Bitcoin NFTs Caused To Increasing of Transaction Fees

The surge in popularity of NFTs and meme-tokens resulted in unprecedented transactions and a significant financial gain for miners, who are responsible for operating the computers that support Bitcoin. In May, transaction fees accounted for more than 40% of revenues, whereas miner income typically derives mainly from the newly acquired Bitcoin used to ensure the integrity of the blockchain.

Bitcoin NFTs Caused To Increasing of Transaction Fees

The emergence of memecoins and nonfungible tokens (NFTs) on the Bitcoin blockchain has transformed the revenue landscape for miners and raised concerns about the lasting impact of this upheaval.

The introduction of Ordinals, a new software protocol, has enabled the integration of NFTs and meme tokens into the network this year. Galaxy Digital Holdings Ltd. predicts that the Bitcoin NFT ecosystem could reach a value of $4.5 billion by 2025, while approximately 25,000 memecoins have already been recorded on the blockchain since their inception in March.

This surge in NFTs and meme tokens has led to a surge in transactions and a substantial increase in fees for miners, who are responsible for operating the computers that support the Bitcoin network. At one point in May, transaction fees accounted for over 40% of revenues, whereas miner income typically relies on the acquisition of new Bitcoin for securing the blockchain.

Jihan Wu, chairman of Bitdeer Technologies Group, a leading crypto mining company, stated that the Ordinals protocol has triggered a significant shift in the Bitcoin mining landscape.

The introduction of Ordinals, along with a crypto market rebound, has alleviated the pressures faced by miners due to last year’s digital asset market decline and high energy costs. However, Bitcoin purists argue that the Ordinals phenomenon congests the network and interferes with Bitcoin’s role as a store of value and means of payment.

Data from CryptoQuant reveals that the mean fee per transaction on the Bitcoin blockchain started at $2.80 in April, peaked at $30 on May 8, and has since moderated to $6 as of May 18. The total fee income associated with Ordinals currently stands at approximately $37.4 million, according to data compiled by Dune Analytics AS.

Ordinals, developed by Casey Rodarmor, is a software protocol that allows users to attach digital content like videos, images, and text to satoshis, the smallest unit of Bitcoin. One Bitcoin consists of 100 million satoshis.

Rodarmor’s innovation facilitated the creation of the Bitcoin Request for Comment (BRC-20) standard by a pseudonymous blockchain analyst named Domo. This standard paved the way for the proliferation of memecoins. However, the sustainability of the sudden interest in NFTs and speculative tokens on the Bitcoin blockchain remains uncertain. The market value of memecoins, which was approaching $1 billion earlier in May, has since declined to around $582 million, as reported by BRC-20.io.

According to Carlos Gonzalez Campo, a research analyst at 21Shares AG, the BRC-20 tokens have no practical use. However, the advent of Ordinals has opened up new possibilities for utilizing the Bitcoin network.

While the memecoin frenzy on Bitcoin is expected to subside eventually, valuable use cases may emerge from the chaos, such as leveraging Bitcoin as a data availability layer and storing important documents requiring permanent preservation, as noted by Sami Kassab, a research analyst at Messari.

Sustained growth in transaction income could also help ensure the long-term sustainability of the Bitcoin network by keeping miners engaged. By around 2140, when Bitcoin is projected to reach its cap of 21 million tokens and no new coins will be issued in exchange for securing the blockchain, transactions will become the sole source of revenue.

Currently, Ordinals is fueling renewed investor enthusiasm for Bitcoin miners. The MVIS Global Digital Assets Mining Index, comprising 20 mining companies, has seen a 110% increase so far in 2023, outperforming Bitcoin’s 74% gain.

Colin Harper, head of content and research at Luxor Technologies, stated that the application of Ordinals is fundamentally transforming how people perceive mining profitability.

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