Bitcoin’s coders clash over meme tokens

• A torrent of speculative coins caused transaction fees to surge, created a logjam and forced the Binance exchange to temporarily halt withdrawals

The coders who maintain bitcoin’s blockchain are clashing over whether to stamp out the meme tokens swarming the network.

A torrent of speculative coins led to a record number of transactions and an 11-fold spike in processing fees on the blockchain in May, creating a logjam and forcing the Binance exchange to temporarily halt bitcoin withdrawals.

The tumult has since eased, but some crypto purists fret that future frenzied trading of meme coins such as the frog-themed Pepe will again snarl up the network and disrupt bitcoin’s use for payments and as a store of value.

They advocate deploying software to block the transactions — a kind of spam filter.

“I do think the system is being abused,” said bitcoin developer Ali Sherief. “Bitcoin was never intended to serve as a base layer for meme tokens.”

In an earlier email to the largest digital asset’s developer group, Sherief wrote that “worthless tokens threaten the smooth and normal use of the bitcoin network as a peer-topeer digital currency”.

Others defend the software innovation, called Ordinals, that allows bitcoin’s blockchain to host large numbers of meme coins and nonfungible tokens (NFTs) — digital collectibles — for the first time, arguing it can have wider applications.

Developer Casey Rodarmor created Ordinals to enable users to inscribe digital content such as videos, images and text on satoshis, the smallest unit of bitcoin. There are 100-million satoshis in one bitcoin.

AUCTION

Rodarmor’s innovation took off this year and was seized on by pseudonymous blockchain analyst Domo to develop the bitcoin request for comment — or BRC20 — standard, which led to the explosion of meme coins.

There are now about 25,000 meme tokens on the bitcoin blockchain with a market value of about $475m, according to website brc-20.io.

The figure soared past $1bn in early May.

Jameson Lopp, co-founder of crypto storage solutions provider Casa, said the bitcoin network is meant to be an “auction market for the block space” — the place where data is stored — and Ordinals merely stokes demand for it.

Viewing the meme coins as a denial-of-service attack is thus “like saying any form of auction is a denial of service, and whoever wins is denying all of the losers of the auction”, Lopp said.

At one point in May meme tokens and NFTs accounted for 65% of the transactions on the bitcoin blockchain. The proportion has dropped but remains elevated.

The average fee per transaction began April at $2.80, hit $30 in early May and cooled to $4 by the end of the month, Coinmetrics data show.

The jump in fees has been a boon for miners, the operators of the computer rigs underpinning bitcoin, which have raked in $45m from Ordinals-related activity, according to figures from Dune Analytics.

Bitcoin itself fell almost 8% in May amid the turbulence on its blockchain. The token, which has rebounded more than 60% in 2023, slipped about 1.7% to $26,800 in London on Monday.

FILTRATION

For veteran bitcoin developer Luke Dashjr, Ordinals transactions are like spam and should be kept off bitcoin’s blockchain. He has even created a program, Ordisrespector, to enable computer nodes on the network to do that.

“Action should have been taken months ago,” Dashjr wrote in a developer group. “Spam filtration has been a standard part of bitcoin Core since day one.”

Given that no single person or entity controls the bitcoin network, no one knows if sustained action against meme coins and NFTs will emerge over time.

Another possibility is that some people could decide to create a version of bitcoin — called a hard fork — that won’t support Ordinals.

“I don’t see a critical mass of people coming together on a single alternative to bitcoin that is incompatible with BRC-20 tokens,” said Andrew Poelstra, director of research at Blockstream.

Amid the controversy, the key takeaways from the Ordinals phenomenon include the ability to use the bitcoin network in novel ways and the need to scale up its transaction capacity to avoid future traffic jams.

The true value of Ordinals is the capacity to store arbitrary data on the bitcoin network, according to Sami Kassab, a research analyst at Messari.

“Whether it is artists, activists or even governments that end up leveraging this storage space, it is clear that the demand and cost for it is likely to rise in the future,” Kassab said.

THE AVERAGE FEE PER TRANSACTION BEGAN APRIL AT $2.80, HIT $30 IN EARLY MAY AND COOLED TO $4 BY THE END OF THE MONTH