“Satoshi Era” Bitcoin Moved for the First Time in 13 Years, and more

12/08/2023 0 Comments

1. “Satoshi Era” Bitcoin Moved for the First Time in 13 Years — Bitcoin Mining Landscape Overview

Bitcoin Developer Calls Inscriptions ‘Spam,’ Community Members Push Back

Bitcoin developer Luke Dashjr has criticized inscriptions, including Ordinals and BRC-20 tokens, as “spam” exploiting a vulnerability in Bitcoin Core.

Dashjr implemented a fix on Bitcoin Knots, but community members disagree, citing an ongoing debate on network congestion and differing perspectives on Bitcoin use.

Dashjr believes fixing the bug will stop inscriptions, but others argue they’ll persist due to market demand. The issue extends to other chains, causing transaction surges on Ethereum, Solana, Near, Polygon, Celo, and Fantom.

Some miners, like Ocean, filter inscriptions, while others profit from extra transaction fees. The debate raises questions about Bitcoin’s use cases and censorship resistance.

Early Bitcoin Miner Apparently Sent 1,000 ‘Satoshi Era’ BTC to Trading Desks This Week

A significant move of over 1,000 bitcoins from an early miner during the “Satoshi era” has occurred, marking a rare event.

The bitcoins, mined between August and November 2010 at an estimated cost of $100, were transferred to trading desks and custodian services on December 4.

The transaction involved the consolidation of these bitcoins into an address holding a balance of 1,028 bitcoins, currently valued at $40 million.

Analysts speculate that the early miner may have sold the bitcoins, possibly to an over-the-counter (OTC) or custodian service. This activity follows other movements of “Satoshi era” bitcoins in 2023, coinciding with renewed optimism and a doubling of bitcoin prices year-to-date.

Bitcoin Miner Phoenix Buys WhatsMiners in $136 Million Contract

UAE-based mining operator Phoenix Group has committed to a significant investment in mining equipment, signing a $136 million purchase contract with MicroBT for hydro-cooling WhatsMiners, with an option for an additional $246 million.

The undisclosed model and total hashrate of the purchase come weeks after Phoenix closed a $370 million IPO, elevating its market capitalization to over $3 billion.

Phoenix, primarily engaged in mining and wallet hardware sales, recorded $755 million and $230 million in revenue for 2022 and the first nine months of 2023, respectively, with hardware sales contributing 95% to its revenue. MicroBT has secured miner sales contracts totaling $666 million with various companies in the past three months.

2. Why Bitcoin miners are unlikely to fight a moral battle over Ordinals

The ongoing debate surrounding differing perspectives on how Bitcoin should be used reignited again yesterday.

Bitcoin developer and co-founder of Ocean mining pool Luke Dashjr launched a tirade of criticism toward inscriptions like Ordinals and BRC-20 tokens, declaring them a spam attack exploiting a vulnerability on the Bitcoin blockchain. Bob Bodily, co-founder and CEO of Ordinals marketplace Bioniq disagrees, arguing Bitcoin miners are unlikely to fight a moral battle over the issue.

“From a miner perspective, removing high fee transactions from the mempool reduces miner revenue. Who is going to actively adopt a new software upgrade to earn less revenue?” Bodily told The Block, suggesting it was very unlikely. “There is more demand for Bitcoin blockspace this year due to Ordinals, with over $100 million in network fees paid by these transactions. Miners want more revenue, and Ordinals have brought about a renaissance on Bitcoin with massive demand for block space.”

Assuming miners did decide to limit Bitcoin’s data storage capabilities, Bodily argued they would be “actively fighting a moral battle about what should be included on Bitcoin by choosing to receive less revenue.” Such a move would also undermine many of the benefits brought by the Taproot and Segwit upgrades and remove valid Bitcoin use cases, Bodily said.

Even in a scenario where limitations were enforced, Bodily believes that the demand for meta-protocol transactions like Ordinals on Bitcoin will remain in demand. “People will just start storing data in other places on Bitcoin. Sure, it might cost 2x more, or 4x more, but that isn’t going to stop anyone,” he said.

For example, “Stamps has always stored data in multisig transactions (like Counterparty) rather than in the witness data and would not be impacted by these limitations,” Bodily added.

Filtering inscriptions and CoinJoin transactions

One Bitcoin mining pool that disagrees is Luke Dashjr’s Ocean, which raised a $6.2 million seed round led by Block CEO Jack Dorsey last week to support its launch and other decentralized mining decentralization projects.

Dashjr said he had implemented a “fix” on the Bitcoin Knots implementation he maintains. However, Knots has been adopted by a fraction of the nodes running the most widely used software implementation of the protocol — Bitcoin Core.

Ocean is also using the Bitcoin Knots implementation to filter inscriptions transactions. “Among other improvements, this upgrade fixes this long-standing vulnerability exploited by modern spammers. As a result, our blocks will now include many more real transactions and help to bring an end to the DoS attack being performed on the Bitcoin network,” the mining pool confirmed on X yesterday.

Like Bodily, Casa CTO Jameson Lopp expects economic rationality to prevail, explaining on X that miners are now mostly large enterprises with a duty to maximize profit for shareholders, so they will mine any valid transaction that pays the highest fee rates.

“Luke is entitled to his opinions, but I suspect you’ll find few folks who agree with classifying inscriptions as a vulnerability,” Lopp told The Block on Wednesday. “Classifying them as spam is subjective: it depends on if you believe that you should get to decide what use cases are an appropriate use of the Bitcoin protocol or if you believe that any valid transaction that pays a competitive fee should be allowed to purchase block space.”

Ocean also appears to be censoring Samourai’s Whirlpool CoinJoin transactions from Dec. 6, according to the privacy-focused wallet. A CoinJoin transaction in Bitcoin involves pooling inputs from multiple users into a single, large transaction that generates numerous outputs of the same value — making it challenging for an observer to trace and identify which outputs are associated with which participants.

Dashjr said there was a bug in Whirlpool’s software causing the issue, something Samourai denied. “Samourai did this, not us. Would be happy to work with them to find a solution,” Dashjr later added.

An ongoing debate on how Bitcoin should be used

The rise in popularity of Ordinals on Bitcoin earlier this year fueled debate over whether or not inscriptions representing things like NFTs and BRC-20 tokens on Bitcoin should exist. Inscriptions rely on Bitcoin’s OP_RETURN function — used to store arbitrary data in the blockchain.

Some argue that these elements are unintended consequences of Bitcoin’s 2017 SegWit and 2021 Taproot upgrades, making inscriptions more economically feasible, and should be removed from Bitcoin. Others maintain that such unconventional uses are an integral part of any upgrade, and usage should continue as long as users comply with Bitcoin’s rules.

“Leveraging an ‘Ordinals envelope’ and storing data as code in the witness data is surely an unconventional thing to do,” Bodily said.

Transactions on the Bitcoin network have surged at various points this year, coinciding with pick-ups in inscriptions-related activity, reaching an all-time high of 607,000 average daily transactions in November, according to The Block’s data dashboard.

3. Waste Of Block Space Or Egalitarian Issuance Mechanism? Inscriptions Divide Web3 Community

Bitcoin Ordinals-inspired inscriptions are spreading across web3, with transaction volume and fees on several Layer 1 networks abruptly surging amid the launch of inscription protocols in recent weeks.

The rising popularity of inscriptions on Bitcoin inspired developers to deploy new inscription protocols on other Layer 1 networks, with Tom Lehman’s Ethereum-based Ethscriptions leading the charge in June.

On-chain activity skyrocketed following the launch of inscription tokens on alternative Layer 1 networks, with transaction fees surging 4,500% on Near from Nov. 28 to Dec. 1, 6,900% in a day on the Polygon sidechain in mid-November, and 8,990% on Fantom in late November.

Nearly two-thirds of transactions executed on Polygon over the past week related to inscriptions, which also accounted for 52% of BNB Chain activity, and 15% on Avalanche, according to Dune Analytics. Inscription transactions consumed nearly 20% of gas expended on Polygon, 14% on BNB Chain, and 3% on Avalanche over the past week.

However, not all networks have passed their inscription stress tests, with the Dec. 4 launch of TON-20 tokens on The Open Network (TON) triggering crippling congestion for the chain.

Data from dTON shows the TON network processing less than 0.5 transactions per second (TPS) with more than 2.5M transactions waiting in the queue, prompting wallet providers to suspend transactions to the network. The brutal congestion comes in stark contrast to TON’s developers claiming the network could handle a maximum throughput of nearly 105,000 TPS on Nov. 1.

Inscriptions divide web3 community

The rise of inscriptions has sparked contentious debate within the web3 community, with critics arguing that inscriptions are congesting major blockchains and wasting block space. Meanwhile, proponents claim the technique is bolstering on-chain activity and offering an egalitarian process for new token launches.

“Burning gas/wasting blockspace is one of the last distribution mechanisms that exists with open access to retail,” said Eric Wall, a board member of the Starknet Foundation. “Since anyone can participate in the issuance of a specific ticker (mining it by burning blockspace) from day one, it is one of the few last bastions where retail can get in at the ground floor in a not-yet-clearly-illegal fashion.”

Wall added that web3 projects have abandoned retail-facing initial coin offerings due to regulatory risks in recent years, leaving risky memecoin speculation and uncertain airdrop farming as the only other methods available to retail investors seeking to get in on the ground floor of new crypto tokens.

“Is this just a flash in the pan? Maybe, but it’s stress testing almost every chain out there,” Wall continued. ”This is the result of regulation and inaccessibility to low caps for retail. Degeneracy, uh, finds a way.”

On the other hand, the spike in inscription activity has driven up the burn rate on alternative layer 1 networks, placing greater deflationary pressure on the supply of their respective native tokens to the benefit of investors. However, with the primary value proposition of alt L1s being low transaction fees and inscription tokens offering little utility beyond speculation, the benefits associated with the recent surge in inscription activity are likely offset by rising transaction fees on those networks.

Bitcoin Ordinals

Ordinal inscriptions were pioneered on Bitcoin in January as a method to create NFT-like assets on top of the Bitcoin blockchain. Domo, an anonymous developer, followed up with the launch of the BRC-20 standard, enabling the creation of Bitcoin-based fungible tokens leveraging inscriptions.

Ordinals and BRC-20s enjoyed an initial wave of hype in Q2 2023 before briefly falling out of favor and enjoying a resurgence in Q4. Earlier this week, ORDI became the first BRC-20 token to surpass a $1B market cap after rallying 600% in 30 days.

While the recent comeback for inscriptions was also accompanied by debuting inscription protocols proliferating on other Layer 1 networks, inscriptions are emerging as an increasingly controversial issue on Bitcoin.

The network is currently highly congested due to the high volume of inscription transactions, with around 226,000 transactions sitting unconfirmed in Bitcoin’s mempool.

“‘Inscriptions’ are exploiting a vulnerability in Bitcoin Core to spam the blockchain,” tweeted Luke Dashjr, the CTO of the Ocean Bitcoin mining protocol. Dashjr added that he released Bitcoin client software preventing developers from creating inscriptions.