{"id":4115,"date":"2023-07-04T12:00:00","date_gmt":"2023-07-04T12:00:00","guid":{"rendered":"http:\/\/ci02c31a6be0002711"},"modified":"2023-07-04T12:00:00","modified_gmt":"2023-07-04T12:00:00","slug":"ordinals-will-make-bitcoin-the-worlds-payment-processor","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/culture\/ordinals-will-make-bitcoin-the-worlds-payment-processor","title":{"rendered":"How Ordinal Inscriptions Will Drive Adoption Of Bitcoin\u2019s Lightning Network"},"content":{"rendered":"
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This is an opinion editorial by Jesse Shrader, the co-founder and CEO of Amboss, a Lightning Network explorer and analytics tool.<\/em><\/p>\n

For years, you could basically only do two things on the Bitcoin network: You could save BTC or you could spend it. Then, a late 2021 privacy upgrade<\/a> had the unintended consequence of allowing data storage on the Bitcoin blockchain, resulting in NFT-like inscriptions<\/a> and BRC-20 tokens, both applying Ordinal Theory<\/a> for asset tracking. <\/p>\n

The popularity of NFT-like Ordinal inscriptions and the experimental BRC-20 token standard has driven up transaction costs<\/a> across the Bitcoin network. The frothy demand for \u201cstamping\u201d limited block space with new data pushed transaction costs so high that in May 2023, Binance twice had to pause BTC withdrawals<\/a>, a risky and undesirable step for a global exchange. To help manage the transaction costs, Binance announced it would start using the Lightning Network<\/a> \u2014 a decentralized, Layer 2 network designed for fast transactions bypassing the underlying Bitcoin blockchain\u2014 to process BTC withdrawals.<\/p>\n

While some argue that Bitcoin should stick to being digital gold, I don\u2019t see it that way. <\/p>\n

As a store of value, bitcoin will continue to provide a trustless alternative to central banking; other uses of its immutable blockchain don\u2019t diminish this function. On the contrary, emergent uses of the Bitcoin blockchain will drive more efficient use of the limited block space, leading to broad adoption of Lightning Network as a scaling solution for bitcoin as a global currency. The Lightning Network\u2019s growth will provide a trustless alternative to centralized payment processors, expanding Bitcoin\u2019s utility.<\/p>\n

Challenges Faced By BRC-20 Tokens<\/h2>\n

The BRC-20 token standard is extremely new \u2014 created in March 2023<\/a>. If its name sounds familiar, that\u2019s because it\u2019s somewhat akin to ERC-20 tokens<\/a> such as Shiba Inu and MakerDAO that run atop the Ethereum network. Whereas Bitcoin has traditionally been about storing and transmitting value, BRC-20s allow for other assets to be \u201cminted\u201d in an Ordinal inscription. Now, a slew of BRC-20s have popped up for trading and speculation, many in the form of meme tokens, from PIZA<\/a> to MEME<\/a>. As of June 26, 2023, the market cap for BRC-20 tokens was over $260 million, according to CoinGecko<\/a>. <\/p>\n

But all of this minting is driving bitcoin transaction costs higher. That\u2019s not necessarily bad for bitcoin miners, who earn BTC by processing transactions. CoinDesk reported<\/a> in early May 2023 that some BTC miners were earning more by collecting transaction fees than they were by creating new BTC. That\u2019s quite a lot, considering each block reward currently nets miners 6.25 BTC (worth roughly $188,000 at the time of writing).<\/p>\n

As for whether this is good for users, that\u2019s debatable. The average bitcoin transaction fee recently hit a two-year high, peaking at $30.91<\/a> on May 8, 2023, despite a bear market; those abstaining from BRC-20s are likely grumbling about increased fees. On the other hand, the introduction of the BRC-20 token standard has inspired deeper conversations about network scaling for Bitcoin.<\/p>\n

Already Making An Impact<\/h2>\n

At the moment, BRC-20s lack some of the utility of their ERC-20 cousins. They don\u2019t, for instance, use smart contracts, and their utility is mostly the same as PFP NFTs<\/a>, leading many to argue they\u2019re not worth the cost.<\/p>\n

It remains to be seen whether the demand for Bitcoin-based tokens is sustainable or whether such activity will get redirected to other, more permissive or centralized networks. <\/p>\n

In one scenario, higher fees could force Bitcoin\u2019s traditional users away from the network. This is unlikely. Bitcoin\u2019s unchanging and conservative monetary policy remains the primary attraction; the network has no real competition in this regard as a hedge to monetary debasement.<\/p>\n

But assuming Ordinal inscriptions and BRC-20 tokens show the same staying power as memecoins and NFTs on other networks \u2014 Shiba Inu, remember, has a market cap of $5 billion<\/a> and Bored Apes are virtually a household name \u2014 they will keep driving transaction fees above their historical average.<\/p>\n

This could have long-term impacts on Bitcoin users.<\/p>\n

In particular, higher transaction costs create a demand for more efficient transactions. While some of this can be done at a protocol level (e.g., SegWit<\/a>, the contentious 2017 upgrade to Bitcoin that enabled leaner transaction sizes by separating the signature data from the transaction data), much of it can come from scaling technologies on a second layer. <\/p>\n

Enter: the Lightning Network, which batches transactions via long-term smart contracts and uses Bitcoin\u2019s underlying security to allow fast and cheap payments.<\/p>\n

Future Solutions<\/h2>\n

Lightning Network fees are extremely modest compared to on-chain counterparts. While the fees do fluctuate, the overall network fees have not increased as a result of BRC-20s or inscriptions. The network currently charges fees to reward network node operators. According to data available via Amboss\u2019 Bitcoin Lightning Network analytics platform, the median fee remains 0.002%<\/a>. Compare that to traditional payment networks, which charge 2% to 3%<\/a> of the payment amount every time you swipe your credit card.<\/p>\n

The Bitcoin community is currently subsidizing the creation of the payment network, driving Lightning fees extremely low. Even with increased demand over time, sustainable fee rates for Lightning should grow to around 0.03%, based on less generous operator behavior.<\/p>\n

Primed To Become The Default Global Payments Processor<\/h2>\n

The combination of Bitcoin monetary policy and Lightning\u2019s transaction network is a potent one. Bitcoin has long presented itself as an alternative to a broken central banking system. But through competitive uses of its unforgivingly tight blockchain, the efficiency gained through Lightning transactions is more prescient than ever. <\/p>\n

Though the Lightning Network has been years in the making, it is maturing at the perfect time \u2014 ready to enable billions of transactions across the network \u2014 and become the global de facto payment processor.<\/p>\n

This is a guest post by Jesse Shrader. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

As demand increases for Bitcoin block space, the Lightning Network is primed to replace centralized banking and payment processors.<\/p>\n","protected":false},"author":2738,"featured_media":3611,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[33],"tags":[460,59,336,1339],"class_list":["post-4115","post","type-post","status-publish","format-standard","has-post-thumbnail","category-culture","tag-lightning-network","tag-opinion","tag-ordinals","tag-transaction-fees"],"author_data":{"id":2738,"name":"Jesse Shrader","nicename":"jesse-shrader","avatar_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/12\/jesse-shrader-headshot-96x96.jpg"},"featured_image_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/11\/bitcoin-lightning-network.png","_links":{"self":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/4115","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/users\/2738"}],"replies":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/comments?post=4115"}],"version-history":[{"count":0,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/4115\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media\/3611"}],"wp:attachment":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media?parent=4115"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/categories?post=4115"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/tags?post=4115"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}