NFTs could revolutionize the way miners are incentivized in the future.
Bitcoin has been around for over a decade, but it’s still evolving. One of the latest developments is the use of Bitcoin ordinals – data inscriptions that give miners a glimpse at what the future of miner extractable value (MEV) could be. While the concept of inscribing memes and other media files into Bitcoin blocks has met with criticism, it offers a glimpse of how Bitcoin block space will evolve.
Bitcoin ordinals use the data storage features of the Bitcoin network that were introduced by the Segregated Witness (SegWit) upgrade in 2017 and the Taproot upgrade in 2021. Taproot is largely credited with the recent burst in on-chain NFT activity in Bitcoin, but components of the protocol’s SegWit upgrade created the landscape for excess data to be stuffed into Bitcoin blocks.
Bitcoin MEV is still in its early stages, and most MEV conversations center around non-Bitcoin networks like Ethereum. However, a robust decentralized finance ecosystem built on Bitcoin can quickly change that. A sustained on-chain craze of NFT-related activity could have the same effect.
Bitcoin historians know that on-chain collectibles and art originated on Bitcoin. In fact, Meni Rosenfeld published “Overview Of Colored Coins” in December 2012, which explained that “it is possible to color a set of coins to distinguish it from the rest.” This paved the way for NFTs.
Casey Rodarmor kickstarted the modern era of Bitcoin NFTs with his ordinals.com inscriptions project. Images, audio, video, HTML, SVG, JS, CSS, and anything else can be an inscription transaction. Some node operators even inscribed seed phrases on the blockchain. The sudden emergence of inscribed Bitcoin blocks has been met with criticism, but it offers a glimpse of how Bitcoin block space will evolve.
Excitement and controversy over Bitcoin ordinals surged after Luxor Technologies mined the largest block in Bitcoin’s history that contained the largest transaction in Bitcoin’s history: an Ordinal. In conjunction with long-time crypto investor and consultant Udi Wertheimer, Luxor included the 3.94 megabyte transaction in block 774,628, which weighed 3.99 million weight units. The Bitcoin protocol limits block weights to 4 million weight units.
Bitcoin MEV is not a total wasteland, but it is still very early. “There’s more MEV on Bitcoin than Bitcoiners like to acknowledge,” said Robert Miller, product lead at FlashBots, on a live stream about MEV. “And there’s some MEV in Bitcoin that just isn’t really being exercised by miners right now.” Lisa Neigut, a Lightning Network engineer at Blockstream, broadened the Bitcoin overton window on MEV with an article about Lightning Network MEV. Neigut theorizes about opportunities for searchers and miners from Lightning Network use, and she considers how searchers on Bitcoin may impact on-chain transactions for Lightning Network channels.
In conclusion, Bitcoin ordinals and MEV could change the future of mining. While the use of ordinals has divided the community, it offers a glimpse of how Bitcoin block space will evolve. A robust decentralized finance ecosystem built on Bitcoin and a sustained on-chain craze of NFT-related activity could drive the growth of Bitcoin MEV. As Bitcoin continues to evolve, we can expect to see more developments in this space.