Ordinals Drive Bitcoin Fees Sky High

The people have spoken: it appears as though ordinals are not going away.

The recent spike in Bitcoin transaction fees is largely due to the growing popularity of Ordinals, a protocol that allows users to store non-fungible tokens (NFTs) on the Bitcoin blockchain. A greater amount of on-chain activity has led to higher transaction fees due to the increased demand for block space on the Bitcoin network.

This is clearly part of a trend. Bitcoin miners have experienced windfall profits as transaction fees rose to the highest level since April 2021. The average transaction fee on the Bitcoin blockchain reached over $37, a significant increase from the average of $1-$2 observed in September and early October of the same year. This increase in fees was primarily driven by a surge in new Ordinals inscriptions.

To give a sense of the scale, over 1.2 million new Ordinals inscriptions were created from Friday to Sunday, leading to a significant number of transactions waiting for confirmation and thereby clogging the network. This boom in Ordinals has divided the Bitcoin community, with some viewing these inscriptions as "spam" that needs addressing, while others see it as a profitable avenue for miners. Miners, who are rewarded in BTC for processing transactions, are seeing a substantial increase in their daily income from fees, significantly boosting their profitability.

The popularity of Ordinals has also led to a nearly 1,400% increase in Bitcoin network fees in November alone. Ordinals inscriptions, which involve embedding digital assets like images and videos onto a single satoshi (the smallest unit of Bitcoin), have dominated Bitcoin transactions during this period.

This spike in fees reflects the dynamic nature of the Bitcoin blockchain and the evolving ways in which it is being used, extending beyond its traditional role as a digital currency.