Stablecoins: Tether buys bitcoin with a portion of its net profit to back USDT stablecoin

Exchanges: Brokerage Firm Starts Covering Coinbase — Here’s How They View the Stock

XRP: Judge Denies Motion to Seal Hinman Documents in Ripple SEC Case

ETH: Ethereum Briefly Stopped Finalizing Transactions. What Happened?

LTC: Crypto Speculators Are Flocking to a 12-Year-Old Token: Litecoin

Digital asset markets were relatively stable this week after broadly declining throughout the month of May. The total market capitalization of all cryptocurrencies regained the $1.1 trillion threshold and the unit price of Bitcoin (BTC), the largest digital asset, ranged between $25,900 and $27,700. By Friday morning, BTC had settled around $26,900, up 62.0% in the year-to-date period.

Bitcoin regained its footing in the past several days as network congestion and transaction (tx) fees declined from extremely elevated levels. Pending txs in the mempool were close to 270,000 this morning, down from a record 440,000 at one point last week. Fees dropped from a multi-year high of $30.00 to less than $4.00 in recent days. That traffic set off alarm bells about Bitcoin’s scalability, which MRP covered in last week’s Crypto Wrap, but as we noted would likely be the case, the tx tsunami was only a short-term phenomenon that would likely result in a small gift to miners.

The backup was largely caused by a surge in the popularity of BTC ordinals, digital assets or other metadata (jpegs, sound clips, games, etc.) inscribed on the smallest possible denomination of a Bitcoin, called a Satoshi. Bitcoin is divisible down to eight decimal points, making a Satoshi equivalent to 0.00000001 BTC. Ordinals can be traded like non-fungible tokens (NFTs) on the Ethereum (ETH) network, with the difference being that an NFT is a smart contract verifying the ownership of some asset hosted in a separate database, as opposed to the ordinal’s inscription being stored on the blockchain itself. The experimental standard for ordinal inscriptions is referred to as “BRC-20”, a play on Ethereum’s ERC-20 token standard. However, because Bitcoin ordinals are stored on chain and more data-heavy than a standard tx, it will also take up more block space – which is a finite commodity.

A single Bitcoin block’s “weight” is limited at 4 megabytes of data (MB) and can only mined and added to the chain of other blocks once every ten minutes. With the data included in ordinal inscriptions taking up greater space in these blocks, fewer transactions can fit into each one, resulting in greater wait times and fees associated with sending other transactions. Following the basic laws of supply and demand, block space costs more when there is greater demand and bidders adjust the fees they will pay accordingly. As we noted last week, Fees are mainly a way to compensate miners for the work that they are expending through the use of electricity (in addition to the block subsidy), but they also serve as a barrier to spam in the network. That’s not to say the ordinal fad should be perceived as a intentional or unintentional attack on the network, but one could argue that the ordinals ordeal has been a display of Bitcoin’s resiliency against a simulated campaign meant to jam up the network.

In the end, with little motivation behind the ordinals trend aside from a spike in speculation and curiosity, high fees exhausted themselves – just as intended. Ordinals are not likely to totally dissipate, but remain a part of the ecosystem in a smaller way, likely ensuring blocks fuller than in the past – which some argue makes Bitcoin more secure. That seems to be at least partially true in this case, as limited block space and surging fees certainly attracted more sustained hashing power to the Bitcoin network recently. The overall hash rate’s 7-day moving average touching an all-time high of 368.5 million terahashes per second (TH/s) on May 16. Hash rate measures the computational power per second being used for mining.

The remaining concern for decentralization and security, however, is how bloated the Bitcoin blockchain may become from the popularity of inscription data. According to Glassnode, an additional 24 gigabyte (GB) of data has been added to the chain since February. This represents an increase of 5.3% in just a few months and 18.0% since the same time last year.  The larger the blockchain ledger is, the more storage space is required for users to run nodes – the network of computers running Bitcoin Core and hosting digital copies of BTC's blockchain across the globe. The nodes form a peer-to-peer communication network that validates the canonicity and comformity of all blocks and transactions added to the ledger by miners. If storage needs asdociated with nodes becomes too cumbersome in too short a period of time, some fear the expansion of the network may become constrained by CPU limitations. Bitnodes estimates that there are currently 44,604 full nodes operating globally.

February 22, 2023: Ethereum May Face Contagion from SEC Crackdown on Crypto Exchanges’ Staking Services →

February 14, 2023: Staking Services and Stablecoins in SEC Crosshairs as Crypto Industry Preps for Court Battles →

January 24, 2023: Bitcoin Mining is Back to Profitability, Hash Ribbon Shows Peak Capitulation May Have Finally Passed →

October 18, 2022: Fallout From Ethereum “Merge” Bolsters Bitcoin’s Hash Rate as Some Criticisms Still Linger →

October 7, 2022: Ethereum’s Post-Merge Era Conquers Key Goals, Yet Centralization and Regulation Concerns Linger →

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