Bitcoin ordinals and inscriptions, introduced in February 2023, have been a significant buyer of block space this year, contributing to an increase in miner revenue due to raised transaction fees. However, the impending halving event casts a shadow over the future profitability of miners, according to recent reports by analytics provider Glassnode.
The firm's "week on-chain" report published on Monday, September 25, explored whether ordinals and inscriptions were displacing monetary transfers. It was observed that since their introduction, inscriptions have been buying block space and filling up the mempool, taking up leftover space after higher-value monetary transfers. The number of pending transactions in the mempool has seen a significant uptick since May 2023.
Despite concerns that Bitcoin Ordinals are clogging the network, Glassnode found minimal evidence to suggest inscriptions are taking blockspace away from higher-value Bitcoin (BTC) monetary transfers. This is likely because inscription users tend to set low fee rates and express willingness to wait longer periods for confirmation.
While the increased demand for blockspace has resulted in higher fees for miners, it hasn't significantly boosted their income due to the current low hash price. The hash price is at an all-time low of $0.059 per terahash per second per day, which is down 50% from the Bitcoin ordinals pump in May and 85% from the bull market peak of $0.40. Consequently, miners will now earn just 2.26 BTC per Exahash active on the network.
The upcoming halving event in April or May 2024, which will slash block rewards in half to 3.125 BTC, could further stress miner income and profitability unless BTC prices rise substantially. As of Wednesday morning Asian trading session, BTC prices had retreated to $26,236.
Inscriptions, despite accounting for the majority of daily transaction count since their introduction, only attribute to about 20% of Bitcoin transaction fees. The increased hashrate since February, up by 50%, has resulted in heightened competition among miners for revenue fees.
Glassnode concluded that with extreme miner competition in play and the halving event looming, miners are likely on the edge of income stress, with their profitability to be tested unless BTC prices increase in the near term.
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