Because to the introduction of the nonfungible tokens (NFTs) protocol Ordinals in January 2023, the average size of a Bitcoin block has surpassed 2.5 megabytes (MB) for the first time since the cryptocurrency’s foundation in 2009. This marks a new all-time high for the cryptocurrency.
According to statistics obtained from Blockchain.com, the size of Bitcoin blocks increased by more than 2 MB in the weeks after the debut of the Ordinals Protocol. This surge in block size can be traced back to the beginning of February 2023.
Software developer Casey Rodarmor introduced the Ordinals protocol in the month of January. This protocol makes it possible for users of the Bitcoin network to create “digital artifacts.” These may include JPEG photographs, PDF documents, as well as audio and video files.
In the documentation for Ordinals, Rodarmor explains that each of these digital objects may be inscribed to a single satoshi, which is one of the component parts of a Bitcoin. The value of one bitcoin is equal to 100,000,000 satoshis.
Individual satoshis have the ability to be imprinted with any kind of data, allowing for the creation of one-of-a-kind digital artifacts that are original to Bitcoin. These artifacts may be stored in bitcoin wallets and moved via bitcoin transactions. The permanence, immutability, security, and decentralization of inscriptions are on par with those of Bitcoin itself.
The Bitcoin community is split on the issue of whether or not it should be possible to engrave digital items into the blockchain, and the reasons both for and against the proposal provide plenty of material for reflection. The greater use of block space for the inscription of several Ordinals has emerged as one of the primary topics of discussion.
Since July 2021 and continuing until February 2023, the typical size of a Bitcoin block has ranged between 0.7 and 1.5 megabytes. The average size of a Bitcoin block topped 2 megabytes for the first time on February 5, and it is now hovering at around 2.2 megabytes at the time of this writing.
According to statistics obtained by Glassnode, the introduction of Bitcoin Ordinals has also resulted in the network reaching a new high of 44 million non-zero addresses.
The most recent issue of Glassnode’s newsletter mentions that Ordinals compete for block space demand despite the fact that they have not yet materially influenced network pricing.
The introduction of Ordinals was referred to as a “new and unique point in the history of Bitcoin” by Glassnode. This is because innovation may promote network activity even without the “classical transfer of currency volume for monetary objectives.”
SegWit has come a long way since its first appearance during the 2015-2017 blocksize war. However, despite its relative success as a Bitcoin upgrade, crypto exchanges including Binance and Gemini are still not committed to using SegWit addresses for sending Bitcoin (BTC).
Implemented in 2017, segregated witness (SegWit) is a soft fork upgrade that separates “witness” data from the base transaction. In an “explain like I’m five” kind of way, SegWit allows for a safer and faster Bitcoin, making scaling the network easier.
While most exchanges and individuals were quick to upgrade their infrastructure to take on SegWit, reaching the 50% mark for Bitcoin transactions in 2019, the largest exchange, Binance has been dragging its feet.
Glassnode’s report states that Binance “had trivial SegWit adoption rates of only 10% up until the end of 2021.” However, it has finally “made an earnest effort to push SegWit adoption near the end of 2021.” Its adoption rate is currently at 50%, paling in comparison to Coinbase and FTX at 100%.
Altogether, crypto exchanges consume roughly 40% of Bitcoin block space. Crucially, however, Coinbase and Binance make up the lion’s share of block space, responsible for “25% of consumed block space” last month. If leaders such as Binance, or large players such as Gemini fail to fully adopt SegWit, Bitcoin will struggle to reach its true scaling potential.
Tomer Strolight, editor in chief at Swan Bitcoin, illustrates the argument:
“The fee savings provided by SegWit (and also batching and Taproot) will inevitably lead to their near-universal use. These have succeeded already in vastly reducing congestion and lowering fees. Ironically, however, their success to date means that we may have to wait until fees become a problem again to give the late adopters the kick in pants they need to fully switch.”
Glassnode’s report also shares a more accurate measure for reading SegWit adoption, SegWit utilization. When applied to single entities, such as exchanges, it provides a more detailed picture.
Of the 18 major exchanges that Glassnode investigated, one-third are bona fide SegWit supporters at over 90% adoption levels. The second third–including Binance–are taking their best shot at adopting SegWit ranging from 50% to 80%, while the final six are still using Bitcoin addresses beginning with the number 1, rather than SegWit’s 3.
Related:88% of all BTC transfers are overpaying transaction fees
Here is the graph detailing the exchange SegWit ranking:
It’s unlikely that the laggard exchanges will upgrade to Taproot, the most recent Bitcoin soft fork, any time soon. As Strolight points out, we might have to wait until fees rise before they wake up.
Data from BTC.com estimates that the network will continue to grow stronger by attaining another ATH in the next 12 days — with a network difficulty of 26.70 trillion.
Bitcoin is set to undergo a major network upgrade, Taproot, in nearly two days, i.e., on Nov. 14 or 255 blocks later, as per data from Taproot.watch. This is the first significant upgrade since the Segregated Witness (SegWit), which eventually culminated in the development and launch of the Lightning Network in 2018. The original Taproot proposal was made by Bitcoin core contributor and former Blockstream chief training officer Gregory Maxwell on Jan 23, 2018.
While the previous SegWit upgrade was aimed to resolve transaction malleability and improve the scalability of the Bitcoin network, the Taproot upgrade is targeted to improve transaction efficiency, the privacy of the network, and its ability to support smart contract initiatives. The upgrade was set into motion only after attaining a 90% consensus among the Bitcoin mining nodes on June 12, as announced by Bitcoin developer Hampus Sjöberg on Twitter. Sjöberg also made the Taproot.watch website to track the updates for the Taproot upgrade.
Ben Caselin, head of research and strategy at AAX, a cryptocurrency exchange, told Cointelegraph, “The Taproot Upgrade coming to Bitcoin is among the most impactful changes to be implemented on the network. The upgrade brings smart contract functionality to the protocol, and it optimizes for cost efficiency and privacy.“
He also noted that the smart contract functionality coming to Bitcoin is significant even though there are so many high-performing protocols that are functioning already, stating “we have to remember that Bitcoin is the only truly non-sovereign network that offers the highest degree of network security on the planet.”
MAST and Schnorr Signatures
The soft fork will introduce the Merkelized Abstract Syntax Tree (MAST). This tree will introduce a condition that will allow the sender and receiver of the transaction to sign off on a transaction together for settlement. Merkle trees are an established compact complex data structure that was invented by Ralph Merkle, one of the inventors of public-key cryptography.
Currently, Bitcoin uses the pay to script hash (P2SH) that ensures that only a hash of the script is going on-chain. Thus, when tokens are being spent, the underlying technology makes it necessary to show all the possible conditions which could’ve been fulfilled, including those that weren’t met in the transaction. The downside to this is that it is very data-heavy, which is unnecessary, and it’s not ideal for privacy as anyone on the blockchain can investigate which ways the funds could’ve been spent, the kind of wallet being used, and possibly more of such details.
MAST ensures that the various conditions in which the funds can be spent are hashed individually and included in a Merkle Tree that will produce a Merkle root, which is a single hash. This ensures that only conditions which are met would need to be revealed, thus making the network more data-efficient than the previously used P2SH contracts.
Additionally, the Taproot upgrade will bring in the Schnorr Signature. This algorithm will allow users to aggregate multisigs into one for a single transaction, making it difficult to differentiate between regular transactions and multisig transactions. Essentially, these signatures hide if there is a MAST structure that existed from the token or transaction at any time at all.
Igneus Terrence, head of communications at Bybit, a cryptocurrency derivatives exchange, spoke with Cointelegraph on the specifics of this upgrade:
“Using the trinity of Schnorr signatures, MAST and Tapscript, Taproot allows for less unnecessary data collection in Bitcoin network’s transaction outputs without sacrificing security. By virtue of less amount of data collected and transferred, the benefits for the end-users will be seen in better privacy, more efficiency, and lower transaction fees.”
Terrence also mentioned that the Taproot upgrade would have a compounding effect on the Lightning Network launched back in 2018. After this soft fork, simple, complex multisig and Lightning Network transactions will be treated equally on the network. This would unlock the true potential of the Lightning Network through increased efficiency and reduced discrimination on fungibility.
Marie Tatibouet, the chief marketing officer at Gate.io, spoke with Cointelegraph about the larger impact that the Lightning Network has had already, especially in El Salvador’s adoption of Bitcoin as legal tender. She said, “Strike — one of the most popular Lightning Network wallets — is responsible for powering El Salvador’s crypto ecosystem. In a three-month period between May and July 2021, the number of lightning network nodes jumped from 10,000 to 23,000. As things stand, it is projected that the Lightning Network could reach 700 million users by 2030.”
Even though the upgrade will allow the deployment of smart contracts and is the next logical upgrade for the Bitcoin network, it would be unrealistic to compete with the most utilized smart contract blockchain network, Ethereum, anytime soon. On this, Tatibouet said, “While it will take some time for proper contracts to function properly, the utility and user base it will bring in will be certainly impressive. However, don’t expect Bitcoin’s smart contract ecosystem to eclipse Ethereum’s any time soon.”
Anto Bukov, the co-founder of 1inch Network, a decentralized cryptocurrency exchange, holds a more absolute view regarding smart contracts. He told Cointelegraph, “It was not designed for this purpose. Bitcoin is based on the UTXO model, which is not suitable for smart contracts. Cardano recently demonstrated this.”
Short-term price impact is limited
The days leading up to the upgrade have been interesting for Bitcoin as an investment asset as well. The token briefly hit an all-time high of $69,000 on Nov. 12 before crashing almost $7,000 to under the $63,000 price mark. The token currently trades just below the $64,000 as per data from CoinMarketCap. The asset currently has a market capitalization of over $1.2 trillion, holding over the coveted $1 trillion mark for nearly a week now.
However, the impact of this upgrade may already be priced into the asset’s current price. Bukov further spoke about the impact on the end-user. He said, “We note interesting technical improvements in Taproot, but it hardly will bring any user impact except for marketing.”
Caselin seemed to be more hopeful of the long-term price impact of this asset. He mentioned, “The immediate soft fork is priced in already. Anyone who understands and follows Bitcoin has been aware of Taproot and will have adjusted exposure accordingly. Nonetheless, since Bitcoin is still under its fair value and a further surge this month is widely expected, Taproot might provide the impetus. Nonetheless, in terms of its potential, Taproot has not been priced in at all.”
Since the Taproot upgrade would reduce the transaction outputs on the network, it opens the possibility for the deployment of sophisticated smart contracts. One differentiator from other blockchain networks that already have advanced smart contract utilities like Ethereum, Solana, etc., is that Bitcoin’s monetary functions and superior network security could attract liquidity that stays in the network for long periods. This is an aspect that various decentralized finance (DeFi) protocols built on platforms like Ethereum currently struggle with, and are stepping into the DeFi 2.0 to address.
Caselin spoke more about the marketwide impact, saying, “Bitcoin might take some market share away from smart contract platforms; however, it is more likely that mainstream participants in DeFi will stick to Ethereum, Solana, and similar protocols. Bitcoin is better suited for the more serious endeavors — and serious capital.”
Irrespective of the short-term price impact that the Taproot upgrade might or might not have on Bitcoin, it is evident that the Taproot upgrade, coming in as the first upgrade for the network in four years, is a major step for the network as it improves its fundamentals even further. Over the long term, this upgrade would drive value and could be seen as another step towards “hyperbitcoinization.”
It’s undeniable that Bitcoin (BTC) and Ethereum (ETH) are currently the two most dominant cryptocurrencies and as a result they receive the most of the attention from the mainstream media, institutional investors, and retail investors, but this doesn’t mean that the sector leaders are not occasionally challenged by competitor networks.
Two forked projects that once sought to challenge Bitcoin and Ethereum for their seats at the top are Bitcoin Cash (BCH) and Ethereum Classic (ETC). In the past week, both tokens have demonstrated that they are still capable of generating excitement and producing big gains.
BCH/USDT vs. ETC/USDT 4-hour chart. Source:TradingView
Data from Cointelegraph Markets and TradingView shows that the price of BCH has climbed 125% over the past two weeks as it rose from a low of $523 on April 4 to a high of $1,175 on April 16. During the same time period, ETC staged a 250% rally from $13.30 to a new all-time high at $46.53 on April 16.
BCH/USDT
Bitcoin Cash arose out of contention in the Bitcoin community centering around the scalability of the Bitcoin blockchain and the desire to increase the block size.
As a result of the disagreement, part of the community split off and “forked” Bitcoin to create BCH in order to implement the desired code updates.
The protocol now aims to be a peer-to-peer electronic cash system capable of being used to conduct fast payments around the world with low fees, user privacy and a high transaction capacity.
Momentum for Bitcoin Cash began pickup up at the beginning of April as the cryptocurrency market as a whole received increased attention from the mainstream media and financial markets. One theory suggests that new investors look for older coins with lower valuations as a starting point instead of chasing after Ether and Bitcoin which may appear expensive to new crypto traders.
BCH/USDT 4-hour chart. Source:TradingView
With Bitcoin now back above $61,000 and its hashrate hitting a record high of 200 EH/s, the top cryptocurrency is out of reach for many smaller investors and miners who may be turning to BCH as a more feasible option.
ETC/USDT
Ethererum Classic emerged in 2016 as the result of a hard fork within the Ethereum community following the hack of a popular platform called The DAO. Initially, the DAO was an early decentralized autonomous organization intended to act as an investor-directed venture capital firm.
ETC is actually the original legacy chain of the Etherum network that didn’t take corrective measures to recover funds lost in the hack as a way of maintaining the ethos of finality.
ETC/USDT 4-hour chart. Source:TradingView
While Ether has gone on to become the widely adopted version of the network, ETC has continued on its own path and is once again gaining attention from the crypto community as high transaction costs and the transition to a proof-of-stake consensus for Ethereum has lifted ETC to new highs as users looking for compatible options.
The hashrate of the Ethereum Classic network has steadily been climbing over the past 6 months alongside the rising price, helping to make the network more attractive to interested miners and increasing the overall security.
With a higher price comes greater block rewards, which then creates a larger incentive for miners join network. This both increases network security and keeps honest miners happy to do so. pic.twitter.com/Kkob0nvqht
— ETC Cooperative (@ETCCooperative) April 16, 2021
As more participants enter the crypto market in search of good deals on established projects, legacy coins like BCH and ETC could possibly see further price growth.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
