Despite concerns that Bitcoin Inscriptions, often referred to as Bitcoin Ordinals, are causing congestion on the network, on-chain analytics firm Glassnode suggests there’s little evidence to support the idea that inscriptions are displacing higher-value monetary Bitcoin transfers.
Minimal Impact on Monetary Transfers
Glassnode explained in a report on September 25 that inscriptions, which have become a significant part of daily transaction count on the Bitcoin network since their introduction in February 2023, are not significantly affecting higher-value monetary transfers. This is largely because inscription users tend to set lower fee rates, showing a willingness to wait longer for confirmations.
Inscriptions, which account for the majority of daily transactions, tend to buy and use the cheapest available blockspace. As a result, when more urgent monetary transfers enter the network, inscriptions are displaced due to their lower fee rates.
Fee Distribution and Mining Competition
While inscriptions have increased the base-load demand for blockspace and raised fees for miners, they only contribute to about 20% of Bitcoin’s transaction fees, according to Glassnode. The increase in Bitcoin’s hashrate by 50% since February has created tougher competition for miners vying for fee revenue.
Inscription fee share between images, text, audio, video and other data types on Bitcoin. Source: Glassnode.
Glassnode points out that miners are facing increasing competition for fees, coupled with the upcoming Bitcoin halving event. This combination could potentially stress miner profitability unless Bitcoin’s price experiences substantial growth before the halving event scheduled for April 2024.
Majority of Inscriptions Linked to BRC-20 Tokens
Currently, most inscriptions are a result of BRC-20 tokens, introduced a month after Casey Rodamor launched the Ordinals protocol on Bitcoin in February. Rodamor has recently suggested “Runes” as a potential alternative to BRC-20 tokens, aiming to reduce the accumulation of unspent transaction outputs (UTXOs) on the Bitcoin network.
