Numerous Listings transactions have flooded the network over the past few weeks, in an effort to store data on the Bitcoin blockchain. Mempool congestion, rising costs: what were the consequences for the network? On-chain analysis of the situation.
Bitcoin holds the $27,000 level
Following the volatility of the past weeks, the price of Bitcoin (BTC) invalidated an attempt to break out of the range between $30,000 and $27,000recording a weekly low around $26,800.
As the market swings without a clear direction, the bitcoin network has recently witnessed particularly high activityassociated with a form of token based on the Ordinals protocol and Registrations: the BRC-20.
Flooding the network with hundreds of thousands of transactions aimed at recording data on Bitcoin, the phenomenon has grown to such an extent that the mempool has become congested.
Figure 1: Daily price of BTC
In response to this surge in demand for block space, transaction fees momentarily skyrocketed, shocking network users. Today we will take a deep dive into what happened in order to understand how the recent BRC-20 hype has impacted bitcoin network operators and users.
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Registrations flood the network
At the beginning of May 2023, the number of transactions on the Bitcoin network exploded, accusing an increase of approximately 280,000 transactions per day. Over the same period, one can observe a drop in the number of active addresses. In one week, nearly 200,000 Bitcoin addresses have stopped requesting the network.
As a result, the 90-day correlation between these two metrics printed the strongest negative value ever recorded in Bitcoin’s history.
Figure 2: Number of transactions and active addresses
The conclusion is clear: a small group of users carry out a considerable number of transactions while certain addresses slow down their activity. As we will demonstrate, this phenomenon is the result of very high demand for block space, which has caused transaction fees to skyrocket and has deterred some users from creating transactions.
By measuring the relative share of Listings on all Bitcoin transactions over the past few weeks, it appears that it has experienced a very significant increase.
While they represented less than 10% of total daily transactions in mid-April, Registrations have grown rapidly and consistently reaching an ATH of over 60% last week.
Figure 3: Relative Dominance of Listings
We can also note that the Text-type inscriptions (in blue) have followed in the footsteps of Image-type inscriptions (in orange) and currently represent the vast majority of new Listings.
This is because BRC-20s are ultimately just JSON files stored in the OP_RETURN field of a Bitcoin transaction. This notable increase in the use of Inscriptions has had the effect of generate many transactions that have been stored in the mempool pending confirmation.
Figure 4: Number of pending transactions
However, faced with the ever-increasing volume of transactions to be verified, the mempool gradually filled up, causing gradual network congestion.
While nearly 25,000 transactions were waiting to be validated on average in mid-April, this number exceeded 150,000 on May 8, indicating a dramatic increase in demand for block spacevalidation times exceeding 5 blocks and therefore increasing transaction costs.
Although the network has played its part and has processed most BRC-20 related transactions, the size of the mempool has not quite returned to normal and still has nearly 50,000 pending transactions.
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Pressure on transaction fees
By trying to validate their transactions as quickly as possible, BRC-20 token creators have obviously put intense pressure on the fee market. This had the effect of generating a rapid and consistent increase in fees paid to miners during the first week of May.
Fee revenue increased from less than 3 BTC per hour in late April to over 70 BTC per hour on May 8which represents the absolute record of the last few years in terms of hourly earnings of miners.
Figure 5: Revenue of miners from transaction fees
Such an increase in average fees in the mempool also had the effect of limiting the number of network users.with some not being able to afford to pay 500 satoshis per vbyte per transaction.
Fortunately, this extreme cost context only lasted a few hours and the average cost very quickly fell below 100 satoshis per vbyte.
Currently, the average mempool fees have returned to quite acceptable valuess and there is no evidence that such fee pressure is happening again for no good reason.
This backdrop of high fee pressure resulted in significant revenues for miners, who made more gains in a single day than during the final months of the 2022 bear market.
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No impact on Bitcoin fundamentals
Although many users may have been emotional about recent events, however, Bitcoin’s fundamentals have not been altered.
The block interval, which measures the time spent between each block remained at completely normal levelsin a range between 580 seconds and 620 seconds.
Figure 6: Block Interval
Despite the significant congestion experienced by the mempool over the past few weeks, the Bitcoin protocol operated as always, producing a new block approximately every ten minutes.
Thus, the BRC-20 hype will have had only a limited and temporary impact on the Bitcoin network.generating juicy profits for the miners.
Summary of this on-chain analysis of BTC
This week’s data shows that numerous Text-type Listings transactions have flooded the network over the past few weeksfor the purpose of storing data in the Bitcoin blockchain.
This caused temporary network congestion, the mempool being full of pending transactions. In this high block space demand environment, transaction fees have risen considerably.
This context has had the effect of dissuading many users from carrying out transactionswhile bitcoin miners set a seldom-matched record of profitability.
Finally, BRC-20 hype has not had a noticeable impact on BTC fundamentalsthe network continuing to process transactions and produce a block approximately every ten minutes.
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Sources – Figures 1 to 6: Glassnode –
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On-chain analyst, fervent fighter of informational asymmetry.
My goal is to inform everyone about the state of Bitcoin (as an asset and a distributed network) through the prism of on-chain analysis.
Teacher. Chain
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