Answering Ordinary Concerns: Bitcoin Block Space and Decentralization

Bitcoin inscriptions are still available for a few weeks so we continue to monitor the fee market and block usage to see what has changed since 100,000 inscriptions. Subscribe now to be among the first to receive these insights, as well as other on-chain analysis of bitcoin market.

Block Space and Bitcoin Decentralization: New users have been flocking towards Bitcoin to create what are called inscriptions, also known as NFTs (non-fungible tokens) on other blockchains. These mostly image files increased demand for Bitcoin block space, which led some network participants to be concerned about Bitcoin’s future centralization. The cost of running a full node will rise substantially because users will need the bandwidth and storage space to download all the data that is not related to monetary transactions. As a result, there are now almost 3 GB of cumulative storage specifically for inscriptions at the time this article was written.

(Source)
If the block space is used consistently to its maximum extent of 4MB, it will add approximately 209.24 GB of data each year to the chain. This is not a major cost barrier for running a full network but can still be costly in areas where technology isn’t as readily available. A pruned node can be run, which doesn’t require any witness data storage and only keeps track Bitcoin’s monetary transactions data. Users must still download all data to create a pruned network. Here is where bandwidth issues can be a problem. This is where the concerns about insufficient bandwidth come into play. This cap was set by SegWit during the soft fork. It included the fee discount for witness information (like inscriptions) that is not related to Bitcoin’s financial ledger or its unspent transaction output. This ordering is used to number inscriptions as they are written onto Bitcoin’s blockchain, also known as the timechain. People rushed to confirm their inscriptions as soon as the count reached 100,000. The largest increase in fees was around this time. It is shown in dark green. It is easy to see that the largest increase in fees occurred around the time of the 100,000th inscription. This chart is shown in dark green. Although there is still a large backlog of transactions in Bitcoin’s mempool, the fees required for a transaction to be confirmed in the next block has dropped significantly. The daily total fees spent on creating inscriptions is “down only”.

(Source)
The fees have dropped along with the amount of money spent on inscriptions each day. However, the mempool’s number of pending transactions is high and constant with no signs of slowing down in the near future.

The number of pending blocks that are still to be confirmed is high.
Blocks are being mined so fast that an expected difficulty adjustment close to +11% is possible in this past mining epoch. “The expected ratchet up in mining difficulty will take away some relief that operations felt in recent weeks, owing to the increase USD-denominated revenues. The bitcoin-denominated revenue of miners will again fall to new lows. State of the Mining Industry: Bitcoin Miners Outperform Bitcoin We will see how this thesis plays out. We will see if this thesis holds true. Do you like this content? Subscribe now to receive PRO articles right in your inbox

Relevant Past Articles