Miner’s Delight: BRC-20 Inscriptions Skyrocket Mining Revenue
Last week, Bitcoin experienced one of the most important surges in blockspace demand in its history, and the cause may have not been one the community would have expected: NFTs.
Indeed, since BRC-20 tokens came out, their popularity has done nothing but grow. And as the fear of missing out kicks in among members of the community, they rush to mint their own. This has led to a meteoric rise in network fees.
In this article, we’ll go over the basics of BRC-20 tokens and analyze the positive and negative aspects of this new Bitcoin phenomenon.
BRC-20: Understanding the Basics
BRC-20 tokens — also commonly referred to as Ordinals — are an an experimental fungible token standard using ordinal inscriptions on Bitcoin.
A few weeks ago, the Ordinals open source project allowed users to inscribe data on each individual satoshi for the first time.
Remember, satoshis — or sats for short — are the minimum divisible unit of a bitcoin. One bitcoin contains exactly 100,000,000 sats.
The Ordinals project enabled Bitcoin node operators to imbue a single satoshi with unique data of any kind — including smart contracts, which enables the creation of NFTs.
In other words, an individual satoshi can be inscribed with arbitrary content, creating a unique Bitcoin-native digital artifact that can be held in Bitcoin wallets and transferred using Bitcoin transactions.
In turn, these inscriptions are as durable, immutable, secure, and decentralized as Bitcoin itself.
As a consequence, “minting” these NFTs on Bitcoin doesn’t require a side-chain, token, or contract of any kind — it can be done natively on Bitcoin without any additional changes to the network.
Yet, it does require issuing a Bitcoin transaction. And, as you may already know, the more transactions pending on the mempool, the higher the fees go.
Impact of BRC-20 Inscriptions on Bitcoin Mining
Last week, after the community rushed to make many new BRC-20 inscriptions, Bitcoin transaction count reached a new all-time-high in record time. This, in turn, led to a similar increase in fees.
According to CoinMetrics, the median fee per transaction reached $19.75, marking a level unseen since 2021. However, back then, one bitcoin was worth almost three times what it is today: $60,280.
Moreover, the average fee revenue per block to miners surpassed the block subsidy of 6.25 BTC.
This is extremely important, as one of the most recurrent debates in the mining industry is whether transaction fees will be enough to sustain profitability after the halvings reduce the block subsidy.
Albeit it is uncertain if BRC-20 tokens are here to stay, they did demonstrate Bitcoin’s flexibility and show that mining is not completely dependent on block subsidies, and that there are opportunities for transaction fees to become the sole support for Bitcoin mining profitability.
According to Glassnode, “the average number of transactions per block more than doubled, increasing from the typical baseline of around 2K transactions per block, to over 4.3K per block. Since Bitcoin has a blocksize limit, such a significant increase in transaction counts is a direct result of inscriptions utilizing the 75% discount applied to witness data, thus allowing a denser consumption of available block capacity.”
In total, inscription-related fees rise to 1,262 BTC, with 1,090 BTC (86%) of this occurring only last week (Glassnode).
BRC-20: Fun New Feature or Waste of Blockspace?
While miners are gloating on the additional revenue, there’s also a part of the community that are not so optimistic about BRC-20s.
The most evident issue is that just as they benefit miners with increased revenue, high transaction fees caused by BRC-20 inscriptions raise the cost of using Bitcoin for the average user.
This makes the protocol drift away from its original purpose: being an global financial system accessible by anyone and everyone.
In this regard, one person who expressed himself was Samson Mow, the CEO of JAN3, who said that “If you think putting JPEGs on Bitcoin is fun, you’re probably not very well adjusted.”
On the other hand, those who argue for BRC-20s say that Bitcoin’s L1 was never meant to be “cheap,” and that there are L2s solutions to make transacting on Bitcoin more accessible, like the Lightning Network.
Whatever side you’re on, it’s clear that the development of BRC-20s can lead to a paradigm shift within the Bitcoin community.
Whether they are here for the long run or not is hard to say, but they have cleared many doubts regarding Bitcoin. First of all, that Bitcoin “doesn’t evolve.” Secondly, that all it’s good for is to send and receive money. And third, that the future of mining is not as grim as some thought it would, especially after the next halvings.