What are Bitcoin ordinals?
Bitcoin ordinals are a way of creating NFTs on Bitcoin by attaching data like images, videos, and other content to an individual satoshi on the underlying Bitcoin network. Satoshi are the smallest units of Bitcoin, where 1 satoshi represents 0.00000001 btc. Each satoshi has its own unique identifier that makes it different from the rest. The Ordinals use this identifier to denote satoshi with a special meaning, that is, to associate some form of digital content with them. NFTs on Bitcoin are digital tokens that represent unique and irreplaceable digital items on the Bitcoin network, instead of on some other network e.g. Ethereum. NFTs on Bitcoin can be created using ordinals, but also other protocols such as Counterparty, RSK, Liquid Network, etc. NFTs on Bitcoin have the advantage of using the most secure, widespread and most decentralized crypto network, but they lack the infrastructure and support that NFTs have on other networks like Ethereum that are designed to build decentralized applications.
Source: cointelegraph
Bitcoin ordinals and transaction fees
The Bitcoin network has limited transaction processing capacity, which is about 7 transactions per second. This means that transactions must compete to enter the blocks created by miners, and priority is given to those that pay more to enter the block. The emergence of ordinals, which allow the creation of NFTs on Bitcoin by typing data such as images, videos, etc. on individual satoshi, has led to an increased demand for Bitcoin space in the block and thus to an increase in transaction fees. According to data from BitInfoCharts, the average fee for sending a transaction over the Bitcoin network has jumped 960% to $31.14 since the beginning of this month. At some points, transaction fees even exceeded the mining reward, this means that miners earned more from transaction fees than from the reward brought by the block itself. This has also led to the use of the Bitcoin network becoming more expensive and less affordable for many users. According to mempool data, the number of unconfirmed transactions currently stands at more than 250,000 for the simple reason that users are not willing to pay large transaction fees to get their transaction into the block. The fact that we also insert data such as images and videos into blocks, and not just transaction data has contributed to the high utilization of space in Bitcoin blocks, where memory is limited to only 3.7MB per block.
Source: cointelegraph
Bitcoin ordinals and earnings of miners
Bitcoin ordinarys have contributed to the earnings of miners on the Bitcoin network by increasing the demand for space in the block and thereby raising transaction fees that miners charge for including transactions in blocks. Miners on the Bitcoin network make money in two ways: from the block reward which is currently 6.25 BTC per block and from the transaction fees located in the block. The reward for the block is reduced every 210,000 blocks, which is approximately every four years, while transaction fees change depending on the supply and demand for bitcoin space in the block. The next halving of the block reward occurs in less than a year, this will drastically reduce the profits of miners, and it is bitcoin ordinals that can compensate for this loss of earnings. The emergence of ordinals led to increased demand for Bitcoin space in the block and thus a rise in transaction fees. According to data from the blockchain.com, miners in February 2023. In 2001, they earned a record 46.5% of revenue from block fees, and some fees reached 94%. While this is a bad development for users who have to pay more to use the Bitcoin network, it’s a good incentive for miners to keep the network decentralized and secure, a condition for the network to continue growing further.
Source: cointelegraph
Satoshi Nakamoto on transaction fees
Satoshi Nakamoto, the creator of Bitcoin, set a reward schedule for the block when he created Bitcoin. This is one of the basic rules of Bitcoin and cannot be changed without agreement of the entire Bitcoin network. The block award started with 50 BTC in block #1 and is revived every 210,000 blocks. Satoshi predicted that transaction fees would become a major source of income for miners when the block reward is reduced enough. In his white paper (Eng. Whitepaper), Satoshi wrote: “As the number of coins allocated to miners for each block found will decrease, so will the revenues from coins being created. As the number of transactions increases, so will fee revenues, which will make up a larger share of mining revenues.” Satoshi also explained that transaction fees will depend on supply and demand for space in the block, and that miners will choose transactions with higher fees to maximize their earnings. This tells us that the increase in the price of transaction fees was actually part of the plan of the original creator of Bitcoin itself, and that this is just another step in further global acceptance of Bitcoin.
Source: cointelegraph
Conclusion
In this blog, we explained what Bitcoin ordinals are, how they enable the creation of NFTs on Bitcoin, how they affect transaction fees and miners’ earnings, and what Satoshi Nakamoto said about the role of transaction fees in bitcoin’s sustainability. Bitcoin ordinals are a new and interesting way to use the Bitcoin network for digital art and collectibles, but also a challenge for the scalability and accessibility of the network. Miners benefit from increased demand for space in the block, but they must be careful not to undermine the security and integrity of the network with their strategies. Satoshi predicted that transaction fees would become a major source of revenue for miners when the block reward is reduced enough, and that transaction fees will depend on supply and demand for space in the block. We hope you enjoyed reading this blog and learned something new about the world of Bitcoin. Be sure to write to us, on social networks (Instagram, Twitter), your opinion on the development of NFTs on the Bitcoin network, whether you think that the appearance of the same is positive or negative, and how it will affect the acceptance of Bitcoin in the long run.
