- BRC-20 token launched in Bitcoin in March 2023
- Transaction fees surge to all-time high in May 2023 as network activity spikes
- Bringing Memes and NFTs to Bitcoin Causes Controversy
- While some have argued that rising fees are essential to network security, others have ridiculed efforts to shy away from Bitcoin’s “vision.”
We live in a world of inflation. Food, rent, utilities, everything feels expensive. However, this is not limited to the fiat currency world. Bitcoin users are noticing a recent increase in fees. So why is this happening and what does it mean for Bitcoin? And what does this strange concept of Bitcoin’s NFTs have to do with it?
Bitcoin Fees Soar in May
First, to illustrate the surge in fees, let’s take a look at a chart showing Bitcoin fees over the last three years. Clearly, the vertical jump in the first week of May stands out.
Either way, bitcoin fees may rise in the future (more on that in a moment), but this sharp spike in May 2023 outlier is something I would never consider Bitcoin. It stems from things I never thought I would say. meme.
Specifically, the BRC-20 protocol, a token standard inspired by the ERC-20 tokens on Ethereum. To explain this, we must first look at Bitcoin ordinal numbers. Because this is what made it all possible. And yes, it’s all on the Bitcoin blockchain.
What is a Bitcoin Ordinal?
Bitcoin has always been considered a “pure” blockchain. There was no room for irreplaceability. This means that each Bitcoin is the same as another Bitcoin. No NFT nonsense here, thanks.
This changed in January 2023 when the Ordinal protocol was invented. Simply put, the Ordinals protocol is a system for marking each Satoshi, the smallest unit of Bitcoin (every Bitcoin is divided into his 10 million Satoshi). These marked Satoshi are tracked and can be distinguished from other Satoshi. This means that they are technically “irreplaceable”. And against all odds, we have (sort of) Bitcoin NFTs.
The inscriptions carved into Satoshi became known as ‘inscriptions’. These inscriptions were made possible by his Taproot upgrade to the Bitcoin network in November 2021. This protocol is known as Ordinal and is named after the fact that Satoshi’s remittance scheme relies on the order of transactions.
This all sounds a bit complicated, but it is very primitive and basic when compared to other blockchain NFTs. There are no smart contracts here. No sidechain needed. Everything is engraved directly on the Bitcoin blockchain.
What are BRC-20 tokens?
Two months after Ordinals went live, an experimental token standard named BRC-20 after Ethereum’s ERC-20 token was launched in March 2023. A fungible token within the Ordinal protocol. You may be wondering where this is going. The ability to trade fungible tokens within this protocol of Bitcoin?
The chart below shows the top 10 BRC-20 tokens by market cap. Many of these are memes, as you can easily guess by looking at the name.
(Side note – keen readers may be able to deduce that they are memes by the supply of these tokens. , enjoys empathy for Satoshi Nakamoto).
What does this have to do with pricing?
Now, let’s get back to pricing. The rise of Bitcoin ordinals has created an interesting dilemma. These imprinted Satoshi are now competing with traditional Bitcoin transactions for block space. The Bitcoin network sees a spike in fees because as activity increases, so do fees. As BRC-20 tokens proliferate, we have seen the Bitcoin network clogged up and fees skyrocketing.
This caused a discussion. Some oppose these higher fees, lamenting that NFTs and memes are a waste of time and prevent Bitcoin from being “what it should be.” On the one hand, fees are essential to the security of the Bitcoin network. Furthermore, in 2140, when he reaches the final supply of 21 million Bitcoins, miners will have to survive on fees only. In fact, as block rewards decrease with each halving, mining fees will become an ever-larger portion of miner revenues, and thus these fees are an important incentive for miners to keep Bitcoin hashed. It is the driving force behind power.
Personally, my view of this is more somewhere between the two extremes. I believe that these memes, NFTs, and anything else traded on the Bitcoin network are inherently worthless. Again, I’m not really into NFTs in general. However, we do not consider the increase in fees to be a problem.
The point here is that the hashrate is still rising. This contrasts with April 2021, another time when Bitcoin fees skyrocketed, with an average transaction cost on the network of a staggering $70. This is due to the hashrate crash and is of great concern for the security and stability of Bitcoin as a network.
This is different. Raising the price due to increased activity is fine. This is generally true regardless of memes, NFTs, or other transactions. It doesn’t really matter. Additionally, Bitcoin’s scalability issues are well-known, and skyrocketing fees have led more people to turn to solutions such as sidechains, such as the popular Lightning-His network, which batches transactions off-chain. However, there are several Layer 2s besides Lightning, such as Liquid and Rootstock.
There have been predictions for some time that the Bitcoin blockchain will become the underlying payment layer. What is probably more likely to be a fad, the existence of these tokens and ordinal numbers is relatively harmless and doesn’t require a big change in the overall scheme of things. Pricing and scalability issues will always exist, regardless of what causes them. And this is exactly why we have the Lightning Network and why people continue to innovate to come up with Layer 2 and other solutions.