Bitcoin network collapse
The frenzy in the blockchain happened quite spontaneously, mainly due to the sharp increase in BRC-20 transactions, including the sale of NFTs based on Bitcoin. Although the phenomenon itself is not new, as the Ordinals project opened up the possibility of placing any data directly in the blockchain as early as January 2023, it only started gaining popularity now.
Let's understand what this is and why it is needed.
Ironically, the Bitcoin updates that were supposed to speed up its operation and increase security – SegWit and Taproot – have now led to a situation where hundreds of thousands of transactions have been stuck for several days.
Today's developments became possible because the SegWit update increased the block size in the Bitcoin blockchain from 1 to 4 megabytes by moving the signatures out of the main information block and into separate blocks. And thanks to the activation of Taproot, it became possible to include data of any size in transactions. As a result, these two improvements allowed for the transmission of almost any information through the blockchain.
Originally, a relatively harmless BRC-20 technology was developed, named in analogy to token standards in other blockchains (such as ERC-20 for Ethereum, TRC-20 for Tron, etc.), which involved the creation and transfer of other tokens in the Bitcoin blockchain. Technically, it looked like blocks of information with the token name and the transfer amount.
However, later on, developers from the Ordinals project figured out how to record any digital information, not just text, including images, music, 3D models, and so on, in the area intended for transaction verification. In other words, full-fledged NFTs appeared in the Bitcoin blockchain.
Unlike solutions on blockchains that support smart contracts, where data is stored separately on the servers of the platforms that issued them, and the tokens are just digital pointers to those files, the solution for Bitcoin involves directly recording all the information in the blockchain, thereby making the information guaranteed immutable.
Casey Rodarmor, the developer of Ordinals, is convinced that the development and popularity of his project are only beneficial for the first cryptocurrency.
Independent Bitcoin developer and consultant Udi Wertheimer also believes that Ordinals provides incentives for miners, making the blockchain more secure, which is especially relevant in light of the upcoming halving, which will reduce miners' rewards and potentially diminish their interest.
It should be noted that mining companies have enthusiastically welcomed this emerging trend. NFTs created using Ordinals have already increased miners' revenues from fees and filled blocks from 25-50% capacity to 80-90%.
For the first two months since the launch of Ordinals, about 13 BTC were spent on NFT transactions, and Bitcoin network activity reached its maximum since the spring of 2021.
However, not all members of the crypto community are satisfied with what is happening. For example, Bitcoin Core developer Luke Dash Jr. referred to assets based on Ordinals as "garbage" and hinted at the need to activate a "spam filter" that would block the ability to record NFTs in Bitcoin blocks.
Adam Back, CEO of Blockstream, shares a similar opinion and strongly criticized assets based on Ordinals, using explicit language.
However, despite the criticism from serious developers, it seems that the majority of the community currently holds the position of complete independence from censorship, as eloquently formulated by Gamma.io founder Jamil Dhahani.
"As Bitcoin is an open, publicly accessible system, anyone can send a transaction with any data as they see fit. And we have seen incredible creativity and a multitude of innovations aimed at pushing the first cryptocurrency beyond its initial scope of use," Dhahani shared his thoughts.
In conclusion
While disputes between the two camps of developers continue, the Bitcoin blockchain remains in a challenging situation. Many were not prepared for such a sharp increase in fees, from 10-20 satoshis per byte to over 80-100 satoshis per byte for the same processing speed. And as long as interest in BRC-20 remains high, the transaction queue will continue to exist, and new transactions will become more expensive.
To protect yourself from similar issues in the future, you can transfer a large portion of your everyday transactions to Lightning Network channels and prudently send the remaining transactions in the main blockchain with the "replace-by-fee" parameter enabled, if your wallet supports this feature.
