23 April, 2024

Bitcoin Block Space Dynamics Altered by Surge in Text Inscriptions

21 Sep, 2023

29 Nov, 2023

  • Text inscriptions now dominate Bitcoin’s transactions but occupy minimal block space.
  • Despite the spike in activity, monetary transfers haven’t been sidelined.
  • Historically, average transaction size has shifted with the introduction of inscriptions.

The Bitcoin landscape has witnessed a unique trend since mid-April. The mempool has been continuously congested, where all the valid transactions wait to be confirmed by the Bitcoin network. This anomaly piqued curiosity as various indicators showed heightened activity in the Bitcoin network. These indicators include the surge in new Bitcoin addresses, new entities’ inception, the UTXO set’s growth, and an increase in transaction counts.

Lead on-chain analyst at Glassnode, Checkmate, shared a Twitter post providing insights on Bitcoin’s transaction dynamics:

Numerous metrics have soared to significant highs recently. This includes creating new addresses, forming new entities on the network, growth in transaction counts, and the uptick in the UTXO set, a collection of unspent transaction outputs. However, despite these surging metrics, Bitcoin transfer volumes remain at a cyclical low. According to economic data from Glassnode, Bitcoin volumes are nearing an annual low.

Interestingly, inscriptions are playing a dominant role in this narrative. Specifically, text-based inscriptions have accounted for 50% to 60% of the total transactions confirmed since April. What’s more intriguing is the disparity between their volume and the actual block space they occupy. These inscriptions only take up about 10% of the block size in bytes and are responsible for roughly 20% of the transaction fees.

This trend underscores the existence of baseload fee pressure within the Bitcoin network. Essentially, these inscriptions are sensitive to higher fees but will readily occupy any block space available at a cheaper rate. The real takeaway here is the adaptability of Bitcoin’s block space. Despite the decrease in the number of monetary transactions, they still comprise over 80% of the block, affirming that inscriptions aren’t crowding out traditional transactions.

Before the introduction of image inscriptions in March 2023, the average size of a transaction was approximately 550 to 600 bytes. However, with their arrival, this number saw a staggering surge, spiking over 1.4 kilobytes. As a counter-effect, the size of text inscriptions witnessed a dip, settling at an all-time low of 435 bytes.

At the time of writing, BTC is trading at $26,799.17, with a 24-hour decrease of 1.05%. The BTC token broke below $27k support after failing to break the $28K resistance level. The bearish sentiment has been prevalent in the market for the past few days and appears to continue. The current CoinMarketCap ranking is 1, with a live market cap of $522,363,184,134. The 24-hour trading volume of BTC is currently $12,860,166,880.



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