In a report by Glassnode, Lead On-chain Analyst Checkɱate reveals that the Bitcoin mempool is currently teeming with unconfirmed transactions, leading to a mixed reaction among Bitcoin enthusiasts. The culprit behind this congestion appears to be the growing prevalence of a novel feature called “Inscriptions,” introduced in February 2023.
Inscriptions, described as a significant buyer of Bitcoin blockspace, have triggered a surge in fees and consequently impacted miner profitability. The Bitcoin mempool, essentially a collection of unconfirmed transactions awaiting inclusion in a block, has been consistently data-full since February, with a notable increase in pending transactions observed since May. These unconfirmed transactions seem to be characterized by a smaller data footprint, allowing more of them to fit within the 300MB capacity of the Glassnode mempool.
The driving force behind this surge in demand for blockspace is the adoption of Inscriptions, enabling users to encode files into the witness portion of the transaction data structure. Two distinct waves of inscriptions have been identified: the first dominated by images and files, creating Bitcoin native NFTs using the Ordinal protocol, and the second characterized by text, particularly the emergence of the experimental BRC-20 token.
The impact of inscriptions is evident in the expanding Unspent Transaction Output (UTXO) set, witnessing a historic weekly increase. Notably, the BRC-20 token called SATS has contributed significantly to this surge, accounting for over 45% of the uptick in UTXOs.
Bitcoin Blocks: Filler or Thriller?
Interestingly, the report suggests that text-based inscriptions are acting as ‘filler’ for blocks, consuming a relatively stable 20% or less of the available block space. This analogy is further supported by the share of fees paid by inscriptions, with both waves consistently attributing around 20% of transaction fees to this new feature.
However, while positive, the impact on miner incomes remains relatively modest. Although there was a substantial fee spike in May, total fees and their share of miner income are still relatively low compared to historical levels. The growing hash rate competition has driven the hash price to new all-time lows, posing potential challenges for miners.
While inscriptions have become a significant buyer of last resort for cheap blockspace, the increasing competition among miners and the impending halving event may put miners on the edge of income stress unless Bitcoin prices see a substantial increase in the near term.
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