This week, Bitcoin
Bitcoin’s hashprice — a metric miners use to measure the value of their compute power, hashrate — rose to $79/PH/day today, an 11% increase week-over-week from $71/PH/day. This means that miners with 1 petahash (PH) of mining equipment can now expect to earn $79 per day in revenue from these machines. 1 petahash is roughly equivalent to 10 Bitcoin mining computers, so put another way, a typical Bitcoin mining ASIC (like the S19j Pro) is earning roughly $7.90 per day given current hashprice levels.
Jargon aside, the increase in revenue is partially due to Bitcoin’s price rally, but it has more to do with a substantial rise in Bitcoin transaction fees. Bitcoin, for instance, is only up roughly 1.1% over the past week, but transaction fees have increased significantly. (Bitcoin miners earn revenue both from newly minted bitcoin in the blocks they mine, as well as transaction fees that Bitcoin users pay to move funds).
Per data from Bitcoin mining data site Hashrate Index, Bitcoin transaction fees week-over-week constituted 4.94% of Bitcoin mining revenue, versus 2.94% in the prior weekly period — a 68% increase. Over the last 24 hours, transaction fees accounted for 10.9% of Bitcoin mining revenue.
Why the sudden increase in transaction fees? Because crypto traders are aping into Bitcoin-based non-fungible tokens (NFTs) — specifically, BRC-20 tokens.
What in the World Are Ordinals, Inscriptions, and BRC-20 Tokens?
This year, a new flavor of Bitcoin-based NFTs have tantalized the crypto trading and digital collectibles realm.
These new NFTs are interchangeably referred to as ordinals or inscriptions, and they first caught fire in February 2023 (although the standard’s creator, Casey Rodarmor, first unveiled them in December 2022). “Ordinal” in this case refers to the mathematical theory of sequencing that is used to numerically order these NFTs, while “inscription” refers to the raw data file (photo, text, video, etc) that the ordinal number tracks. So for example, the second ever inscription was a GIF of a psychedelic, dancing bird (yes, really), and its ordinal number is 2.
There are multiple types of inscriptions. There are image series that have attracted collector followings, similar to the famous Bored Apes and Crypto Punks on other chains like Solana
That design distinction is key for understanding why inscriptions can drive such massive surges in Bitcoin transaction fee volume. If there’s enough demand from collectors to buy and sell inscriptions, then related transactions will naturally drive fees. But minting inscriptions also occupies data space on Bitcoin’s blockchain that would otherwise go to other transactions. As such, inscription activity — particularly when new collections are minted — drives fee revenue because the raw data of the inscription requires data space on the blockchain, so high inscription volume can lead to a traffic jam for transactions. This, in turn, cause other users to raise their transaction fees in an attempt to jump in front of inscription transactions in the unconfirmed transaction queue for as-soon-as-possible inclusion in upcoming blocks.
We see this bidding wars particularly when it comes to BRC-20 inscriptions. These are text-based inscriptions that include minting parameters which allow anyone to mint new “tokens” in a series so long as they follow the rules put forth by the original minting contract. For example below, the Ordi series, which featured the ticker ORDI
Now, what is the point of a token that is literally just a string of text that is engraved as superfluous data on the Bitcoin blockchain? Beats me, man. But whether I’m just a moron who’s missing the point or this is another pristine example of the Greater Fool Theory in practice, plenty of NFT traders and degens seem to think that they’re worth something. And the first-come-first-mint design of these BRC-20 token series creates an incentive where collectors want to mint as many of these little playthings as possible before the supply cap is hit, lest they miss out on ground floor access to the next big NFT trend.
This mad dash to mint BRC-20 tokens precipitated a meteoric spike in transaction fees in May of this year, which ratcheted them up to their highest level since April 2021. The current transaction fee rally was sparked by Binance, one of the world’s largest crypto exchanges, adding the ORDI BRC-20 token to its exchange. Binance’s addition of ORDI has reignited interest in inscriptions after months of low volume, and the majority of this renewed activity has come from BRC-20 mints. According to figures from independent analyst dataalways, BRC-20 token mints made up 98.6% of all inscription volume over the past week.
You don’t have to understand how BRC-2os/inscriptions/ordinals work or even what the hoopla is all about to understand that, when Bitcoin-based NFT activity is hot, Bitcoin transaction fees rise — and this is good for Bitcoin miners’ bottom lines.
It’s especially good considering Bitcoin mining revenue will be cut in half in roughly 6 months after the April 2024 Bitcoin block subsidy halving, a quadrennial event which automatically cuts in half the number of BTC minted per block (the next halving will reduce it from 6.25 to 3.125 BTC). If Bitcoin’s price doesn’t continue rallying, then many miners will need to make up that revenue somehow, and transaction fees are a good place to start.