TL;DR
It hasn’t happened often in recent years that an innovation pioneered on Bitcoin spreads to different chains. This has been the case with inscriptions. Inscribing ’empty block space’ with new tokens has become a frenzy in recent months, clogging chains like Avalanche and Arbitrum, to name just a few. What to make of this?
Some quick background. Inscribing data on the Bitcoin blockchain, to a package of data attached to a single Satoshi, has been possible since early 2023. These data can be anything from a JPEG to a video game, or: new tokens according to the BRC-20 standard.
These BRC-20 tokens are not to be confused with Ordinal NFTs on Bitcoin, even though they are made possible by the same innovation. The foundation of both is the Ordinals protocol, allowing one to track each Satoshi and inscribe ‘metadata’ to it, and thus be tracked and transferred. The first application was NFTs.
In April 2023, developer Domo invented a way to create fungible tokens using the Ordinals protocol: these are the BRC-20s.
The consequence? It has become easy to create your own coin on Bitcoin: give it a name using four characters and a total supply, and then start minting.
It’s just a token. Like a meme coin, it doesn’t ‘do’ anything – there is no smart contract functionality. But that hasn’t kept the first and largest BRC-20, ORDI, from reaching a 1.7 billion market cap at the time of writing. A Binance listing in November 2023 helped…
Give a bunch of degenerates the tools to mint coins named after themselves or their favorite pet, and… you get the picture: degeneracy will find a way.
Increased Transaction Fees
The popularity of inscriptions has led to increased transaction fees on the Bitcoin network, which impacts the economic sustainability discussions within the community. All this has sparked new debates about the purpose and use of block space, leading to a vibrant and evolving Bitcoin building culture.
You can see that, after a summer lull, BRC20-activity is back. On December 20, 2023, for example, almost one-third of fees paid to Bitcoin miners were related to BRC-20 and/or other Ordinals-related fees.
Bitcoin traditionalists don’t like this ‘nonsense’, of course. Bitcoin is supposed to be money, and not affiliated with an avalanche of fungible tokens and monkey jpegs.
Tensions are running high, with the two camps slinging insults at each other. There is speculation about whether the differing views within the Bitcoin community could lead to a fork, although at this point this doesn’t seem likely.
Inscriptions on Other Chains
Interestingly, the concept of Bitcoin inscriptions has spilled over to developer communities of other blockchains, notably Ethereum. This is notable as, in the past, innovations typically flowed from Ethereum to Bitcoin.
But why inscriptions on other chains? After all, inscriptions on Bitcoin were created as a workaround for Bitcoin’s lack of native support for tokens. But on any for example Ethereum compatible chain (Ethereum, Binance Smart Chain, Avalanche, for example) you can already create ERC20-tokens. So why the inscription-based tokens?
Well, creating ERC-20’s will cost you a few thousand dollars for the developer to show up, as it were. Smart contract development and testing, plus ensuring the…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
