The Bitcoin network has seen an increase in fees in May 2023 due to an influx of activity on the blockchain. This activity is related to the introduction of BRC-20 tokens, which was inspired by ERC-20 tokens on Ethereum, and are able to be tracked and differentiated from other satoshis due to the Ordinals protocol.
What are Bitcoin Ordinals?
Ordinals are a system that marks each satoshi, the smallest denomination of a Bitcoin, and allows them to be tracked and differentiated from other satoshis. This is made possible by the Taproot upgrade to the Bitcoin network in November 2021, known as the Ordinals protocol which is based on the order of transactions.
What are BRC-20 tokens?
BRC-20 tokens, named in a nod to ERC-20 tokens on Ethereum, were launched in March 2023. This token standard creates fungible tokens within the Ordinal protocol. A lot of these tokens are memes.
What has all this got to do with fees?
Ordinals have caused an interesting dilemma as these inscribed satoshis are now competing for block space with conventional Bitcoin transactions. This has caused a spike in fees as the BRC-20 tokens have taken off.
The debate on the rising fees has caused controversy. Some argue against these higher fees, lamenting the waste of time that NFTs and memes are. On the other side, fees are vital for the security of the Bitcoin network as miners will need to survive solely on fees once the final supply of 21 million Bitcoins is hit in 2140.
My take on this is that these memes and NFTs are inherently valueless, but the key is that the hash rate is still rising. This contrasts to April 2021 when the average transaction on the network cost a staggering $70 due to a crash in the hash rate. Rising fees due to increased activity is fine, and this is exactly why we have the Lightning network and why people are continuing to innovate to come up with Layer-2 or other solutions.