Bitcoin's Memecoin and NFT Eruption Provides Windfall for Miners, But Questions Linger on Lasting Impact

An eruption of memecoins and NFTs are redefining Bitcoin mining revenue

The Rise of Ordinals

An explosion of memecoins and nonfungible tokens on the Bitcoin blockchain has transformed the mining landscape and brought into question how lasting its effects will be. The rise of Ordinals paved the way for NFTs and meme tokens to come to the network. Gurber (Galaxy Digital Holdings Ltd.) estimates the Bitcoin NFT ecosystem could be worth $4.5 billion by 2025, while roughly 25,000 memecoins have been tallied since their introduction in March.

Revenue and Mining

The craze surrounding NFTs and meme-tokens initiated an unprecedented increase in transactions and fees, bringing windfall gains to miners. In May, transaction fees accounted for over 40% of miners’ revenues, substantially different from the new Bitcoin they typically receive when securing the blockchain.

Ordinals Impact on Mining

Chairman of Singapore-based Bitdeer Technologies Group, Jihan Wu, remarked that “the Ordinals protocol has stimulated a seismic shift in the Bitcoin mining landscape.” Ordinals, along with a crypto market rebound, mitigated mining margins’ pressure caused by last year’s digital asset downturn and high energy costs.

However, some Bitcoin purists argue the Ordinals phenomenon congests the network and interferes with its store-of-value and payments functions. The mean fee per transaction on the Bitcoin blockchain reached $30 on May 8, according to CryptoQuant data, but moderated to $6 on May 18. Additionally, the total fee income attributable to Ordinals stands at around $37.4 million, according to data compiled by Dune Analytics AS.

The Birth of Ordinals

Casey Rodarmor developed the Ordinals software protocol that lets users inscribe digital content such as videos, images, and text on satoshis, the smallest unit of Bitcoin. There are 100 million satoshis in one Bitcoin. Rodarmor’s innovation allowed a blockchain analyst who goes by the pseudonym Domo to develop the Bitcoin Request for Comment (BRC-20) standard, which led to the explosion of memecoins.

The Durability of NFTs and Meme-Tokens

Market value for memecoins was approaching $1 billion earlier in May but declined to about $582 million, according to figures from BRC-20.io. BRC-20 tokens have no utility, says Carlos Gonzalez Campo, a research analyst at crypto exchange-traded product provider 21Shares AG.

However, Ordinals has created a pathway for the Bitcoin network to be utilized in ways that didn’t exist before. “Valuable use cases will emerge from the chaos, such as utilizing Bitcoin as a data availability layer and storing crucial documents that require permanent preservation,” said Sami Kassab, a research analyst at Messari.

The Future of Sustained Transactions

A sustained boost to transaction income could help sustain the Bitcoin network longer term by keeping miners engaged. Transactions will be the sole revenue source by about 2140, when Bitcoin is slated to hit its cap of 21 million tokens, and new coins will no longer be issued in return for securing the blockchain.

For now, Ordinals are fueling renewed investor enthusiasm for Bitcoin miners. The 20-member MVIS Global Digital Assets Mining Index has risen 110 percent so far in 2023, outpacing Bitcoin’s 74 percent gain. Colin Harper, head of content and research at crypto-mining services provider Luxor Technologies, stated that the application of Ordinals is “completely rewriting how people think about mining profitability.”