🟣 Ordinals & Bitcoin Security

Thanks for exploring Blockwork’s newly launched Analytics product.

We’re kicking off today by looking at BTC through the lens of our Bitcoin Analytics dashboard, highlighting the need for stronger incentives to keep the network secure.

Bitcoin’s security budget is the total amount paid to miners to keep the network secure against 51%: the higher the budget, the more expensive it is to launch an attack; the lower, the more vulnerable the network becomes. Notably, the security budget is funded by the a) block subsidy, the reward that miners receive for validating new blocks, and b) transaction fees. Given the finite supply of minable BTC, the block subsidy decreases organically, which causes a greater proportion of the security budget coming from transaction fees alone over time, causing a dilemma regarding how the budget will be funded in the foreseeable future.

One possible solution to the security budget problem is to fund this security incentive with Bitcoin ordinals, which have gained attention since first created in December 2022 and introduced in January of this year. Our chart below shows the consistent growth in cumulative ordinal transaction growth to just below 20m by the end of August, and currently near all time highs.

While intuitively it makes sense for greater ordinal transactions to mean that ordinals could be a sustainable pool from which Bitcoin’s security budget could draw upon, corresponding transaction fees paint a different picture, as they’ve experienced a sharp decline since May of this year due to the subsiding of BTC activity caused by memecoin hype.

While it’s clear that ordinals are one potential solution to ongoing BTC security, our chart demonstrates that although ordinals can be part of the solution, they shouldn’t be thought of as an end-all-be-all for a much greater security issue given their correlation to fleeting fads that come and go. We recommend keeping an eye on how the ordinal transaction count and transaction fees widen or narrow in the coming months.

Curious to learn more? A subscription to Blockworks Research includes access to all of our long-form research, financial models, analytics, governance hub, and flash notes – all for $208/month. 

See you tomorrow.

- Tricia (VP Research, Blockworks)

The insights, views and outlooks presented in the report are not to be taken as financial advice. Blockworks Research analysts are not registered broker/dealers or financial advisors. Blockworks Research analysts may hold assets mentioned in this report, further outlined in the Firm’s Financial Disclosures.

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