In the game of Inscription, behind it stands the hungry Bitcoin ecosystem.

Behind the Inscription game lies a voracious Bitcoin ecosystem.

Source: Beehive Tech

“You don’t have to eliminate all inscriptions to make Bitcoin benefit.” On the early morning of December 7th, when responding to a netizen, Luke Dashjr seems to have left some space for the survival of inscriptions.

On December 6th, this Bitcoin Core core developer launched a scathing attack on the recently popular Bitcoin inscriptions on X, suggesting that the inscriptions that encode and record data for the smallest unit of Bitcoin “Satoshi” are “exploiting vulnerabilities in Bitcoin Core to send junk information to the blockchain network,” calling it a “scam” that will affect the adoption of Bitcoin and indirectly damage the value of BTC.

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Bitcoin Core is the software system of the Bitcoin network. Luke stated in his subsequent response to netizens that the vulnerability will be fixed before the V27 version next year, which means that inscriptions will no longer exist in the Bitcoin network.

Luke’s remarks and replies immediately caused a huge wave. First, the price of the ORDI token, which dominates the inscription market, fluctuated greatly, falling from around $60 to $40 at one point.

Regarding the debate on whether Bitcoin Core should or should not have the power to eliminate inscriptions, it not only reveals the opposition between Bitcoin miners and core developers but also raises concerns about a potential Bitcoin hard fork, which brings back memories of the “2017 Forking Event” for many veterans in the cryptocurrency industry.

It is worth noting that the method of encoding with the Ordinals protocol and issuing encrypted assets on the Bitcoin network in the BRC-20 way has created a trillion-dollar market since the beginning of the year, with millions of inscriptions circulating in it and hundreds of thousands of people holding them. It has also brought a huge amount of transaction fee income to the mining community due to the congestion caused on the Bitcoin network.

Naturally, inscription participants and some miners stood together to oppose Bitcoin Core, represented by Luke, rashly fixing the “so-called vulnerability”.

As of the early morning of December 7th, the controversy has somewhat subsided with Luke’s remarks, and more solutions for handling inscriptions have quickly emerged. The Bitcoin inscription once again stands out in this “game of wits”, hiding an eager and diverse Bitcoin ecosystem behind it.

“Junk information” theory puts inscriptions in a life-threatening crisis

On the morning of December 6th, during the period when the ORDI price was rising and falling, Luke Dashjr’s criticism began.

“Inscriptions are using a vulnerability in the Bitcoin Core client to send junk information to the blockchain. Since 2013, Bitcoin Core allows users to set an additional data size limit (‘-datacarriersize’) when forwarding or mining transactions. The inscriptions bypass this limit by disguising their data as program code.”

Luke, a core developer of Bitcoin Core, quickly drew attention in the Web3 world with this statement on X. He stated that although the vulnerability was fixed in the recent Knots v25.1, it is not completely fixed, and he hopes to finally fix the vulnerability before the v27 version next year.

In response to this, a user asked him: if this “vulnerability” is fixed, will Ordinals and BRC-20 tokens cease to exist? Luke answered “yes” and added, “In fact, these tokens shouldn’t exist in the first place; it’s all a ‘scam’ from the beginning.”

The so-called “inscriptions” that Luke claims shouldn’t exist have actually been around for almost a year now. They have created a speculative market for inscription tokens with a market capitalization of trillions of dollars. Millions upon millions of inscriptions, each with a unique number and metadata that includes text, images, audio, and video, are recorded on the smallest divisible unit of Bitcoin, called Satoshis, and packaged into the Bitcoin blockchain network.

There are now millions, if not tens of millions, of users holding these inscription tokens. Not to mention the enormous profits that inscriptions have brought to Bitcoin miners who package them.

So why are Bitcoin core developers opposing something that has gained such immense popularity?

In fact, in May of this year, congestion on the Bitcoin network caused by inscriptions and skyrocketing transaction fees caught the attention of the developer community.

On May 7th, an email with the subject line “As developers, should we reject non-standard Taproot transactions from full nodes?” sparked a discussion on the Bitcoin developer mailing list.

Taproot is part of the Bitcoin network upgrade scheduled for implementation on November 14, 2021. Its goal is to change the way Bitcoin scripts work, improving privacy, scalability, security, and even the capability to handle smart contracts within the Bitcoin network.

Email from developers regarding BRC-20 tokens in May

The sender, Ali Sherief, believes that projects like BRC-20 are “worthless” as its creator stated and pose a threat to the normal use of the Bitcoin network as a “peer-to-peer digital currency payment system,” causing network congestion and increased transaction fees.

Ali proposed whether action should be taken to patch the vulnerability in the BIP 342 that defines the Taproot script, or to perform strict scrutiny at the node level and remove all non-standard Taproot transactions.

In response to this email, Michael Folkson, the organizer of the London Bitcoin Developer Meetup, replied that Bitcoin should remain as it is because “consensus rules have been established, and the rest is up to the market.” Michael pointed out, “You may not like this use case, but let’s say you start playing a game of ‘Whack-a-Mole,’ how do you prevent a group of people from opposing your use case within a year?”

During this discussion, Luke Dashjr, the critic of BRC-20 inscriptions, made a statement under this email thread, saying, “Action should have been taken months ago.” He added, “The garbage message filtering has been a standard part of the Bitcoin core from day one.”

In fact, back in February of this year, Luke created a patch filter called “Ordisrespector,” which detects and rejects Ordinals inscription transactions that he deemed as garbage. However, judging from the current state of the inscription market, it seems that this patch didn’t have any effect.

As Ali mentioned in the subject email, solving this non-standard Taproot transaction will inevitably affect the interests of the mining community in the Bitcoin community. This time, Luke’s public “denunciation” of the inscriptions has drawn the attention of the opinion leaders in the mining circle.

“Bitcoin is not Ethereum, developers don’t have the final say.” The co-founder of F2Pool, one of the third largest mining pools in Bitcoin, Fish, was the first to speak up after Luke’s remarks.

The confrontation between developers and miners quickly raised new concerns: will the Bitcoin network experience another hard fork due to different consensus?

Last time, the dispute between the two sides regarding the Bitcoin block size consensus lasted for 2 years starting in 2015. It ultimately ended in August 2017 with a miner-led hard fork, giving birth to the Bitcoin Cash chain that supports larger blocks, which diverted many Bitcoin miners.

Miners are more or less inclined to maintain the inscription market due to their interests. On the other hand, some supporters of inscriptions believe that if Bitcoin Core adopts Luke’s approach and removes inscriptions from the Bitcoin network, it directly contradicts the “censorship-resistant” and “decentralized” nature of Bitcoin. It is also equivalent to denying the Taproot upgrade that was built on consensus in the previous case.

The debate about the life and death of inscriptions lasted for a day. On December 7th, some users were still asking, “If one miner chooses not to opt out, can that miner still process inscription transactions on the blockchain?” Luke, who ignited this “war,” said, “We don’t have to eliminate all inscriptions to benefit Bitcoin.”

This expression finally temporarily calmed the controversy. So, is there a better way for inscriptions to exist on the Bitcoin network? This requires going back to the beginning of the appearance of inscriptions.

Increase in inscriptions causing congestion on the Bitcoin network

The concept of “inscriptions” arose from the Ordinals protocol created by developer Casey Rodarmor, which was born earlier this year. In March, another developer named Domo created the gameplay for BRC-20 inscriptions (Bitcoin Inscription) based on this protocol.

In simple terms, Ordinals is a protocol that allows data to be engraved on the divisible smallest unit of Bitcoin called “Sats” (note: 1 BTC equals 100 million Sats, so 1 Sat = 0.00000001 BTC). The developer conducted an experiment and assigned numbers to every 1 Sat of Bitcoin in chronological order.

According to the technical rules of the Bitcoin network, these numbered Sats are also allowed to write some data with capacity restrictions.

Therefore, with the protocol, there are rules, and there is a netizen named @domodata on Twitter who couldn’t sit still, creating BRC-20 inscriptions. It involves inputting metadata into Sats, and this process is called Inscribe. Text, images, audio, video, and other content in small bytes can be written into Sats as data, and the things written in are called “BRC-20 inscriptions”.

In this way, Sats with sequential numbering and different inscriptions become quite unique. This aligns perfectly with the concept of non-fungible tokens (NFTs), even more so than NFTs on the Ethereum network, because the content in Sats is truly engraved on the Bitcoin blockchain. In comparison, NFTs generated on blockchain networks like Ethereum are more like uniquely numbered certificates, and the images, videos, and other content verified by NFT certificates are often not stored or recorded on the blockchain.

Numbering and engraving, these two experiments have created a “combo”. Although @domodata clearly stated in the BRC-20 whitepaper that “this is just an interesting experimental standard” and “strongly opposes making any financial decisions based on this design”, players still flocked in, starting to use the Ordinals protocol and the BRC-20 method to get creative.

If the Sats have different annotations and different content, then these Sats belong to non-fungible NFTs; if they have the same annotations and the same content, then they are fungible tokens, equivalent to issuing homogeneous cryptographic assets on the Bitcoin blockchain using the Ordinals protocol and the BRC-20 method. The resulting Sats can be metaphorically referred to as “numbered banknotes”.

Image-based BRC-20 inscriptions

“Bitcoin inscriptions – content engraved on the world’s most secure blockchain network”, that sense of romance and preciousness doesn’t come out right away.

Once this “engagement ring-style” marketing rhetoric appears, it’s hard to avoid a circulated market with users and traffic support. Soon, tokens like ORDI commemorating the Ordinals protocol, wallets specifically for storing and sending/receiving various BRC-20 inscriptions, and decentralized exchanges all emerged, creating a lively ecosystem around Bitcoin inscriptions.

BRC-20 inscription market data

According to data, as of December 7th, there have been 56,300 BRC-20 inscriptions generated on the Bitcoin network, with a total of 306,400 holders and a total market value of $1.11 trillion.

Recently, Bitcoin surged to around $43,000, with a total market value of $858.8 billion. The total market value of the entire cryptocurrency market is $1.65 trillion, indicating the strength of the inscription speculation market. In China, well-known second-hand trading platform Xianyu has seen listings for “inscription boosting” services and “introductory tutorials for inscription beginners”.

Xianyu has listings for BRC-20 information

However, Bitcoin inscriptions have also brought negative impacts.

It’s important to note that the inscribed data is packaged in blocks and added to the Bitcoin network, with each block having a fixed 1 MB capacity. The original capacity and speed of the network are already a concern, and the added inscription data increases the block data of the Bitcoin network, slowing down the block generating speed, commonly known as “congestion”, which invisibly affects the transaction rate of Bitcoin and increases transaction fees.

In May and November this year, Bitcoin’s network transaction fees experienced two anomalies. Especially on May 9th, the network transaction fees reached 3.909 BTC, equivalent to 111,000 USD.

Bitcoin network transaction fees on May 9th

Bitcoin traders are not happy about the congestion and the high fees. However, the miners responsible for block generation and maintaining network security in exchange for fees must be happy. After all, they not only faced a sharp decrease in revenue during the past two years of the crypto bear market, but they will also face the upcoming Bitcoin block reward halving in April and May next year.

According to data from Blockchain.com, in November when the popularity of BRC-20 tokens soared, the Bitcoin mining rewards on November 12th were raised to $44 million, the first time since 2023, and the last time it happened was in April 2022.

Also, according to data from Dune on November 24th, the amount of Bitcoin fees created by the Ordinals protocol reached 3061 BTC (approximately $114 million), and the total number of tokens minted reached 43.5322 million.

Total Ordinals tokens skyrocketed

By now, you should understand why the miners, represented by Godfish, support the tokens.

The main reason why Luke despises tokens is because this information and data occupy the block capacity of Bitcoin, leading to network congestion and increased costs. Therefore, it weakens Bitcoin’s functionality as a payment network and is not conducive to its widespread adoption.

This means that if the block capacity occupied by tokens is solved, can the tokens continue to survive? Some solutions are emerging.

Opportunity for Bitcoin Layer2?

In fact, after Luke criticized the tokens for causing garbage information to be added to the blockchain, someone suggested to him to create a “token chain,” similar to Ethereum’s Layer 2. “Does this chain only need to submit hash values periodically to the Bitcoin network to operate, right?”

“Yes,” Luke replied affirmatively and added, “That should work. It doesn’t even need to have block size limits. Each node can set its own limit (or no limit).”

Luke agrees with the Layer2 solution for tokens

In fact, this Layer2-style solution has already appeared in the Bitcoin ecosystem community. Xu Mingxing, the founder of OKX, mentioned the token migratable “Taproot Asset Protocol” in the token debate.

The Taproot Assets protocol, proposed by Lightning Labs, the development team of the Bitcoin payment network “Lightning Network,” aims to provide “scalable Bitcoin multi-asset network tools” that support the issuance of stablecoins and other assets on the Bitcoin network, and complete transactions through the Lightning Network.

Lightning Labs’ Development Director, Ryan Gentry, explains that the Taproot Assets protocol only requires the issuer to make one Bitcoin transaction to mint valid unlimited Taproot assets, while all the metadata describing these assets is stored off-chain.

This approach effectively solves the problem of Bitcoin block capacity occupied by assets like inscriptions, while still allowing miners to profit from issuing and trading these assets. The only issue is that the metadata for things like graphics, images, and videos will be stored off-chain and cannot continue to be “carved” on the Bitcoin chain, similar to the way NFTs or other fungible tokens are issued using Ethereum smart contracts.

In order to still leave inscribed tokens on the Bitcoin network, developers of protocols like Atomicals, similar to BRC-20, have proposed a “restrictive approach”. This involves introducing a SUBSTANTIATION FACTOR (SF), redefining the number of satoshis per ARC-20 inscription unit, and setting the default proof coefficient to 1:1, to keep any precision restrictions within a feasible range for processing token transfers of less than 546 units.

This approach is actually a way to bypass the Bitcoin dust attack defense system. To prevent dust attacks, the Bitcoin network limits the amount of Bitcoin transactions in a single UTXO to no less than 546 sats. This means that the minimum transfer limit for ARC-20 inscribed tokens is 546, and transactions below this standard are unlikely to be packed.

The Atomicals protocol does not address Luke’s concerns about block capacity, and the Layer2 approach seems to be more in line with this core developer’s idea of removing non-standard activities that are not conducive to the clean operation of Bitcoin from the network.

There are already many Layer2 solutions that expand the Bitcoin ecosystem off-chain, similar to Taproot Assets, including Rootstock, Stacks, Liquid Network, and many others. The hype surrounding inscriptions has once again brought these expansion technologies to the forefront.

Regardless of whether inscriptions have value or not, their popularity is driven by the ever-growing Bitcoin ecosystem. Although the Lightning Network is adopted for small BTC payments, the Bitcoin mainnet has not produced other use cases, while the Taproot upgrade brings this possibility. However, due to its limited performance, high-concurrency scenarios like DeFi and GameFi in the Ethereum ecosystem cannot be built on the Bitcoin network.

This is related to Bitcoin’s positioning. As developers Ali and Luke insist, in their eyes, Bitcoin should follow Satoshi Nakamoto’s definition of a “peer-to-peer electronic payment system” and pursue security, decentralization, and privacy. It is precisely the insistence on these characteristics that has made the Bitcoin network the largest and most secure blockchain network globally.

However, the robustness of this network requires thousands of miners to maintain it. Only by ensuring the profits of this group can they willingly work as laborers, meaning that the value of Bitcoin must cover or even exceed the cost of maintaining the network, in other words, the price of Bitcoin must be greater than the cost of mining.

Currently, the price of Bitcoin has surpassed $43,000, doubling from its lowest point this year. According to a mining cost estimation model created by the University of Cambridge based on global Bitcoin power consumption and daily new issuance, the average cost of 1 BTC is currently around $42,700, which is not cost-effective.

The surge in Bitcoin’s market value is not only influenced by the upcoming halving of Bitcoin block rewards next year but also by the anticipation of Bitcoin spot ETFs being approved in the United States. This means that blockchain asset Bitcoin is becoming a mainstream target in the financial market.

From this perspective, the rise in Bitcoin’s value is not brought about by the Oracle market, and past fluctuations have been the same. The reason why the Oracle market is booming is because it has been engraved on Bitcoin.

But what will happen after the Bitcoin spot ETFs? As the limited supply (21 million) of Bitcoin continues to decrease, how will its narrative unfold? Can more plots emerge around it? These are the real triggers for the community in the Oracle market.

As Hong Shuning, a blockchain expert at the People’s Bank of China, said, Ordinals is a high-rise building built on the beach, and its foundation is very unstable. It has no possibility to develop into a very strong and complete ecosystem. “After more than half a year of development, it has now entered the period of the largest bubble, but the biggest benefit of this bubble period is that it has rekindled people’s confidence in the Bitcoin ecosystem.”

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