Ten31 Timestamp 774,337
Ordinals, Taproot, SegWit and the law of unintended consequences
Ordinals are a recent development by Casey Rodarmor for allowing NFTs to be stored in blocks of the bitcoin blockchain. The recent Taproot upgrade has raised the ceiling on the amount of data that can be stored in the witness section of a bitcoin transaction. The original intent of change on the witness data amount change was to allow for more complex spend or smart contract-like features. However, Ordinal Theory utilizes opcodes OP_FALSE, OP_IF, and OP_PUSH to be able to effectively allow one transaction to fill up an entire block’s 4MW (4 million weighted units) or 4MB because of how Segregated Witness (SegWit) transaction sizes are calculated. SegWit was an upgrade in 2017 which has enabled layer 2 solutions like lightning and was a precursor requirement for Taproot. SegWit allowed data going into blockspace to be calculated differently, so that witness data was calculated at a 75% discount. SegWit effectively increased the blocksize from 1MB to 4MB. Currently, because of how data is calculated Ordinal data is being argued as not paying their fair share to occupy the newest created blockspace because of the witness discount. There are concerns the blockchain will become bloated with useless jpegs, a new exploit to be an attack vector, or prevent bitcoin’s potential as freedom money from reaching every corner of humanity because of increased costs on getting a new transaction onto the blockchain.
The question on the purpose of the bitcoin blockchain is brought to the forefront again. Is the blockspace that makes up the bitcoin blockchain only meant to be used for transactional data or can / should the database be used for more? There are lots of arguments on why putting pictures or text in the blockspace is not a useful use of the permanent space, and there are good points that the individuals using Ordinals are paying customers of the blockspace and providing revenue for miners. The answer on whether Ordinals are useful, detrimental, or neutral to bitcoin is playing out in real time, with the final decision to be made by the market. What we do know is there will be consequences for every action and the outcomes of the consequences are unknowable. While there are many compelling arguments that this question will ultimately have minimal impact on bitcoin, the situation serves as the latest reminder that all decisions regarding changes to the bitcoin computer program should heed the law of unintended consequences and adopt changes deliberately and thoughtfully.
Pourteaux’s “Illegitimate bitcoin transactions” provides a history of alternative data in blockspace and Ordinals
Burak, the recent breaker of lightning, outlines in a thread a protocol for creating a way to mint/transfer 45+ collectible/sec
Selected Portfolio News
Strike launched its pilot with Clover, a point-of-sale terminal provider serving ~200,000 restaurants and bars. The pilot will run for 90 days before Strike’s Clover app could potentially become widely available to merchants in the Clover app store:
Bitnob rolled out Transfer, a new feature allowing users to send money directly into bank accounts or mobile-money wallets of recipients in Nigeria, Ghana, Kenya, and five other countries, bypassing cumbersome and expensive legacy remittance processes. Recipients do not need to have Bitnob accounts to receive funds:
Bitcoin Magazine released a trailer for “Freedom Money,” a new series featuring interviews between Matt Odell and activists using bitcoin to fight oppression and advance freedom. The six-episode weekly series will begin on February 1st.
Marty Bent joined the Simply Bitcoin show for a wide-ranging discussion on pushing bitcoin forward.
NVK, co-founder and CEO of Coinkite, made an appearance on Builders in Bitcoin to discuss Coinkite’s history of building critical tools for bitcoiners.
Coinkite’s Coldcard and Tapsigner were featured in a demonstration of Nunchuk’s assisted multisig offering by popular education channel BTC Sessions.
Amidst an ongoing push by activist shareholders to force an unwind of the GBTC trust, Unchained Capital published a series of considerations for GBTC holders who receive redemptions in either cash or bitcoin.
Large-scale layoffs spread beyond the major tech companies this week, with Dow Chemical, IBM, SAP, and 3M announcing more than 10,000 job cuts collectively. However, employers like Wal-Mart, Chipotle, and Airbus struck a more optimistic tone around near-term hiring.
Other macro indicators continue to trend negative, as December 2022’s rate of severely delinquent auto loans reached its highest level since February 2009 and investors sought to withdraw another $5 billion from Blackstone property funds (following similarly large redemption requests late last year).
The Bank of Canada hiked its benchmark interest rate by 25bps to 4.5%, as expected; however, officials also explicitly noted their intention to pause rate hikes from here to assess the impact of tightening thus far, one of the first explicitly dovish stances taken by a central bank since the start of worldwide tightening cycles early last year.
Meanwhile, Federal Funds Rate futures now imply expectations the Fed will pivot to rate cuts by September 2023.
The IMF publicly warned of “significant upside risks” to Japanese inflation if the BOJ maintains its current yield curve control policies.
Investors filed a class action suit against struggling bitcoin miner Argo Blockchain, alleging that Argo failed to disclose material risks during its 2021 IPO process.
New reports suggest that Russia and Iran are developing a “gold-backed stablecoin” to circumvent international sanctions and further avoid US dollars. Bitcoin Magazine published an article enumerating a few reasons this stablecoin is unlikely to succeed.
The White House published a statement on the need for Congress to broaden regulators’ powers over the “crypto” complex in order to “limit risks to the financial system.”
The European Union advanced a draft proposal for new capital requirements on banks holding cryptocurrencies. The new regs stipulate banks would be required to hold “a euro of their own capital for every euro they hold” in cryptocurrencies.
Paraguay rolled out new restrictive measures on bitcoin mining, including ~60% increases in electricity tariffs and 4x higher upfront deposits on new builds.
Arizona State Senator Wendy Rogers introduced a pair of bills to make bitcoin legal tender in Arizona and to allow state agencies to accept bitcoin as payment. Encouragingly, the bills specifically and exclusively mention bitcoin; however, Senator Rogers’s prior attempt at passing legislation like this in January 2022 was quickly defeated.
Prominent backend custody provider Prime Trust announced it had withdrawn its Money Transmitter License (MTL) application for the state of Texas, limiting many bitcoin firms’ abilities to offer most services to Texas residents for the time being.
The US’s first nuclear-powered bitcoin mining installation is set to begin operating in Pennsylvania during the first quarter of this year.