WTF Is Going On With Ordinals?

Last week, I saw a tweet go around the Ordinal sub-set of crypto Twitter that showed Ordinal transactions coming to account for most transactions on Bitcoin – all while marketplace volume and users trend downwards and people begin to declare the death of Ordinals. Given how the Ordinal market is struggling, one would think that Ordinal transaction types would be declining.

Starting in July, Ordinal transactions began to take over Bitcoin. Ordinal transactions often now account for more than 50% of the transactions on the chain. Even as someone who thinks Ordinals and BRC-20s are interesting, I was shocked to see this. I figured Ordinal transactions would one day dominate Bitcoin transactions, but not this soon. As such, I decided to take a deeper look.

First, I thought that maybe normal Bitcoin transactions had trended downwards, allowing for Ordinals to take a larger share. But, from what Glassnode tells us, raw Bitcoin transactions are still elevated. Starting with Ordinals, Bitcoin transactions have increased from a few thousand per day to more than a hundred thousand per day. If normal Bitcoin transactions were trending downward, we would expect the above chart to look flat. But instead, we see Bitcoin transaction counts growing throughout July and August.

Next, I figured there must be increased users or marketplace volume. But based on the charts above and below, Ordinal marketplace volumes and user counts are shrinking. Marketplaces now seem to have around 700 unique users per day, and the daily volume across Ordinal exchanges is sometimes barely above six figures. So, based on these metrics, the Ordinals dominating Bitcoin transactions are not caused by the surrounding market. Additionally, volume can look skewed as token prices will affect volume while not affecting token velocity.

Finally, I went looking at the mempool. I wondered if a dip in fees was causing a surge in inscriptions. Surprisingly – but in line with what I predicted regarding Ordinals pushing Bitcoin fees up – mempool fees are still elevated. Before Ordinals, fees sat around 2-5 sats per vByte, but now sit around 5-10.

As far as I can figure, BRC-20s are the reason for Ordinal transaction popularity. As users can see, text inscriptions – mostly BRC-20 transactions – are, by far, the most popular type of inscription. Honestly, I figured BRC-20s would eventually account for a lot of Bitcoin transactional volume – people love tokens – but I didn’t think it would happen this fast.

There are a few things that these trends can tell us:

First, Bitcoin needs scaling solutions yesterday. Ordinals are here, and the market signals that they like the tokens. If the marketplace stats are anything to go by, a handful of users speculating on BRC-20s are causing fees to climb and already dominating the Bitcoins mempool. If a BRC-20 bull market starts and users come in in greater numbers, Bitcoin will probably become unusable.

Second, tokens will eventually have to have a purpose. Speculating is as reasonable a use case for a token as anything else. But relying on token speculating as a use case will probably relegate BRC-20s to a small boom and bust market. However, given the speed at which this space is iterating, I expect token use cases quickly.

The Ordinal market has some odd metrics. Volume, prices, and users are down. However, due to how BRC-20s work, inscriptions have become the most popular transaction type. Bitcoin looks like it’s transitioning to an inscription/data layer chain. It will be interesting to see how these stats and dynamics change if users increase when/if a new bull market comes and retail participants return.

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