- Arbitrary data embedded into transactions have caused a wave of discontent
- Users have already experienced the consequences of network congestion
A new trend in the Bitcoin network has driven the increase in transaction fees. Data, such as images, videos, texts, and other data, can now be attached to a satoshi in the Bitcoin network with the help of Bitcoin Ordinals. This process is based on the updates to Bitcoin’s code that increase the network’s flexibility and scalability, such as SegWit and Taproot.
Software engineer Casey Rodarmor created a protocol called Ordinals which lets Bitcoin users trade NFTs, creating a wave of transactions on Bitcoin.
Arbitrary data embedded into transactions have caused a wave of discontent
Some users are skeptical about the new technique. Some of the protocol’s opponents claim that it constitutes an attack on the interchangeable nature of Bitcoin, where each unit of the currency is equivalent to another one in value. Critics believe that embedding additional data into transactions increases the relative value of some coins compared to others. As an example, they refer to ordinals inscriptions that contain NFTs or digital art with a market value.
Experts are also worried that the protocol poses a threat to Bitcoin’s mission in El Salvador — the world’s first country to recognize Bitcoin as a legal tender. The addition of arbitrary data to the blockchain could result in increased transaction fees and network congestion, making the cryptocurrency less affordable for many people.
Ordinals have triggered a controversy within the community, as users argue whether the new protocol is an advance or an attack on its values. While some users believe that it can help express creativity and promote innovation, critics believe that it abuses and undermines the currency’s main principles.
Users have already experienced the consequences of network congestion
Ordinals caused a “massive run up in network fees and congestion,” according to Hayden Hughes, co-founder and CEO of social trading platform Alpha Impact. Binance halted Bitcoin transactions twice recently — on May 7 and 8.
The famous exchange restarted Bitcoin withdrawals around noon in Hong Kong on May 8 after its second halt in twelve hours, due to a “large volume of pending transactions.”
Binance wrote on Twitter that its “set fees did not anticipate the recent surge in Bitcoin network gas fees” and that the exchange was trying to solve the issue by replacing the transactions with a higher fee so that they could be picked up by mining pools.
“Pending transactions are being processed by replacing them with higher transaction fees. To prevent a similar recurrence in the future, our fees have been adjusted. We will continue to monitor on-chain activity and adjust accordingly if needed,” Binance announced after resuming Bitcoin withdrawals.
The exchange also suffered losses because of this incident. On Sunday alone, Binance recorded a total outflow of around 188,281 Bitcoin — the largest daily volume according to the records of CryptoQuant, a company that has provided comprehensive data for crypto trading since May 2020.
