The underlying reasons for the outbreak of the Bitcoin inscription track and future development speculations

Uncovering the Causes of the Bitcoin Boom and Speculating on its Future Development

Recently, Bitcoin NFTs have been gaining popularity, with everything from Ordinals to Atomicals making waves. But I’m not here to talk about the rise of ORDI or ATOM, or whether NFTs have any technical value. Instead, I want to analyze the underlying reasons behind the explosion of the Bitcoin NFT racing track, and make predictions about its future development using some data.

The data used in this article is sourced from oklink Chain Master.

First, let’s take a look at the BTC miner income over the past three months. On August 17th, the contribution of on-chain fees was only about 1.7%. However, since November, it has been gradually increasing every day, reaching a recent peak of 19.57% on November 10th. The major driving force behind this increase was the listing of ORDI trading pairs on bn.

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From this perspective, the explosion of Bitcoin NFTs has significantly increased the proportion of miner income from transaction fees. If we look six months ahead, in April 2024, Bitcoin will go through a halving event, reducing block rewards by half. Without considering other factors, if we extrapolate the current NFT frenzy to after the halving, the proportion of transaction fee income stimulated by Bitcoin NFTs could reach 50%.

Miners are naturally profit-driven, and after the foreseeable halving event, they would typically choose to purchase new mining machines to increase their hash power and ensure they can earn more block rewards. However, as pointed out in Ni Da’s (X: @Phyrex_Ni) analysis article on November 9th, currently, Bitcoin mining farms in the United States have been operating at a loss for nine out of twelve months in a year. Additionally, due to the semiconductor industry’s process bottlenecks, the arms race for mining machine hash power has gradually slowed down.

Therefore, profit-driven miners will inevitably seek another way to increase their income, and that’s where Bitcoin NFTs come in.

Based on the information about BRC20 tokens from oklink Chain Master, we can see that in less than a year since the launch of Ordinals, over 50,000 tokens have been issued in the market. When considering the number of mints and transactions for each token, it becomes clear that this is a rapidly expanding trading market. Such a market greatly stimulates the increase in transaction fee income for Bitcoin miners.

Whether it’s Ordinals, Atomicals, or future unknown colored coin protocols, they are all essentially driving the growth of miner revenue, and miners are urgently in need of a new source of income. Therefore, the Bitcoin NFT racing track will proudly take on this responsibility, and miners will become a major force in the Bitcoin NFT racing track.

However, it’s worth noting that what miners need for the Bitcoin NFT racing track is a greater number of transactions, and the price volatility of NFTs is just a means to achieve that. The goal is to increase the proportion of transaction fee income.

Based on the positive attitude towards the expansion of the Bitcoin inscription track mentioned above, I deduce that the next thing to emerge in the Bitcoin inscription track is likely to be a tool for inscription proxy casting. For most ordinary people, setting up and configuring a full node and then casting inscriptions, although lower in cost, also has a higher barrier to entry and requires a certain amount of storage hardware capacity.

Therefore, in order to quickly expand the breadth of the inscription track, simpler and more convenient service-oriented tools are essential. For example, top-tier exchanges have already started supporting the casting and trading of inscriptions as they integrate with the Bitcoin inscription market. As the product iterates, the complexity of operating with Bitcoin inscriptions will decrease.

Finally, what I want to say is that even though the track is widening, it does not necessarily mean it has value as an investment. I personally compare Bitcoin inscriptions now to the era of widespread issuance of ERC20 tokens around 2017. Before ERC20 tokens gained absolute advantage, the market mostly consisted of each project creating their own chain or forking an existing chain and then issuing native tokens. Due to the different technical stacks of each public chain, the difficulty and speed of getting listed on exchanges varied. It was only when ERC20 tokens achieved widespread standardization that exchanges were able to list them quickly and push them into the market.

Currently, Bitcoin inscriptions are also in the early stages of this track, but eventually, a unified protocol will appear in various Bitcoin inscription protocols, capturing the entire Bitcoin inscription market. The current inscription track only solves the issue of issuing Bitcoin ecosystem assets. It is only when there is a protocol or project that can solve the application scenarios of Bitcoin ecosystem assets that there will be a foundation for value investment.

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