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Just recently, Bitcoin underwent its most recent halving event. As usual, this meant a 50% reduction in block subsidy rewards for all miners.
Halving events are generally seen as bullish for bitcoin’s market price; however, the immediate effect is a drop in revenue for those mining bitcoin.
That’s not all that’s different with Bitcoin, though. New protocols are changing the way users engage with the network, pushing up fees and, in many ways, offsetting the losses that come with a halving. Unfortunately, this is also causing issues with blockspace and network congestion.
Many Bitcoiners argue against bringing Ordinals, Runes and other meta-protocols to Bitcoin because they think that these are counter-productive (antithetical even) to bitcoin being the world’s reserve currency. But I believe that the innovation happening on Bitcoin right now is what will ultimately lead to a better Bitcoin for everyone.
It’s not just about fees
Over the last year or so, we have seen the proliferation of Bitcoin Ordinals and the BRC-20 standard. What makes these assets interesting is that they have effectively brought NFTs to Bitcoin, opening up new functionality and letting the network do things that simply weren’t possible before.
These new digital goods have already proven to have a meaningful impact on miner revenue. And in the wake of the halving, that could be exceedingly important — the popularity of BRC-20s is driving up network fees, helping to offset the reduction in block rewards.
We have also seen the launch of a brand new type of asset on the Bitcoin blockchain, known as Runes. Runes are similar to BRC-20s, but they have one notable difference: They are a much more efficient way for users to issue fungible tokens on the network.
Now, Runes are yet another type of asset that demands blockspace on Bitcoin, driving up transaction activity and, by extension, miner fees. The general hope has been that this situation could offset, if not entirely replace, the income that previously was generated from mining rewards alone.
How did the launch of Runes actually go? Well, despite being notoriously tricky to etch correctly, Runes have accounted for over half of all bitcoin transactions since its launch on April 20.
While this is certainly good for the protocol itself, some have raised concerns that it has undermined the inherent philosophy of bitcoin being an “electronic cash system.” As it stands, the network is only currently processing about 0.5 monetary transactions per second.
However, what if Bitcoin could be all things for all people, including a network for NFTs and a monetary system? Further upgrades could make this possible, bringing unprecedented scaling and utility to the network.
The market wants more out of Bitcoin
While the traffic surrounding Runes means higher fees for miners, they also stand to encourage the development of powerful new solutions for expanding the protocol. Fortunately, there are some paths forward being explored right now that could address these problems and make Bitcoin work better for everyone.
Firstly, there’s a proposal to reintroduce the “OP_CAT” opcode into the network. This change would allow for the concatenation of multiple script variables into a single one. Why does this matter? Because it would enhance the ability for developers to build on top of Bitcoin, unlocking new services and making the whole blockchain more efficient.
Another suggestion, known as CTV, would make it possible to set specific rules around how bitcoin transactions are spent. This could have huge implications for network security but also improve efficiency.
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There’s one other upgrade that could have a major effect on Bitcoin should it be integrated into the protocol — zero-knowledge (zk) proofs. Zk proofs are able to confirm the veracity of data without having to reveal what that data is. This technology is already being implemented on other networks, like Ethereum and EVM equivalent blockchains. Just like with the other proposals, there are significant benefits in terms of privacy, but zk proofs can also massively reduce the amount of traffic on the network and finally allow Bitcoin to scale.
Many Bitcoiners argue that Bitcoin doesn’t need innovation anymore. Bitcoin has stood the test of time and we should leave it in its current state —any upgrade to Bitcoin isn’t worth the risk.
However, there is more evidence now than ever before that developers, users, collectors and degens want to do more on Bitcoin. There are dozens of layers building on Bitcoin that are forced to create intricately designed complex systems due to the inflexibility of the Bitcoin base layer. Upgrading Bitcoin, like with additional op_codes, is a no-brainer to me.
Collectively, these upgrades mean a Bitcoin network that allows for Ordinals, Runes, regular transactions and anything else users want. The system would be safer, more efficient and far more attractive to developers.
Of course, it’s impossible to say right now whether any of these updates will be realized. If they are, they could put Bitcoin in a position to truly compete with all other blockchains. This could mean miners actually raking in even more revenue than they were before the halving, and positioning Bitcoin as one of the most powerful networks to develop on.
Ultimately, like with everything in crypto, updating Bitcoin is up to the will of the people. But the recent development of BRC-20s and now Runes has made it clear that the community wants more. Now, we just have to make sure the network can keep up.