The Debate On Bitcoin Ordinals Is A Fight Over Bitcoin’s Future

Factions have emerged throughout the history of movements and new technologies. The Bitcoin world is no stranger to this. Ethereum split from Vitalik’s contributions to Bitcoin Magazine, and since then, different individuals have created a variety of altcoins. The blocksize wars put Satoshi’s block size limit to the test after some demanded faster scaling, with fewer transaction fees and more transaction volume – the split between “Big Blockers” and “Small Blockers.” The wars ultimately resulted in further splits of Bitcoin into Bitcoin Cash and a Bitcoin with activation of SegWit closer to the “Small Blocker” principles – the Bitcoin of today that primarily relies on Layer 2 solutions like the Lightning Network to scale past the problem of transaction fees. Today, Bitcoin has a similar forum for debate – regarding the economic use of transactions versus their non-economic use. Specifically, some argue that ordinals (a sort of NFT import to Bitcoin) and BRC-20 tokens (an ERC-20 equivalent) can be a savior for the chain – and some argue that they are “spam.”

To start, it’s helpful to summarize some of the debates. Eventually, Bitcoin miners will be compensated only by transaction fees. Block rewards for mining, which powers most revenue for companies mining Bitcoin today, will cease to exist – a part of the 21 million Bitcoin limit placed in the chain in the first place. As a result, securing Bitcoin will come primarily through transaction fees – put simply; the more people are using Bitcoin, the more likely it is that companies dedicated to mining and securing it will exist. Public miners have enjoyed a boost in their revenues because of the high transaction fees due to people trying to place ordinals on Bitcoin. Ordinals essentially benefit from putting 4MB of data (the new block size limit after multiple hard forks) and associating it with a sat. They’ve pushed NFT economics of scarcity for putting non-economic data in a blockchain and imposed them onto Bitcoin.

Enter the two broad camps on ordinals. Some decry the use of Ordinals as spam and claim ordinals are defying the original intent behind Bitcoin to become a focused global financial network. Others think Ordinals are saviors – and have helped solve Bitcoin’s security budget well into the future – ensuring there will always be miners.

For those who think ordinals are harmful, the original intent of Satoshi rings clear. The OP_Return function that Satoshi originally designed was 80 bytes – barely enough to make small text notes for each transaction. If Bitcoin is a financial network, the focus should be on lowering transaction fees. After all, Bitcoin will compete with central banks’ digital currencies. In the design of the e-CNY, China’s digital Yuan, the focus is on keeping transaction fees for end customers at 0%.

Critically, this applies to both merchants and payers. It’s clear that many people see value in a decentralized peer-to-peer network of economic value – and people are willing to pay to send transactions to others in this way. The question is: how much, and at what stage of Bitcoin’s development are we in? Dedicating focus and energy to non-financial uses of Bitcoin helps increase fees for financial uses of Bitcoin – for example, Lightning nodes, which isn’t an abstract debate: Lightning fees have raised significantly for those routing payments – and the Lightning Network perhaps represents Bitcoin’s best current shot at on-boarding the next billion people – and creating a medium of exchange utility for Bitcoin and wide merchant adoption that has been missing at scale up to now.

On the other hand, those who argue that ordinals are helpful to the chain talk about the security budget and the activity that ordinals have helped create—an analysis by FSInsight points to the increased activity on Bitcoin as a reason for a bull run. Mining profitability has hit new highs since March 2022 – and it has much to do with transaction fees rather than block reward fees. Some blocks now have more rewards for Bitcoin miners in the transaction fees than the block rewards. However, some Bitcoin mining pools are against this. Ocean, the decentralized mining pool, has a founder known for being very anti-Ordinal. Yet, the pool now offers miners the option to choose a block template with minimal non-financial transactions – or the Bitcoin Core default, which provides for BRC-20 tokens and ordinals.

Finally, a third camp (perhaps the silent majority) has feet in both camps – and wants to see less conflict on a topic that might be perceived as ridiculous for outside audiences to Bitcoin. Robert Hall summed up this view in Bitcoin Magazine.

Whatever your beliefs on the topic of ordinals, it’s clear that they have been a forceful prompt for debate and discussion on Bitcoin in 2023 – and likely beyond. Which side you subscribe to depends on your belief on what Bitcoin should look like in the future – and the timeless principles and debate over the scaling roadmap needed for Bitcoin to realize its potential fully.