Recently, a proposal has been made in the code repository of Bitcoin Core software to remove the relay restriction on
OP_Return
the output size limit. OP_Return is an output type designed to store arbitrary (non-transaction) data on the Bitcoin blockchain. Under the existing size limit, Bitcoin Core nodes will not relay transactions exceeding this limit. However, this is not a consensus rule, and Bitcoin Core nodes will always regard blocks containing such transaction outputs as valid blocks and accept them.
Removing this restriction has sparked some controversy, with some arguing that the limitation is necessary to prevent or mitigate spam. Many who advocate for retaining the restriction hope that Bitcoin will only be used for 'financial transactions' and wish to consider data related to images as non-standard transactions.
Ordinals craze
However, the trend of storing images on the Bitcoin blockchain has long been underway. This trend began in early 2023 and is known as 'Ordinals'. In contrast to using
OP_Return
the output is different; images are stored in the input scripts of Taproot outputs. The vast majority of these Ordinals transactions are already standard transactions and will be relayed by Bitcoin Core nodes. In some cases, this Taproot method is cheaper than OP_Return because it benefits from the 75% witness data discount brought by the Segregated Witness upgrade.
According to a dashboard on Dune.com, the usage of Ordinals has been high, with over 88 million inscriptions and transaction fees paid exceeding 7,000 bitcoins. At current Bitcoin prices, this amounts to over $660 million. The Ordinals space has already given rise to many businesses looking to capitalize on this growth trend, and millions of dollars have already been invested in Ordinals-related tools, such as wallets, inscription transaction systems, and methods for creating and submitting Ordinals to the network.
Many view these images as spam. In our view, in this context, we tend to look at spam from the intent of the person creating the transaction. Are they trying to intentionally harm others, or are they attempting to profit? With this in mind, we believe that storing images on the blockchain is not always spam, as those doing so seem mainly motivated by personal entertainment or speculation and trying to profit. However, if someone puts images on the blockchain to maliciously attack others (which does occur to some extent), then yes, that would be spam.
While images on the blockchain may appear to many as spam, we agree with the theory of subjective value:
The value of various goods and services is not objectively or intrinsically derived from the things themselves, but rather depends on the individuals making the assessments. His valuation is a subjective matter, and even he cannot reduce it to objective terms or measures.
Some people seem to enjoy images on the blockchain and have already paid over $600 million for them. Since the value of these items is subjective, what right do we have to question it? We can only say that we do not value these images and would not pay for them. We believe that those businesses and individuals hoping to profit by investing in this field are likely to end up losing money. But let the market decide!
Our view is that the horse has already left the barn; people have already massively used the blockchain to store images, while retaining
OP_Return
the restrictions won't change this. The system of using a part of the Taproot input script to store images already exists, and on a byte-for-byte basis, this method is four times cheaper than OP_Return.
Bitcoin mining
We have been focused on Bitcoin mining for over 14 years. We have witnessed Bitcoin mining evolve from a hobbyist activity to an industry with publicly traded companies. We closely monitor 10 of these publicly traded companies and have read almost all of their public disclosure documents. These miners report their financial statements quarterly and update the market on their production data monthly. We often engage with investor relations officials and management teams from these companies. These management teams are very fond of Ordinals, seeing it as a potential revenue driver, which is a critical revenue driver in a competitive industry. The idea that Ordinals are spam and should be filtered will not resonate with these professional management teams now or in the future. Some may not like it, but that is the business reality. This is also the reality that some of us have always anticipated. Bitcoin has grown; it is a business, and businesses need to maximize returns and shareholder value.
Bitcoin is about incentives and pursuing incentive compatibility. Bitcoin operates not because this field is composed of a group of altruistic, well-meaning, and goal-aligned individuals. The Bitcoin space consists of a diverse range of people with different views and philosophies. Bitcoin operates not because we are all on the same team, but because it is robust and the incentive mechanisms are aligned. We believe it is time to remove
OP_Return
restricting this paternalistic protective measure and embracing the economic reality of the block space market.
If larger
OP_Return
the output is still viewed as a non-standard transaction, but people still want to use them, and miners will only establish businesses that directly receive these transactions, bypassing the public mempool. The largest publicly traded mining company, Marathon [stock symbol: MARA US], is already doing this. However, to our knowledge, the service provided by Marathon is currently unpopular. Nonetheless, if miners begin receiving transactions off-chain, this has many negative implications for Bitcoin. This would mean that the difference between the transactions produced in the blocks mined by miners and the transactions users expect to see would increase. This could undermine technologies like Compact blocks, which help blocks propagate faster through the network by eliminating the need for nodes to download transactions twice (once for the mempool and once after the transactions enter blocks). It may be wise for Bitcoin Core to preemptively remove the restriction to ensure that Compact blocks are not disrupted. If it is disrupted and block propagation delays increase, this may benefit larger miners and pools at the expense of smaller miners, exacerbating centralization in mining.
The establishment of businesses by miners and mining pools that accept non-standard transactions may also bring other negative consequences. Establishing such businesses incurs costs, such as technical and marketing costs. This business model may also be monopolistic, as users may prefer a simple platform to submit their non-standard transactions. This raises the entry barriers for mining and mining pools, making it harder for smaller participants to mine. This again leads to more centralization pressure. Once these systems are developed, even if Bitcoin Core's strategy relaxes later, it will be difficult to stop these businesses. For example, once the infrastructure is built, lazy customers may continue to use these services instead of the public mempool.
We believe Bitcoin developers should strive to keep the software competitive. Making the open-source transaction selection algorithm competitive in maximizing revenue, preventing miners from building their own proprietary algorithms, and making the public mempool competitive to prevent miners from establishing private mempool businesses. We understand that not everyone thinks this way, but this is the current economic reality in mining. We hope the mempool can work effectively, and we believe removing
OP_Return
The restriction is a better choice than burying our heads in the sand and pretending that spam transactions haven't been mined. The choice lies in having a valid mempool or an invalid mempool.
Node operators
Assuming the blockchain is full, then
OP_Return
The increase in usage has actually made running full nodes easier. Remember that OP_Return does not enjoy the witness discount, so the maximum size of blocks containing only OP_Return outputs is 1MB, far less than the maximum of 4MB. Meanwhile, OP_Return outputs do not bloat the UTXO set. Other protocols use alternative systems (like fake addresses) to store arbitrary data, and this method has serious negative consequences for those seeking to validate all Bitcoin transactions. OP_Return is simply data that does not need to be validated and can be ignored. Those concerned about lower node operating costs need not worry about the issues that will arise from removing the OP_Return restriction.
How do we prevent spam?
At the beginning of this section, we quote Eric Voskuil's work (Cryptoeconomics). In the book, Eric writes:
Resistance to censorship is the result of transaction fees.
The core goal of Bitcoin is to resist censorship, and transaction fees are a fundamental part of the security model designed to achieve this goal. Attackers hoping to censor transactions cannot succeed by encouraging node operators to filter out certain transactions from their mempool. If that were feasible, Bitcoin would not be particularly good at preventing censorship. Instead, everything is about fees, fee rates, and miners trying to maximize revenue per block. Whether the transaction is spam or not, whether it uses
OP_Return
or whether transactions use Segregated Witness, this remains the case. To enter the blockchain, one must bid higher than other users, which is the only viable spam prevention model. As Satoshi Nakamoto said:
As long as you are willing to bid higher than other users, you can almost always get in at some price.
This spam prevention model has been understood for years. As we mentioned in our September 2017 article on Segregated Witness:
Admittedly, spam senders could generate such a 4MB block at the same fee as a 1MB block. This is a potential problem. However, this does not change the security properties of the system because a 4MB block is not cheaper than a 1MB block; it just costs the same. Whether or not Segregated Witness is used, spam senders can always bid higher than legitimate users. In fact, an attacker can simply generate 1MB of non-witness data to compete with 'legitimate' users, and the cost of such an attack remains the same as before. Segregated Witness does not and cannot change such a security dynamic: if an attacker wants to outbid users with spam data, they can do so.
To ensure that your transactions are confirmed in a timely manner, you need to have good information about what miners might mine in the next block so that you can set appropriate transaction fees. This is also another reason why node operators may wish to align their mempool strategies as closely as possible with the actual operations of miners. If Bitcoin Core does not remove
OP_Return
users will have to run other software or use third-party websites to obtain information on what transaction fees to use.
Admittedly,
OP_Return
The output has always had restrictions, and Bitcoin has operated well under these restrictions for over a decade. So why remove it now? In our view, this reasoning is somewhat similar to the discussions that frequently took place during the block size debate from 2015 to 2017. The 'big block proponents' often said that Bitcoin had been running well without full blocks for years, so why introduce full blocks now? The answer is simply the economic reality of success. As former Bitcoin developer Gregory Maxwell noted in an important email in 2015:
The demand for cheap, highly replicable, permanent storage is unlimited.
In our view, these changes are always inevitable. The demand to store images on the blockchain is unlimited, and the only way to block this demand is through transaction fees. Some people have always believed this, while others do not, which may lead to debate.
We were fortunate that the small block faction won the block size debate. If the big block faction had won and adopted something like Bitcoin XT, the block size limit might now be around 250MB. Blocks could be filled with images, with 250MB of images every 10 minutes. This could make it impossible for average users to run nodes and may have stifled Bitcoin.
Conclusion
We are in favor of removing
OP_Return
The restrictions hold a certain level of support. It is time to face economic realities and remain competitive. We hope the local mempool can operate effectively and that the public p2p transaction broadcasting system becomes the ultimate winner. If attackers or spam senders wish to outbid other users, they can do so, and we should embrace this reality. The spam budget will not last forever, and many investors in blockchain images are likely to collectively lose millions of dollars. People will learn painful lessons, and then Bitcoin will become stronger as a result.
