Bitcoin fee surge spurs calls for changes to treat NFTs and meme coins as spam

A surge in Bitcoin fees not seen since the height of the 2021 bull market has ignited a fierce debate about the roots of the cryptocurrency’s purpose versus the nature of free and fair markets.

And one developer is calling for change.

“Action should have been taken months ago,” Bitcoin Core developer Luke Dashjr, who has worked on the network’s software since 2011, said on a forum. “Spam filtration has been a standard part of Bitcoin Core since day one.”

A massive spike in the volume of so-called Ordinal inscriptions — NFTs and meme tokens — on the Bitcoin network drove fees to their highest since April 2021. Data from Ycharts show average fees on the network reaching $30 on May 8, a 15-fold increase from a month earlier.

The frenzy caused the world’s biggest crypto exchange, Binance, to temporarily halt Bitcoin withdrawals.

Some described the situation as an attack on the network and a deviation from Bitcoin’s original goal. For others, the jump in fees is a natural supply-and-demand aspect of functioning markets.

Those who consider Ordinals an attack on Bitcoin are advocating for changes to the network’s software. However, such action could be seen as censorship, which some have argued is against Bitcoin’s philosophy of being open and permissionless.

“Nothing has been agreed upon yet,” Bitcoin Core developer Ali Sherief told DL News. “In situations like these where there is something significant at stake, there is usually a lot of dialogue about possible solutions.”

Spam filter for Ordinals

Despite Dashjr’s calls for a bug fix to treat Ordinals as spam, other Bitcoin Core developers may have different views.

“I would like to make it clear that this is not the opinion held collectively by the developers,” Sherief said.

He called the spam moniker ”a bit extreme when you consider that there’s live money on top of these transactions,” Sherief said.

Ordinals resemble spam because of the way they work. Their design has been described as inefficient because Ordinals have limits on the number of tokens that can be minted per transaction.

As a result, users need to send several transactions to mint more of these tokens. This results in a flurry of transactions clogging up Bitcoin’s limited block space during periods of frenzied activity.

Erik Aronesty, another Bitcoin Core developer, told DL News that he did not think spam filtration was necessary. “But I support anyone who chooses to filter them on their own node, forcing ordinals users to submit directly to miners,” he said.

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Aronesty and Sherief are part of the conversation about what to do about Ordinals on the Bitcoin dev forum. They are currently debating the question of whether the developer community should reject Ordinals and meme tokens as non-standard Taproot transactions.

Taproot is a major upgrade that happened on the Bitcoin network in 2021 to improve its privacy capabilities. This upgrade had an unintended consequence unknown at the time — it created a means for people to inscribe data on the blockchain leading to the rise of Ordinals.

‘Bitcoin is working as designed’

Blockchain transaction fees are a function of demand. When demand increases, fees spike and vice-versa.

This makes the increase in fees due to Ordinals clogging up the network a feature and not a bug, according to Nic Carter, partner at Castle Island Venture, a blockchain venture fund.

“If you think the fees are too high you’re just saying you don’t believe in free markets. Or you’re saying you want to reparametrize Bitcoin, which I believe is heresy. Pick your poison,” Carter tweeted on May 8.

Aronesty told DL News that discussions about high fees on Bitcoin are “somewhat obsolete.” This is due to the work being done with layer 2 networks like lightning and pooled channels, the Bitcoin developer explained.

“Generally, the consensus is Bitcoin is working as designed,” said Aronesty.

With it being a permissionless system, the argument is that no one should be stopped from using the network to send transactions. To do so would be an act of censorship which is against the ethos of Bitcoin as a free and open system.

Would actions taken against the proliferation of Ordinals on Bitcoin amount to censorship?

Yes, Sherief said. “That is why we have to be very careful when dealing with this issue.” Attempts to filter Ordinals as spam “will cast a negative image on Bitcoin.”

‘They will soon run out of money’

The fee spike caused some to argue that the situation was negatively impacting adoption in countries like El Salvador.

“Ordinals are destroying lives” soon became an oft-quoted refrain among those against the proliferation of these types of transactions.

There are, however, people on the opposite side.

“The people minting Ordinals will run out of money,” Bitcoin developer Jimmy Song told DL News.

Aronesty agreed. “This was true in 2017 and it’s true today,” Aronesty said.

Aronesty said microtransactions being priced out of the Bitcoin network in periods of high fees should switch to layer 2 tools like the Lightning Network.

“We have Lightning, it works incredibly well, and we can just encourage users to use Lightning for small-value transactions.”

Miners have arguably been the biggest winners from the Ordinals craze earning almost $30 million in fees, according to a Dune dashboard.

More than half came in a single day on May 8 with miners earning about $18 million, according to data published by Glassnode co-founder Rafael Schultze-Kraft.