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Issue #1321: Inscriptions and the chain state

Issue #1321: Inscriptions and the chain state

Feb 20, 2023
Marty's Ƀent

Issue #1321: Inscriptions and the chain state

via Bitcoin Visuals

The bitcoin price isn't the only chart that has broken out to start 2023. Above is a chart of bitcoin's chain size as measured in gigabytes of data, and as you can see there has been a material jump in the annualized rate of growth in the chain size from ~15% to ~28%. This is being driven by the recent trend of people inscribing data into the chain as it has become evident that the activation of taproot has made this action significantly cheaper. Not only has this become evident, but people have made it relatively easy to inscribe data like jpegs in transactions.

The rapid rise of inscriptions in the chain has sparked a lot of controversy as many deem this type of use of block space as a waste of valuable resources that is unnecessarily increasing the size of the chain. While I may not find the data that is being inscribed in the chain (mainly NFTs) particularly interesting and tend to think of it as pretty cheesy and/or not data that needs to be stored on the bitcoin ledger, it does not matter. The decision to activate SegWit, which increased the block size limit to 4MB, coupled with the decision to activate Taproot, which made it cheaper to create certain transactions, made all of this possible. And because of this we now live in a world where people are taking advantage of what is possible with bitcoin. Like it or not, you have to live with it unless future consensus dictates a change that makes these things not possible anymore.

What is more important to focus on is whether or not this will have a material effect on the ability of bitcoin to stay sufficiently distributed. One of the core ideals of bitcoin over its first 14 years has been the goal to make it so as many people as possible can run their own full node to validate what is happening on the network. Many people who are displeased with the recent explosion of inscription activity on bitcoin are pointing to this core ideal and saying that it is being threatened. I tend to lean this way, but if I'm being honest with myself I probably wouldn't bat an eye if blocks were being consistently filled with transactions from people using bitcoin to send money from one address to another. In fact, I look forward to that day. Put another way, I have always expected that bitcoin blocks and mempools would be consistently full with transactions. Inscriptions have just expedited the timeline.

I believe that as the price of bandwidth continues to fall and high speed internet access becomes more widespread the threat of node centralization begins to wane from an accessability standpoint. I still believe the biggest threat of node centralization in the future will be driven by complacency or apathy. People saying "someone else is doing it" or "it's not really that important to verify what's going on for yourself".

At the end of the day there is still a block size limit that will limit the amount of data that can be added to the chain size from year to year. Whether or not it is the optimal block size limit is something that will be debated for centuries. If it were up to me the limit would be smaller so that the network could drive down the probability of node centralization as low as possible. But I don't think 4MB puts us in the "existential threat" territory.

If we extend the time horizon of the chart above it looks like this:

via Bitcoin Visuals

As the blockheight grows, and with it the chain size, the trend of the blue line should begin shifting lower again. Again, there is a 4MB limit to block size and due to that limit the chain can only grow so much per year (per block really). The tail end of this chart may seem a bit jarring right now (because they are), but this is just a function of underutilized block space since SegWit was activated. If bitcoin is to succeed as many believe it will every block will be filled with 4MB worth of transactions and the rate of growth of the chain size was bound for a temporary increase to reflect this.

Final thought...

Just fell down a dark AGI rabbit hole.

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Current Block Height

Current Mempool Size

Current Difficulty