An overview of the current situation on Bitcoin: record fees, Ordinals and NFTs fuel the debate among industry players.
Bitcoin Ordinals, the protocol enabling the association of arbitrary data with individual satoshis, continues to ignite debate within the Bitcoin community. The protocol’s inception has had direct consequences on the network: network congestion, longer transaction times, and higher transaction costs.
Following the recent surge in transaction costs, on December 16th, fees surpassed $40 per transaction, surpassing the previous record of $31 on May 8th.
Adam Back, CEO of Blockstream, emphasized the futility of trying to halt Inscriptions on Bitcoin. Instead, he highlighted how high fees would naturally drive users toward more cost-effective Layer 2 solutions.
Market responses
Despite Back’s assertion, the actual migration to Layer 2 solutions like the Lightning Network is lower than anticipated. Recent data reveals a decrease in liquidity on Lightning, with approximately 350 bitcoin being withdrawn from the network in just over a month and a half.
Conversely, there has been a slight uptick in transaction activity on the Liquid sidechain, created by Blockstream. However, transaction activity on Liquid remains minimal, with a maximum of four or five transactions per block.
Currently, the high fees required to access these Layer 2 solutions could pose a barrier to their adoption.
Growth in investments in Ordinals startups
Investments by Venture Capitalists in companies and startups focused on developing applications on Bitcoin continue.
Following the $7.5 million fundraising by the Taproot Wizards project in a funding round backed by Standard Crypto, Geometry, Collider Ventures, StarkWare, UTXO Management, Bitcoin Frontier Fund, Masterkey, and Newman Capital, other competing startups have successfully secured funding for their development.
The most recent case involves the German-based company Trac Systems, the parent company of Tap Protocol, a protocol aimed at expanding use cases such as tokenization, gaming, and DeFi on Bitcoin. The company announced a $4.2 million fundraising round led by Sora Ventures, a fund that has also invested in The Block, BTC Inc (the parent company of Bitcoin Magazine), and UTXO Management.
