The coders who maintain Bitcoin's blockchain are clashing over whether to stamp out the meme tokens swarming the network.
A torrent of speculative coins led to a record number of
transactions and an 11-fold spike in processing fees on the blockchain in May,
creating a logjam and forcing the Binance exchange to temporarily halt Bitcoin
withdrawals.
The tumult has since eased, but some crypto purists fret
that future frenzied trading of memecoins like the frog-themed Pepe will again
snarl the network and disrupt Bitcoin's use for payments and as a store of
value. They advocate deploying software to block the transactions — a kind of
spam filter.
“I do think the system is being abused,” said Bitcoin
developer Ali Sherief. “Bitcoin was never intended to serve as a base layer for
meme tokens.”
In an earlier email to the largest digital asset's developer
group, Sherief wrote that “worthless tokens threaten the smooth and normal use
of the Bitcoin network as a peer-to-peer digital currency.”
Others defend the software innovation, called Ordinals, that
allows Bitcoin's blockchain to host large numbers of memecoins and nonfungible
tokens — digital collectibles — for the first time, arguing it can have wider
applications.
Developer Casey Rodarmor created Ordinals to enable users to
inscribe digital content like videos, images and text on satoshis, the smallest
unit of Bitcoin. There are 100 million satoshis in one Bitcoin.
Rodarmor's innovation took off this year and was seized on
by pseudonymous blockchain analyst Domo to develop the Bitcoin Request for
Comment — or BRC-20 — standard, which led to the explosion of memecoins.
There are now about 25,000 meme tokens on the Bitcoin
blockchain with a market value of roughly $475 million, according to website
brc-20.io. The figure had soared past $1 billion in early May.
Jameson Lopp, co-founder of crypto storage solutions
provider Casa, said the Bitcoin network is meant to be an “auction market for
the block space” — the place where data is stored — and Ordinals merely stoked
demand for it.
As a result, viewing the memecoins as a denial-of-service
attack is “like saying any form of auction is a denial of service, and whoever
wins is denying all of the losers of the auction,” Lopp said.
At one point last month meme tokens and NFTs accounted for
65 percent of the transactions on the Bitcoin blockchain. The proportion has
dropped back but remains elevated. The average fee per transaction began April
at $2.80, hit $30 in early May and cooled to $4 by the end of the month, Coinmetrics data
show.
The jump in fees has been a boon for miners, the operators
of the computer rigs underpinning Bitcoin, who have raked in $45 million from
Ordinals-related activity, according to figures from Dune Analytics.
Bitcoin itself fell almost 8 percent in May amid the
turbulence on its blockchain. The token, which has rebounded more than 60
percent in 2023, was little changed at $27,160 as of 7:41 am in Singapore on
Monday.
For veteran Bitcoin developer Luke Dashjr, Ordinals
transactions are like spam and should be kept off Bitcoin's blockchain. He's
even created a program, Ordisrespector, to enable computer nodes on the network
to do that.
“Action should have been taken months ago,” Dashjr wrote in
a developer group. “Spam filtration has been a standard part of Bitcoin Core
since day 1.”
Given that no single person or entity controls the Bitcoin
network, nobody knows if sustained action against memecoins and NFTs will
emerge over time. Another possibility is that some people could decide to
create a version of Bitcoin — called a hard fork — that won't support Ordinals.
“I don't see a critical mass of people coming together on a
single alternative to Bitcoin which is incompatible with BRC-20 tokens,” said
Andrew Poelstra, director of research at Blockstream.
Amid the controversy, the key takeaways from the Ordinals
phenomenon include the ability to use the Bitcoin network in novel ways and the
need to scale up its transaction capacity to avoid future traffic jams.
The true value of Ordinals is the capacity to store
arbitrary data on the Bitcoin network, according to Sami Kassab, a research
analyst at Messari.
“Whether it's artists, activists or even governments that
end up leveraging this storage space, it's clear that the demand and cost for
it will likely rise in the future,” Kassab said. © Bloomberg
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