BRC-20 and Bitcoin NFTsA new era for Bitcoin?

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NFTs are rising on BTC! Over half a million BTC transactions are blocked and unconfirmed! Txn fees exceed $40! The people of El Salvador and Africa are unable to buy their daily bread! how to censor some txns from the uncensorable blockchain! All transactions are equal, it is said, but some transactions are more equal than others1, it seems. The big block narrative, dormant since 2017, seems to be enjoying a revival

Boy, it’s been a busy week in Bitcoin, and yes, all of the above have happened over the days.

How? For what?

How: Thanks to Taproot changes rolled out last November, it is possible to integrate more than the standard 80 bytes of data per txn onto the BTC blockchain (which was hotly debated in the BTC dev community as recently as February of this year, while other Bitcoins2 have supported since 2017). Some smart people have figured out how to wrap encoded data in the txn and create the Ordinals project, which outlines the process by which you can create NFTs on the BTC blockchain. Almost overnight, the BTC network exploded with activity, and since BTC had staked its scaling model on Layer 2 solutions like Lightning Network, network performance slowed, forcing even Binance to stop withdrawals on BTC.

This results in txns backups causing confirmations to take longer and longer while average charge rates increase more and more.

Why: This is all simply because the use of the Bitcoin network has exploded. Block space supply could not meet the sudden surge in demand as fee rates hit an all-time high of $80 to process a Bitcoin transaction. BTC experienced its first block in its history where the aggregate txn fee exceeded the total subsidy reward (6.25 BTC). While BSV passed this milestone in 2021, BTC never earned more in fees than the miner subsidy, which marked a new era in Bitcoin’s economic regime for miners.

Some people, like Michael Saylor, a famous BTC investor, announced the change.

Michael Saylor seems to be very positive about Ordinals

Many others have called it an attack on the network, and proposals have come from core developers and small-block advocates like Luke Dashjr to ban transactions altogether. A group of anonymous people even took it upon themselves to create a censorship patch (brazenly called Ordisrespector) for BTC nodes, filtering out unwanted transactions or lessor transactions deemed unworthy of being placed on the blockchain. Unfortunately, even when deployed by many home nodes, mining nodes would simply ignore them and keep adding these transactions to the blocks populating the blockchain, causing long delays in txn processing latency on the network.

Longtime lead developer Andrew Poelstra lamented the issue, while clearly classifying the new use of BTC as crappy and toxic.

Hypocrisy?

While people are entitled to their own opinions, I find it particularly striking that the same people who continually praise the censorship-proof nature of Bitcoin are the same people who are now trying to implement censorship themselves. themselves.

Even better, they seem to be persecuting new BTC users for crimes they are guilty of, how do you determine if one type of blockchain use is allowed while another is prohibited? Keep in mind that users of the new ordinal technology to create NFTs are not breaking any consensus rules or doing anything illegal on the network. They even fully pay the higher fees, like everyone else. This is simply due to the large number of txns created and the fact that BTC’s broken scaling model is such that the more people use the system, the more fees the average user has to pay. This is the coveted fresh market that Greg Maxwell was quoted as pining for when he described the perfect state of the BTC system.

Greg Maxwell loves it when people pay over $50 to settle bitcoin txn

So if paying users want to put data on the channel, using technology that allows them to do so, regardless of what we think about the nature of the data they put in, who are we to judge what is appropriate or not? If people start adopting BTC en masse next month, a year or five from now, will we have to look to these gurus to tell us if the use of the network has been blessed? Or an attack that should be censored? This decentralized dream is starting to look like a nightmare.

Time will tell how this will play out, but for the first time two power blocs have been pitted against each other in BTC, the miners and investors (the rich) against the network users (the poor) . And at the heart of it all are countless testimonials from people in El Salvador, where the average daily wage is $50. People are forced to pay a $20 fee just to withdraw their $50 worth of bitcoin. What can we do to help them? This topic has apparently divided BTC supporters into two camps. Those who want the network to be usable and affordable by everyone and those who say Bitcoin is not for people who earn less than $2 a day4. The difference between 2017 and now is that back then there weren’t many people promoting Bitcoin in developing countries, like El Salvador and Kenya. Bitcoin was still just a toy for the first world. But now it looks like after selling their story to so many lower classes, BTC pundits will be forced to deliver on their promise to use BTC as a digital currency.

Wasn’t Lightning Networks supposed to fix scaling?

Well, it was marketed as the 5 scaling solution for BTC, but after eight years of still being 18 months away from completion, it still only manages a tiny fraction of the amount of BTC in traffic. The reason is that there is a huge barrier to entering and exiting the platform. To use LN, you must first lock your BTC into channels6, which are shared accounts between others that lend you cash. Normally you connect with large hubs with many other channels7 to other people so you can relay payments between hops until you hopefully pay the part you want to pay. The problem is that if the person you want to pay isn’t directly or indirectly connected to you, or if the channels connecting you don’t have enough cash, you’ll need to open a new channel directly with them. Each time a channel is opened, you must create a real BTC transaction, which means waiting 10 minutes and paying the normal BTC network fees.

Similarly, whenever you want to withdraw money from LN (sometimes forcefully if your counterparty is trying to steal your chain), you must also post a genuine BTC transaction.

Spot the problem? When the real BTC network is congested, the open/closed channel txns are backed up and the LN network liquidity channels are effectively frozen, unable to change or remap themselves. You can only pay with whom you already have a connection, and only up to the amount you have left in the channels. If this sounds horribly complex and a nightmare of a system to try to manage and use, you’re not alone. Researchers at the University of Illinois have formally documented LN defects, which are only exacerbated when the backbone network is congested. This seems to be the reason why, even after years of publication, it was only lukewarmly embraced by the non-activist public crowd.

The irony is that this rush to use NFT minting on BTC is driven by greed. The standard greed of all ICO or NFT or DeFi players. The rush to try and grab rare digital assets and get in earlier than everyone else so you can flip them quickly for profit or buy and hold them long term and wait for them to appreciate as a store of value . Sound familiar? This is exactly what loyal BTC supporters have always stood for. But as soon as the speculation and focus is on something other than BTC, even if it uses the same BTC blockchain, they will not support it. This is toxic data, a DDoS attack. It indicates either a severe lack of self-understanding or self-awareness.

Maybe both.

Will update more as this story unfolds.

Jerry ChanWallStreetTechnologist

***REMARKS:[1] Samson Mow mocks the poor for being too poor to use bitcoin.[2] As much as walking is an evolutionary solution to not having a car.[3] If this sounds a lot like a side chain linked to you, you’re not alone. But you better shut up; otherwise, you will be harassed by LN fanatics.[4] If this sounds a lot like a bank to you, you’re not alone. But shh, don’t tell anyone.[5] Yes, it is a quote from Marxist-Leninist communism.[6] BSV and BCH have been integrating full images into txns since 2019.[7] and he popped champagne on the roof of Blockstream’s offices when fees topped $50 in 2017.

New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about the Bitcoinas originally envisioned by Satoshi Nakamoto and blockchain.

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