Despite concerns that Bitcoin Ordinals are causing network congestion, there is limited evidence to support the idea that inscriptions are displacing higher-value Bitcoin monetary transfers, according to the recent report by on-chain analytics firm Glassnode on September 25.
The primary reason for this phenomenon is that inscription users often opt for low fee rates, showing a willingness to wait for longer confirmation times.
In essence, they are choosing to buy and utilize the cheapest available blockspace, making them more susceptible to being displaced by more time-sensitive monetary transfers.
Introduced in February 2023, Bitcoin Ordinals have become the dominant force in terms of daily transaction count on the Bitcoin network.
However, this hasn’t translated directly into a substantial share of mining fees, accounting for only approximately 20% of Bitcoin transaction fees, as observed by Glassnode.
While inscriptions have increased the baseline demand for blockspace and subsequently raised fees for miners, there has also been a notable 50% increase in Bitcoin’s hash rate since February.
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This heightened competition among miners for fee revenue, combined with the impending halving event, is putting pressure on their profitability unless Bitcoin prices experience a significant increase in the near future.
Currently trading at $26,216, Bitcoin’s price is expected to appreciate to some extent leading up to the scheduled halving event in April 2024, as anticipated by industry experts.
It’s worth noting that the majority of inscriptions are linked to BRC-20 tokens, introduced just one month after Casey Rodarmor launched the Ordinals protocol on Bitcoin in February.
On September 25, Rodarmor proposed “Runes” as a potential alternative to BRC-20 tokens.
He suggested that an unspent transaction output-based fungible token protocol like Runes would help reduce the accumulation of “junk” unspent transaction outputs on the Bitcoin network, potentially alleviating some of the concerns surrounding Bitcoin Ordinals and their impact on network congestion.
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