate use cases,” he wrote.

He noted that it is "impossible to ban 'bad data'" and that one could hide junk data inside useful data, such as "false signatures or public keys".

"Doing that would cost them 2x, but if 2x is enough to incentivize storage, then there's no need for this discussion because they'll be forced to stop because of competition in the fee market."

Ignore them, they will disappear

The best-case scenario — and the one most likely to happen to those interviewed for this article — is that interest in these tokens and NFTs wanes as memecoins fade away.

“Congestion on the Bitcoin network is nothing new? It usually comes with the hype, but when the hype ends, it subsides.” The most likely scenario is that people will run out of funds.

However, if Ordinal continues to have a huge impact on the network, there is always the option to fork Bitcoin using the core choice to modify or remove Taproot. Blec and many others have raised this possibility, although it seems mostly hypothetical so far.

Fork Bitcoin to get rid of Ordinal

Greenspan said that while a hard fork could always be implemented, "it would split the network. Nobody wants to do that."

McCook said that in the scaling wars of 2017, the market chose Bitcoin over Bitcoin Cash or Bitcoin SV, predicting that the current version will defeat the fork with Taproot.

“I would go for the Ordinal version. So, even though I don’t think Ordinal has any value, maybe I need to inscribe some absolutely censorship-resistant information in the future, which would be very useful,” he said.

This can have very powerful effects. For example, Julian Assange's decision to make his WikiLeaks information publicly available as an inscription is a very useful thing to do. "

Greenspan also believes that the benefits of using bitcoin to store data are only just beginning to be explored.

"Now people realize that Bitcoin has the ability to store files. I'm looking forward to seeing what forward-thinking developers do."

Making Tokens Better

"I believe that better design choices and optimization improvements can almost certainly be made," Domo said in announcing the BRC-20.

Many people agree with this view. One of the easiest improvements is to use binary instead of the JSON format, which developer John W. Ratcliff considers "one of the least efficient data formats anyone can possibly use." He believes this will reduce the size of BRC-20 tokens from 89 bytes to 19 bytes.

“This means they are paying more than four times what is necessary to submit these BRC-20 tokens,” he said.

Colin Harper, a researcher at the Hashrate Index, said that using binary code "can reduce bandwidth by as much as 80 percent." However, as Bitcoin influencer Udi Wertheimer pointed out, this does not completely solve the problem, because the surge in fees is due to the token Minters race to raise fees to prioritize access to lower serial number tokens before the supply runs out.

There is another way to issue assets on bitcoin, called Taro, which Domo says is “a better solution.” Taproot Assets says the overlay is a proposed protocol that will allow people to issue digital assets on top of Bitcoin and make fast and cheap transactions over the Lightning Network.

Building a Virtual Machine on Bitcoin

Taking a more aggressive and experimental approach, Trustless Computer launched a Uniswap v2 fork called Trustless Market, which saw $500,000 worth of transactions in its first three days.

The project’s documentation states that they are developing a Turing-complete virtual machine called BVM, built on top of Bitcoin, to enable the DeFi ecosystem.

Core team member @punk3700, this is "not a second layer, but a 'protocol within the first layer'", which works like Ordinal, but uses SBRC-20 tokens.

Instead of writing "text files to Bitcoin", Trustless Computer writes smart contract transactions to Bitcoin. This, he claims, will reduce the bandwidth required for tokens by 80%-90%.

"I think BRC-20 in its current form (using a text file) is just a blip," he said. "You can't build a scalable alternative financial instrument with pen and paper."

“Our SBRC-20 implementation is different. We use smart contracts, the same as the ERC-20 smart contracts on Ethereum. It works exactly as it’s supposed to.”

"Ordinals is just version 0.1 implemented on Bitcoin. Trustless Computer shows that you can build a complete DApp ecosystem on Bitcoin."

He expects to soon see the deployment of MakerDAO, Aave, Compound, and other smart contracts, which, if he follows his claims, will be hugely transformative for Bitcoin.

While the project has received coverage in other major cryptocurrency news outlets, Magazine has not verified that their technology works as promised, and the extent to which smart contracts can be integrated with Bitcoin is debatable, so proceed with caution.

Can we scale Bitcoin with ZK-rollups?

The influx of NFTs and tokens on Bitcoin shows that the blockchain is still unable to meet the growing demand, which means that the more popular it becomes, the worse it becomes.

The Lightning Network is often touted as the solution, but Nostr founder Fiatjaf pointed out that it was unable to cope with the recent surge in fees. “Channels are too fragile, expensive to open in a high-fee environment, run routing nodes, etc.,” he wrote, saying users had to rely on centralized Lightning providers.

Greenspan believes that gradual scaling is the only security solution to ensure Bitcoin remains attack-proof.

Various parties, including StarkWare and blockchain researcher Eric Wall, have been investigating the use of zero-knowledge (ZK) rollups to scale bitcoin, which is ethereum's plan to solve its similar challenges.

But ironically, while Ordinal’s surge in demand indicated the need for further scaling, it also significantly reduced the likelihood of the community agreeing to a new hard fork to enable ZK-rollups.