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Bitcoin Ordinals

How Bitcoin Ordinals Reignited the Bitcoin Block Size Debate

Along with increased development activity, Ordinals have also reignited the Bitcoin block size debate.
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Bitcoin Ordinals Reignite Block Size Debate Depicted with Crypto Art 3D image
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Ordinals have offered an exciting new narrative shift on the Bitcoin blockchain by allowing users to inscribe data on each individual satoshi, the smallest unit of Bitcoin. This data has ranged from videos to files, and so much more, creating digital artifacts in the process.

Deploying large amounts of data directly on the blockchain, however, directly impacts Bitcoin block size — an already controversial issue for the cryptocurrency chain and Bitcoin's user base. As the demand for Ordinals grows, block size is also one of the key issues the community needs to address.

Let’s understand what the Ordinal block size debate is all about and its implications for the blockchain.

What is the Bitcoin Block Size Controversy All About?

The Bitcoin block space debate has always been a heated issue in the Bitcoin community, even before Ordinals were introduced. It centers around the fact that Bitcoin’s block size determines how many bitcoin transactions can be included in a specific block. The larger the block size, the faster transactions can be processed – a key argument for increasing the size of a block.

Increasing the BTC block size, however, can come at the cost of decentralization. Processing a larger than average block size requires better hardware and bandwidth, which introduces a barrier to entry for becoming a miner. A node would also need to download a lot of data in order to be operational.

The block size debate has been at the center of many Bitcoin upgrade decisions and protocol changes. One of the most high-profile decisions was SegWit in 2017, which ultimately increased the block size limit from 1MB to 4MB. This, however, also caused a hard fork and the creation of Bitcoin Cash with community members who objected to the change.

Ordinals: Behind Bitcoin’s Biggest Blocks

A Bitcoin upgrade that occurred in 2021, Taproot, improved on the SegWit upgrade by batching multiple bitcoin transactions together and increasing block capacity. However, what made Taproot unique is that it introduced a concept called “witness” data, allowing users to publish trackable data on the blockchain via satoshis. Essentially, sats could be numbered. This birthed the creation of Ordinals.

Given the nature of Ordinal data, they can take up quite a lot of space within the blockchain. Let’s look at the changes in the Bitcoin block size after Ordinals.

Average Bitcoin block size & limit

While average blocks used to range between 1-2 megabyte in size, Glassnode data shows that recent Bitcoin average block size is at 3-3.5 MB in size. This brings us very close to the Segwit block size limit of 4 MB, and this average is only predicted to increase.

Most of Bitcoin’s largest blocks have been after the Ordinals were introduced in January 2023.  

The largest block, 3.9MB, was a majorly “Ordinal” block — an image of a bald, bearded Taproot Wizard, and just 63 transactions. Needless to say, this record-breaking block has reignited the discussion around the Ordinals block space.

The Block Argument in Favor of Ordinals

While there’s no denying that Ordinals do take up quite a bit of space, the argument for Ordinals mainly centers around how that might not be such a bad thing. 

First, let’s understand how the Bitcoin mining economy works. Miners receive Bitcoin as a reward for every block they mine. These rewards are made up of two core components: block rewards and transaction fees. Block rewards are fixed for each block and they reduce in half every Bitcoin halving cycle. This translates to incentives for miners being cut in half every four years, which can only be offset by an increase in the value of Bitcoin.

Ordinals can help with this problem. Supporters argue that an increase in block size equates to higher transaction fees. Higher transaction fees can incentivize more miner operations, benefiting the system as a whole. For instance, Ordinals have driven over $1.31 million in fees for miners with major project launches contributing upwards of $170k on a single day.

The Block Argument Against Ordinals

Bitcoin was originally conceptualized as a payment system — and critics argue that with bitcoin inscription blocks, they are used as file storage instead. Given Bitcoin's block size limit, the usage of blocks for anything other than financial transactions doesn’t sit well with critics.

Further, file storage on the blockchain brings a host of problems at scale, specifically network bloat, as we’ve seen earlier on Ethereum. 

As blocks become larger in size, congestion possibilities on the network increase. This might cause a ripple effect on transaction speed, leading to delays. In a network that is already criticized for slow transaction confirmations, delays in block time can become a major problem. Although the lightning network and Trust machines have taken steps to address this problem, Ordinals could require better infrastructure.

Higher transaction fees due to Ordinals also pose a risk to users that rely on the Bitcoin blockchain for day-to-day transactions. For instance, Nigerian BTC P2P volumes in the first of 2022 were over $400 million. Increasing fees could pose a systemic access risk to this system — where the Bitcoin network could become too expensive to use.

To Ordinal or Not to Ordinal?

As we can see, introducing Ordinals can have long-term implications on the functioning of the Bitcoin blockchain. On one hand, it could cause increased activity on the chain, while on the other, it could also cause user experience issues. 

While Ordinals have certainly created some controversy, they have also driven a surge of interest in Bitcoin, unlocking new use cases for the chain apart from just NFTs. For example, innovations such as sovereign rollups use the same underlying technology as Ordinals, but with the intent to scale the blockchain. 

Although the possible issues with Ordinals still need to be addressed, one thing is for sure: Ordinals have shown us a way to expand the ecosystem of the world’s most secure blockchain. In many ways, it has already offered functionalities beyond what Satoshi Nakamoto originally intended when they first created the digital asset.