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    Ordinals Inscriptions Fuel the Bitcoin Block Size Controversy

    Ordinals are the new non-fungible token protocol that is flooding the NFT community with hype over the ability to mint JPEGs into the Bitcoin blockchain. As the number of Ordinal inscriptions rises to hit 150,000 inscribed Bitcoin assets, many Bitcoin blocks are coming near the 4 MB range, which is HUGE. This new technology is spilling fuel onto the already burning Bitcoin block-size debate. 

    The BTC block size limit is an ongoing discussion among the Bitcoin community highlighting both opinions: Those who are opposed to the imposed block limit, and those who are against increasing the size limit over 1 MB. Getting larger data inscribed on-chain only makes things worse, and we are here for some blockchain TEA. 

    What is a Block?

    Before we dive into the Ordinals controversy, let’s go over the long history of the Bitcoin block size debate. First, what even is a blockchain block? 

    We already know that the blockchain is a distributed ledger on a peer-to-peer network. This ledger act as a database for all crypto transactions and asset transfer between different wallet addresses. Where are these transactions stored? In blocks of data of course. 

    Blockchain blocks are containers that hold all transaction files and store them permanently. That means once a transaction is sealed into a block on the blockchain, it becomes irreversible. Blocks are sealed once transactions are validated by network nodes, called miners. 

    In order to form a traceable ledger of data, each new block of transactions has an identification number that includes encrypted data from the previous block. Therefore, each block is chained to the one before, creating a blockchain

    Blockchain blocks

    Do Bitcoin Blocks Have a Size Limit?

    Since blocks of transactions are considered more or less storage files of data, the first question to pop in mind is, do they have a certain capacity? Well, here comes the never-ending Bitcoin block-size debate. 

    To answer the question, blockchain blocks have a certain capacity depending on the blockchain. The Bitcoin blockchain has a controversial size of 1 MB. Although this size is very negligible to our modern data storage standards, the small amount of storage can store around 2000 transactions. 

    Thus, the Bitcoin block size limit is a parameter that limits the size of BTC blocks and therefore, limits the number of transactions that can be validated by the network nodes every 10 minutes. 

    How does having a block capacity affect the blockchain? Well, it has to do with limiting the speed of transaction-per-second (TPS). The block size is one of the parameters that calculate the TPS of a certain blockchain. The Bitcoin blockchain is often criticized for having a low transaction-per-second rate of 7 TPS while the Ethereum network has a 27 TPS. 

    To calculate the TPS of a certain blockchain, you’ll need:

    • The average transaction size
    • The average block size
    • The average block time 

    The formula  goes: TPS = (Block size/Tx Size)/Block time

    That means the Bitcoin blockchain TPS is:

    Bitcoin TPS = 1,000,000 (1 Mb block size)/ 225 (avg tx size)/ 600 (avg BTC block time)

                        =7.4~ 7 TPS. 

    Here we can highlight the importance of block size as it directly affects the scalability of a blockchain.

    TPS Bitcoin

    Bitcoin’s Block Size History 

    At its conception, the pseudonymous Satoshi Nakamoto didn’t set a parameter to the Bitcoin block size. However, after the influx of transactions that flooded the network a year later, Nakamoto introduced the block size limit of 1 MB as a way to manage the validation process. Without a proper parameter, miners would create blocks larger than other miners could accept, and thus, disrupt the process. 

    You must be wondering, why did Nakamoto choose such a small number for block storage capacity? I mean, 1 MB is smaller than the average song, even back in 2009! Well, at the time, the average Bitcoin block size was much smaller than 1 MB. Nakomoto must’ve thought that the block will never reach its full capacity. In their defense, the blockchain back then felt like a hoax, and they probably didn’t think the network will be cram-filled with data. 

    What About Ethereum Block Size?

    Well, no. They don’t. Is it crazy? Not really. Instead of a fixed block size limit such as the Bitcoin blockchain, Ethereum block size is determined by how many units of gas are spent per block. To cut the story short, the average block size of the Ethereum blockchain is around 125 KB, which is determined by the block gas limit. 

    Bitcoin Block Size Controversy 

    So, why create a block size in the first place? Why not have a Bitcoin block with a size limit of 1 Gb for instance? Well, here comes the true Bitcoin blocksize debate. Those who are proponents of the increase of the Bitcoin block go by “Big Blockers” and those who are opponents of the increase go by “Small Blockers”. Let’s see what each has to say about it. 

    Big Blockers 

    Proponents of the Bitcoin block size limit increase argue that the limit needs to be higher in order for Bitcoin to process more transactions. Since the block capacity is limited to a small number, big blockers argue that not everyone’s transactions will be included in a certain block. Thus, this will create a bidding war where people might stop using Bitcoin altogether. 

    Big blockers are urging the Bitcoin network to lift the 1 MB limit in order to allow the blockchain to scale to compete with traditional payment technology. Back in 2015, Gavin Andersen, the software developer for the reference implementation of the Bitcoin client software, stated in a blog post the urgent need to increase block capacity:

    “If the number of transactions waiting gets large enough, the end result will be an over-saturated network, busy doing nothing productive. I don’t think that is likely — it is more likely people just stop using Bitcoin because transaction confirmation becomes increasingly unreliable.” 

    Many on-chain and side-chain solutions surfaced to increase the Bitcoin block size over the years. The most prominent update is the Segregated Witness upgrade or SegWit for short. 

    Segregated Witness Upgrade 

    The SegWit protocol is a process by which it separates the transactions’ data into two segments. The first segment would be the “witness” data which is the transaction signature. This portion of the data is removed from the original transaction, however, it remains part of the blockchain at the end. The other segment contains the actual sender and receiver data. 

    Removing the signature data from the actual transaction results in capacity freeing up to include a larger number of transactions. So, instead of a block size limit, now Bitcoin blocks have a block weight limit and a theoretical size limit of 4 MB with a realistic size of 2 MB. 

    The SegWit protocol is considered a soft fork. Meaning that the change can happen without splitting the network into two different chains. However, this led big blockers to avoid looking at this upgrade as an increase in the block size limit. 

    Bitcoin SegWit

    Bitcoin Cash’s Hard Fork

    Not all solutions came in the shape of a soft fork. Back in 2018, users successfully deployed a hard fork that split the Bitcoin blockchain in two. The second chain became Bitcoin Cash (BCH) and introduced a block size limit of 8 MB. However, big blockers saw that even the 8 MB limit wasn’t enough. So, the blockchain went over several hard forks to reach 32 MB. The last deployed hard fork resulted in BCH splitting into a rival chain Bitcoin SV with a block size of 128 MB. 

    Bitcoin Hard Fork

    Small Blockers 

    On the other hand, small blockers who are opponents to the increase of the Bitcoin block size argue that the risks of increasing the capacity are far too big. For instance, increasing the block limit will increase the bandwidth costs to download and upload all transactions and blocks. 

    To make it clearer, let’s shed light on how Bitcoin nodes operate. Each Bitcoin node receives and transmits block data to its peers. On average, each BTC node connects to 8 peers. That means that nodes have to send and receive a 1MB block of data 8 times, thus creating a load of 8 MB. 

    Now let’s imagine the block size limit became 100 MB. This will result in an 800 MB transmission for a single block of transaction. This, in consequence, will increase the bandwidth costs to an unsustainable amount. 

    Not to mention how hard, expensive, and time-consuming it would be to deploy a new node on the Bitcoin network. Each new node has to synchronize with approximately 400GB worth of blockchain data before it can operate. Keep in mind here that the block size limit is 1 MB. This process can take several weeks for a new node. Imagine if the block size is much larger than 1 MB, it might take months. 

    Ordinals Increasing the Bitcoin Block Size

    On February 12, the Bitcoin block size witnessed an all-time average block size high as it reached 2.5 MB. Some blocks have been reported to be mined at a mind-boggling size of 3 MB, with many blocks nearing the 4MB SegWit limit. This is all thanks to Ordinals inscriptions of course. Since the SegWit upgrade allows the capacity of Bitcoin blocks to increase, Ordinals inscriptions became achievable. 

    Bitcoin Block capacity

    According to BlockChair statistics, block height #774,628 was mined with a size of 3.9 MB! I mean, this is what you get when embedding media files into the Bitcoin blockchain. It is also evident that inscriptions are making up approx. 40% of the block capacity!

    Bitcoin Block Inscriptions

    Regardless of whether people support the introduction of NFTs into the BTC network, the increase in block size is a pressing matter. 

    Why? Well because larger Bitcoin blocks will typically bid higher fees in order to take part in the validation process. That will lead to miners prioritizing the Bitcoin blocks that include ordinal inscriptions over regular BTC transactions. In contrast, those who are conducting regular transactions will have to bid EVEN higher to get their transactions into the next block.

    This might create something called “mining centralization”, where miners will get the upper hand in prioritizing inscriptions over transactions. We might see a hard fork created where nodes split the blockchain into two, one prioritizing JPEGs inscription over BTC transfer. 

    Some users are even urging Ordinals to move to Bitcoin Cash and Bitcoin SV because of their high block capacity. 

    We might not know where Ordinals might lead us, but what we do know is that with over 100K inscribed satoshis, we might witness a shift in Bitcoin usage, block space, and block fees. 

     

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