Glassnode: Ordinals, BRC-20 Not Affecting BTC Transactions

Recently, amidst the rising buzz around Bitcoin Ordinals and the corresponding BRC-20 token standard, data insights from the blockchain analytics firm Glassnode indicates that these new transaction types are not displacing normal Bitcoin (BTC) transactions. This article delves into the essence of Ordinals and BRC-20, their interaction with Bitcoin’s network, and what Glassnode’s data reveals.

Bitcoin’s latest innovation wave comes from a concept called Ordinals, which allows for the inscription of arbitrary data onto individual satoshis, the smallest unit of bitcoin. As a fundamental building block of the network, satoshis typically serve merely as a measure of value. With Ordinals, each satoshi becomes a potential carrier for not just value but also information, media, or even complex smart contracts, akin to the data embedded in Ethereum’s ERC-721 Non-Fungible Tokens (NFTs).

The excitement escalated further with the introduction of the BRC-20 token standard, reminiscent of Ethereum’s ERC-20, which stands for “Bitcoin Request for Comments”. BRC-20 tokens are smart contracts on the Bitcoin network that can be inscribed in satoshis through Ordinals. This development points to an ever-evolving Bitcoin that could potentially emulate some of the smart contract functionalities typically associated with Ethereum or other programmable blockchains.

While many in the cryptocurrency community perceived these innovations as a means for Bitcoin to step into a domain previously occupied by Ethereum and its counterparts, concerns were also voiced. A prominent worry was whether these new use cases would clutter the Bitcoin network, leading to congestion and potentially displacing normal BTC transactions, which form the backbone of Bitcoin’s use case as a digital gold and a medium of exchange.

Insights from Glassnode suggest a different story. The blockchain analytics company has closely monitored the situation since the inception of Ordinals and BRC-20. According to their data, despite the initial surge in transactions related to Ordinals and BRC-20 inscriptions, there has been no substantial change in the overall pattern of normal BTC transactions. This finding alleviates the concern that these new inscription transactions would take away space from regular bitcoin financial transactions on the network.

The reasons for the lack of displacement could be manifold. One factor is the Bitcoin network’s design, which includes built-in mechanisms that prioritize transactions based on fees. Users who wish to have their transactions processed faster can opt to pay higher fees. Therefore, so long as users of standard BTC transactions are willing to compete in the fee market, their transactions should not be unduly affected by innovations like Ordinals.

Bitcoin’s block space has always been a scarce resource. This scarcity has led to innovative solutions like segregated witness (SegWit) and the development of the Lightning Network. Ordinals, while new, still have to conform to the existing limitations of block space. If the demand for block space rises significantly due to Ordinals and BRC-20, then it could potentially lead to higher fees, but not necessarily to the crowding out of normal transactions.

Glassnode’s data supports the notion that the network is functioning efficiently even with the added complexity of Ordinals and BRC-20 transactions. The Bitcoin mempool, where all the unconfirmed transactions wait before being included in a block, has not shown persistent congestion that would lead to significant delays for regular transactions.

The new innovations might be attracting a different segment of users. While traditional BTC users conduct transactions primarily for monetary purposes such as payments and remittances, users interested in Ordinals and BRC-20 may be more focused on leveraging Bitcoin’s blockchain for digital collectibles, gaming assets, or decentralized applications. This difference in user base might help in segregating the network usage to a certain extent.

Glassnode’s analysis also showed that Ordinals and BRC-20 transactions tend to increase during off-peak hours, suggesting that their creators and users are somewhat considerate of the network’s capacity and may prefer times when it’s less congested. This behavior can contribute to a natural balancing of network load.

To assess the long-term implications of these new transaction types on Bitcoin’s network, it will be crucial to monitor continuing trends. Glassnode’s continuous analysis will be invaluable to understanding how Bitcoin evolves with these innovations and how it manages the balance between its foundational monetary role and the newly explored use cases.

It’s clear that despite initial speculations, Ordinals and BRC-20 are not currently disrupting the essential operation of the Bitcoin network as evidenced by Glassnode’s data. While they introduce new functionalities and broaden the scope of Bitcoin’s use cases, the core transaction practices of Bitcoin users remain stable. This stability underscores the robustness of the Bitcoin network and its capacity to adapt to innovative uses without compromising its primary functions.

It’s a pivotal time for the Bitcoin community, as burgeoning technologies like Ordinals and the BRC-20 token standard are enriching the ecosystem. Yet, as Glassnode’s insights reveal, these ventures are forging their own paths rather than hindering the traditional flow of BTC transactions. As adoption continues and as these tools themselves evolve, it will be of paramount importance to keep a close eye on metrics and data to ensure that all aspects of the network thrive in harmony.