Bitcoin NFT Hype Creates High Fees As Unconfirmed Transactions Skyrocket

The BitcoinBTC network’s transaction fees are skyrocketing to roughly $19, according to bitinfocharts.com, driven up by bitcoin NFTs made with the Ordinals protocol, created by software developer Casey Rodarmor. Ordinals enabled an NFT-like capability for Bitcoin’s blockchain, driving enormous hype with some inscriptions selling for more than $214,000. The increased demand for Bitcoin’s block space led to the corresponding rise in bitcoin transaction fees. The blockchain backlog got so congested that the crypto exchange Binance paused withdrawals for almost two hours on Saturday, May 6. And this may only be the beginning.

There are now more than 4,6 million inscriptions in the Bitcoin blockchain, according to data shared via the analytics platform Dune, and there’s even a new standard to mint this kind of digital artifact called BRC-20. For veteran crypto technologist Eric Wall, one of the industry’s most vocal Ordinals advocates, inscribing his first bitcoin NFT, based on an Ethereum-based NFT he already owned, was a life-changing experience. Much of his work is now focused on Ordinals.

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“After I inscribed this 360kb Trump card for $20, shit just went parabolic”, Wall told me in an interview via direct Twitter messages.

Next, Wall teamed up with fellow bitcoin industry pundits like Udi Weirthmeither and Dan Held, former head of marketing at Kraken crypto exchange, to launch the Taproot Wizards Ordinals project. Their goal is to make using bitcoin “fun”. Ordinals have triggered the most significant use of the Bitcoin network’s Taproot update since its activation in 2021. Aside from NFT fans, bitcoin miners are another group of ecosystem players benefiting from Ordinals in a big way.

“Ordinals are good; it forces the infrastructure of Bitcoin to mature, forces the scaling debate, solves the security budget issue, brings BTC back as a unit of account,” Wall said.

Bitcoin Miners Are Making Money From Increased Transaction Fees

Charlie Spears, Strategy Lead of the startup OrdinalHub told me in an interview that even miners that dislike NFTs are happy to process related transactions for a fee. So far, Ordinals have generated more than $21 million in fees.

“In the long term, this new use of Bitcoin’s block space may play a major role in Bitcoin’s security budget, which we all care deeply about,” Spears said.

Transaction fees have exceeded the regular mining subsidy, which miners see as a positive side effect, especially with the next Bitcoin halving so close. Halving is an automatic process that happens every 210,000 blocks, cutting the block reward that bitcoin miners earn by 50% every few years. This makes it harder to mine bitcoin as the total supply approaches the 21 million bitcoin the protocol limits bitcoin’s overall supply to. The next halving, which continues cyclically reducing the rewards that bitcoin miners earn, is expected to occur in 2024.

Ordinals Critics And Network Congestion

On the other hand, there are plenty of bitcoin users who are calling this an attack against the network. The main criticism of Bitcoin NFTs is that Bitcoin should be a money network, not a tool for distributing and recording digital art pieces. Critics see bitcoin NFTs as a new kind of graffiti movement, defacing the peer-to-peer financial network enabled by the Bitcoin blockchain.

Rising transaction fees and longer confirmation wait times indeed make it harder to use bitcoin for small transactions. According to mempool.space, the number of unconfirmed bitcoin transactions is now at an all-time high, with more than 465,000 transactions waiting to be processed, and fees reached more than $20. At least, all this is true for users who prefer the Bitcoin blockchain instead of the Lightning Network’s bitcoin scaling solution.

This network environment reportedly makes the Bitcoin network too expensive for most people to use in El Salvador. For example, these high fees make El Salvador ‘s Chivo ATM system almost unusable for average Salvadoran people.

Meanwhile, bitcoin technologists are working on Ordinal filters and considering other more radical solutions, like a soft fork of the whole network. For now, most experienced bitcoin users know to use the Lightning Network, a second layer built on top of Bitcoin, for situations like this.

Lightning lets people transact with much smaller fees and without waiting for confirmation on the underlying blockchain. Lightning users can settle their bitcoin transactions to the underlying bitcoin foundation whenever they want, so users can wait for an opportune time without congestion and high fees. After temporarily disabling withdrawals, even Binance is considering adding Lightning features. Other crypto exchanges like Kraken, OKX and Bitfinex already support Lightning transactions.

Only time will tell if this spike in bitcoin transaction fees will inspire more companies, and individual users to participate in the Lightning Network. So far, data from the analytics site 1ML.com indicates the number of Lightning nodes and channels has actually decreased, not increased, over the past month while the price of regular bitcoin transactions climbs ever upwards.

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