On The Brink with Castle Island - Nick Hansen (Luxor) on Ordinals, Blockspace, and Mining Pools (EP.407)

Episode Date: March 20, 2023

Nick Hansen is the cofounder and CEO of Luxor, a Bitcoin mining pool. He joins to talk to us about his excitement around ordinals and inscriptions, and how Luxor is thinking about the opportunity. The history of ordinals and how Luxor got started in the space How Luxor mined the first 4MB block in Bitcoin Luxor's decision to acquire Ordinalhub and their intentions with the project Risks Luxor incurred by mining the first 4MB block Transaction standardness versus validity How ordinals increase the overall quantity of Bitcoin blockspace The risks of out of band fees to Bitcoin Does Bitcoin already have MEV? How does the block reward decay make reorgs more likely? Where Luxor sees opportunity in ordinals Have inscriptions had a material impact on miner rewards? The effect of inscriptions on fees Transacting with PSBTs versus standard NFT marketplaces Nick's confidence in the long-term persistence of Bitcoin state Why it's virtually impossible to purge state in Bitcoin Are ordinals and inscriptions a violation of the implied Bitcoin social contract? Have inscriptions inadvertently ossified Bitcoin at the protocol level?

Hello and welcome to On the Brink. This is Nick Carter. Today I'm sitting down with Nick Hansen, the CEO and co-founder of Luxor for another episode on Ordinals. We're talking about how Luxor got involved in Ordinals, their decision to acquire Ordinal Hub and their plans for that resource. The story behind that four-megabyte block that they mined and the risks that they took in doing that, We also cover the economic opportunity for mining pools in the ordinal space and whether ordinals and inscriptions introduced MEV to Bitcoin. Nick is an amazing resource on this topic. He's super deep in the space. This is a great episode. Let's dive right here. Back for another Ordinoles Focus podcast here with Nick Hansen, CEO and co-founder of Luxor.

One of the most important, dare I say, mining pools in Bitcoin, certainly most innovative. Nick, thanks for joining us. Appreciate it. Yeah, thank you so much for having me on. Very interesting day, as all days are in Ordinal Land over the last, what, maybe five weeks now. This has been kind of a thing. So just trying to capture some lightning in a bottle here and run with it while we can't. You know, it's so funny, there's a full-blown banking crisis going on in the United States right now.

And I was looking at like yesterday. I think Udi and Eric were running some kind of activation for Tapproot Wizards, where they were getting people to shower in wizard costumes and do lightning transactions. And it struck me as so funny, the juxtaposition between, you know, just enthusiasm for ordnals and excitement. Meanwhile, myself and everyone else is panicking over the banks, just collapsing. And I love the juxtaposition. You know, there's always a little corner of the world where there's just like exciting things happening and the panic doesn't percolate there.

Yeah, no, all of the group chats that I'm in with, you know, related to ordinals and pretty much just focused on all the new stuff that's happening. There's new, really interesting new wallets that are coming out with partially signed Bitcoin transaction support, lightning integrations. Of course, Taproot wizards are getting very close to distributing their pieces. Yuga just minted their 12-fold collection over the last 12 hours. So there's a lot of interesting things getting ready to come both from a technical side, which I'm very interested in. Like the idea of doing partially signed Bitcoin transaction reverse Dutch auctions is incredibly interesting. I do think there's also a key unlocked to doing a normal transaction with partially signed Bitcoin.

Bitcoin transactions. And you can do this in a truly decentralized way using Noster or something similar. It's really, really cool from a technology side. And then also I think that Bitcoin has somewhat lacked the art and culture that come with the human experience. And now that's coming back to Bitcoin. And so from my perspective, all signs point to up, very, very excited about where we're at right now, outside of, of course, of the global economic environment and the macro environment that we all have to somewhat live through. Yeah, you can't escape the macro. So let's rewind a little bit.

Casey Rodermore, Vance, Ordinals, and Inscriptions. You were one of the earliest people to be excited about it and to see the business case for it and the potential impacts on Bitcoin block space, fee market, things like that. that what was your timeline in terms of diving into ordnals and then actually making it a business priority too? So ordinal theory is something that's been around for a long time. It actually predates everything that's happening now by potentially years. I think Casey Rodhamore and some other folks have been talking about this idea that an individual Satoshi can be identified specifically. What I mean by that is there will only ever be 2.1 quadrillion Satoshi.

and ordinal theory states that you can number every single one of them from one to 2.1 quadrillion. This also introduces some concept of different rarities where the average sat is just a common Satoshi, but maybe a Satoshi that's the first Satoshi in a block of newly mined Bitcoin or in a, you know, the first, the first Satoshi from the first block of a difficulty adjustment or or an entire halving epoch could be considered more rare. And so that's been around for a long time, the idea of ordinals and this individual attribution of Satoshi's. But really the key unlock came maybe if it would be around, you know, maybe maybe eight weeks ago when Casey Rodmore decided that you can, you can actually inscribe some extra data to one of these ordinals. And so with using the witness data that's

inherent in a tap root script, you're able to attach some extra data to this ordinal. And then you can actually just transfer the ordinal around. And the ordinal is somewhat a, it's like a pointer to the data. And whoever owns the ordinal, thereby owns the data. So that's how inscriptions and ordinals actually work. When you go to ordinalhub.com or any of these sites and go look at all the art that everybody's producing, what you're looking at there is are actually inscriptions. Now, the ownership of those are held by the ordinals, which are just Satoshes, they're just UTXOs,

that then own that data. So that's kind of how we got to up to around, let's say, let's just say five weeks ago, because that's really when everything crazy started. So I tweeted on January 31st. Like, everybody calmed down. There's only 400 inscriptions. Here we are on March 13th, and we have eclipsed over 400. and 50,000 inscriptions.

And that number is not slowing down. It's actually accelerating because they're compressing and inscribing more transactions than ever before just because the data is smaller. But early on, I just thought it was somewhat interesting. I approached Ord. Ord is the client that goes alongside a full Bitcoin TX node, TX index index index index Bitcoin node that allows you to interact with these types. of transactions. And that's exactly what they are. They're just very specific types of Bitcoin transactions. So you only need a Bitcoin core node with a full TX index. So I approached it very similar to how I maybe ran L&D, which is the Lightning, you know, the Lightning client or

or BTCD, which is an alternative Bitcoin core implementation or Lib Bitcoin, which is another alternative Bitcoin core implementation. I just was experimenting and trying it out and wanted to see how this new technology or new to me technology worked. And within a few days, it turned out to be incredibly powerful, the things that you can do, incredibly simple. And from my perspective, I'm looking at this with completely having missed NFTs the first time around and realizing this is going be really huge. This could potentially be the biggest thing that happened to Bitcoin since I've been around since 20, you know, I was full time in 2017. Previous to that, I was just a hobbyist for three or four years. And I can't, it's very hard to point to a moment in Bitcoin history

where you could feel like a huge shift like this. And so that's kind of how I got, that's how we got to where we are today with ordnals, where I jumped in. And then over the, yeah, then over the next, you know, two to three weeks, then went from, you know, being somewhat interested in this new technology to feeling like this is going to drastically change the way Bitcoin and, you know, Bitcoin culture entirely and the economics of mining. So that's what that's what enticed us to buy Ordnall Hub. And then from there, you know, the rest is history. We bought Ornable Hub, did a full rebrand and are now just kind of sprinting in that direction, given how important I think this is going to be. So a bit of a long intro to all of those things, but hopefully that gets you at least everybody up to speed to where I am and where the industry is today right now.

So infamously, or perhaps famously, you guys mind the first largest block in Bitcoin history. I guess there have been a lot of largest blocks, but the first close to four megabyte block. Yeah. So the theoretical limit is a very famous moment for you. The theoretical limit that you can build a transaction is four megabytes. The block size is actually two megabytes, but there's a discount for witness data. And since these inscriptions go into witness data, you're able to get a larger transaction. So Udi and Eric came to me and said, hey, we're kind of launching this inscription project.

Like this was around inscription number, say 400 or 500. And we were only doing like maybe 50 inscriptions a day. And so they said, hey, we want to, you know, we wanted mine this really big transaction. Is there some way you can help us? You know, we got connected. I believe by you and Zach Vol, said, I think, you know, I think Luxor is probably your best bet. And, you know, I had been experimenting with or up to that point. And they said, yeah, like, let's, let's.

Let's do it. So we put that, the reason this is you need a mining pool for this is because transactions can only be up to 400 kilobytes. There's a filter on your Bitcoin notes. If you're running a Bitcoin note at home, there's a filter. If anybody sends you a transaction that's more than 400 kilobytes, it will reject it. So in that case, if you send a transaction that's larger than that, it'll never get mined because it won't propagate to any of the mining pools.

So what we did is we made a small change to Bitcoin. to accept those transactions and then injected it directly into our own MEM pool at the mining pool level. And so whenever our block was mined, that was the transaction that was included. There's also a little caveat or a little nuance to our specific case here is because we actually set the fee to zero, which is also an invalid, which would also be filtered out by your MN pool filters. We removed that filter for ourselves just because we wanted to, it's a little bit more provocative. So we decided to set the fee to zero. And so yeah, when that block was mine, it was the biggest block ever mined by a pool ever and still is. And it paid zero fee. And so that was,

you know, that was a somewhat provocative, definitely got the attention of a lot of both sides of the camp. At the time, it seemed like Bitcoin culture was about 50-50 on whether Ordinals were a good thing or a bad thing. And in that case, we definitely polarized. It did seem to stick around 50-50, but the ends of the barbell definitely got further away from the middle ground. And so that was really kind of the start of what I think would be the, I hate to say culture war, because it wasn't really a culture war. I think it's pretty well settled now. But at the time, there were definitely some loud voices that were very anti-ordinal. And that definitely provoked, that provoked them a little bit.

When you were trying to mind that block, were you concerned? that you had created a non-standard transaction that may not actually have been considered valid at all. And they potentially throw, what was the, I mean, the financial risk you were taking was actually significant like over $100,000, right? Yeah, absolutely. So, you know, let's just say six and a half Bitcoin. And if you, you miss that block, that's six and a, you know, what are we at?

Oh, wow. We're at 24,000 now. Yeah, $160,000. Prize is changing very quickly on account of banks not being trustworthy anymore. Basically, $160,000 potential loss. If, you know, like you said, there have been blocks that have been constructed that are submitted by pools and rejected by the network because they don't meet the consensus rules. And in this case, we were, you know, I was definitely very concerned about that. So mined that block actually multiple times on reg test and different things like that just to make sure that we weren't setting ourselves up for, you know, this big, this big windfall. So it was actually not concerned at all by the time we made it to production.

But until that point, I told the team, the Taproot Wizards team that I'm going to need some time with this because it's going to need to run through a bunch of different scenarios, make sure that this thing 100% will be accepted by the network. if indeed we if and when we do mine it because yes i was very concerned about potentially not you know losing out on that on that on that on that reward yeah that's a funny little drama subplot that i think people don't know about um and you know i think the other thing people are concerned about is the out of band fees yeah you know presumably there are fees paid out of band what do you think of that if there if it does become more common for mining pools to basically mine these blocks directly without them going through the Mopool fees being paid out of band. Is that something that threatens Bitcoin in some way? Does that change how pools work?

I saw a bit of chatter about that. What do you think? Yeah, I do think that if it becomes ubiquitous, it definitely changed. Anything that happens out of the standard consensus rules should be put under a microscope. There's a lot of concern in, in Eath, when when Eith was, you know, the majority of ETH rewards were coming from MEV via flashbots. There's a lot of concern about whether that impacts the security model of Ethereum. Ethereum was proof of work up to that point. You know, up to that point, I kind of stopped following up to that point. But Ethereum is proof of work.

And there's there's the case where maybe a block has so much extra incentive outside of the standard consensus mechanism that this produces, you know, competition outside of the, you know, outside of attempting to find the next block. Like really the goal of the consensus mechanism is to get miners to compete for the very next block as quickly as possible rather than, you know, try to do something weird. So maybe a little bit more tangibly, what I was worried about and what I thought probably would happen on Ethereum was that you get to a point, you know, you mind this. Say there's a block that, that has $5 million worth a B-Fi MEV in it for whatever reason. If we were perfectly efficient, miners would be incentivized to immediately fork that block. So however many pools there are, they should

immediately produce that number of forks and start mining their own set of transactions that revert that one and allow them to capture that defy reward, that MED reward. So that then produces this this like super weird consensus mechanism break breakage effect. effectively because you're no longer competing for the next block, you're trying to get the previous block. I don't know how this will work for Bitcoin because transaction fees over time will eventually get to that point as well, where regardless of whether they're being paid in-band or out-of-band, we'll get to a point where, you know, in five or six halvings, the block reward is 100% transaction fee. and there will be times when it may be more profitable to mine a previous block.

You know, like, for example, let's say we had a block that was an hour long. Very common thing happens all the time. In a world where transaction fees make up, you know, 95% of the reward, that block will be very, very valuable. And the next block immediately will have cleared the MMPL and the very next block after that will be very unprofitable. And there will be a time where most. likely it makes sense to fork and start competing to fork the previous block or orphan,

I'm sorry, orphan the previous block or rather than compete for the next block. So getting these types of these types of things out of the way early before the stakes are much, much higher, I think is really important. And so I think that we're, you know, if an out of ban payment breaks the security model of Bitcoin from a mining pool, then the security model of Bitcoin is broken anyway. And so let's figure that out now rather than in the future when it, you know, maybe it's the global reserve or something like that. Yeah, I remember this being a discussion when was it Binance suffered a hack and there was there were talks of of Binance paying a really large fee to miners to reorg. I don't think it was practical at

that time. I remember the similar discussion around this that the game might change. to try to reorg prior blocks. If it was super spiky, one block being extremely profitable for miners versus the ongoing stream of blocks, I think that might have been in 2019. Yeah, that was pretty much exactly the case. The concern was how can we, there was a big hack. I think it was close to $100 million. Can we go back and revert that transaction, fork it out of the chain?

and basically seize those funds. That's effectively what it would look like is the miners revolting against the consensus and seizing funds. Obviously, the Bitcoin consensus mechanism is built such that that is incredibly expensive. And I think the amount of time it took to coordinate and then of course, the longer the amount of time

between the event and when you want to try to execute that attack, the more expensive it gets. And I think by the time they sort of rallied the wagons, was just way too expensive. And so they pretty much just had to scrap that idea. But there was serious concern about and discussion about whether we should do this. Yeah, I remember that episode pretty well. So as a mining pool, I think you guys have been by far the most aggressive in terms of embracing ordinals.

What do you see the opportunity being as a mining pool? Is it access to Mints? is it the potential for MEV as a consequence of maybe the greater block space available now? What is it that really struck you in terms of the economic opportunity here? So there's a lot of economic opportunity. So I hope if we start to go off the rails here, I'll try to bring it back really quickly. But immediately what I saw was this is going to drive up transaction fee volume very quickly. And it has.

we have the highest transaction fee volume as a percentage of block reward that we've seen since the having. So this is certainly having a material impact on minor rewards. Minor rewards have been at historic lows over the last 12 months. And that bit of a pump in Bitcoin price and now this transaction fee volume increase certainly has given miners a bit more breathing room. And so from that regard, my customers are minors. And so I'm out there thinking about how can I make my customers more money, this is one of those ways. I can try to capture more of that fee than other pools and that sort of thing. So in that regard, that's, and that's exactly what MEV is. That's how the best MEDB bots became so profitable for miners in Ethereum land was that, you know, that there were

bots that were running really good strategies like, you know, like high level hedge funds and they were able to capture more reward for their miners than others. And that's what caused miners to switch to pools that were more profitable over the long term. And that's what I viewed as being the most important thing early on for Luxor and ordinals. But then as it progressed, you know, I've been around for a while. I missed NFTs the first time. Maybe I still don't even quite get NFTs as much as, you know, the NFT people do. But that doesn't mean that it's not a very economic proposition. looking at the previous cycles, the biggest businesses were like NFT, like OpenC was a 12 billion dollar business. It probably is still a billion dollar business. And there's a lot of those around now.

And I definitely think that we're headed in that direction as NFTs become more and more ubiquitous. Even outside of just art, there's a lot of really interesting things that people are doing with regard to different protocols that are NFT-based, that sort of thing as well. So certainly there is. is value there. And just because I missed it the last time, it doesn't mean I'm going to miss it again. And so that's what caused us to go after Ordinal Hub and start looking at how do we get involved? I'm not certain that marketplaces will look like OpenC or Looks Rare or any of the marketplaces that exist today. Because the mechanics don't exist on Bitcoin, Bitcoin doesn't have a true application layer or execution environment. There's some scripts that you can run that do give you a lot of that functionality, but not all of it.

So it may look quite different. And so that's why I'm a little hesitant to jump all in on doing a marketplace. So that's why right now Orinal Hub is really focused on what we call Discovery and Explore. So Discovery is learning about projects that exist. When are new projects coming? How do these projects work? What do they do? Who are the founders?

Genesis story, basically learning about projects. And then there's then there's explore, which is, you know, I've learned about a project and I want to dig into the art. I want to see what collections they have, maybe explore an artist in its entirety. So those are the two that we're really focused on Ordinall Hub right now. And then there is going to be a market there eventually that we're working on, which will be right now most likely like maybe an aggregator of what marketplaces exist. And then maybe eventually try to get into marketplaces as well. but um and then we also do bespoke minting services at ordinal hub but you know like famously did the de gods mint um and then have done a i i i went and checked i did close i've done close to 30 000

inscriptions um and so there's you know and that's just for like a bunch of different projects that have reached out so um that's the economic those are the some of the economic avenues that i see for ordnals as a whole uh and then luxurds involvement of course of of course is fostering this environment that I think is going to pay a lot of transaction fees to our miners. Yeah, it's funny that the critique from some of the anti-ordinals people was, oh, you know, you're going to suppress the fees on Bitcoin by mining all these big empty blocks with full of junk data.

But the opposite seems to be the case, frankly. It seems like by doing that first four-megabyte block, you really catalyzed a lot of the interest and enthusiasm in ordinals. Obviously, your subsequent work has also helped with the ordnals ecosystem. And as you say, now fees are just structurally higher. So is this something that you expect to persist? And we'd Casey on a couple weeks ago, he said he thinks we're in a new fee regime for good now with ordinals providing kind of a floor on the price of Bitcoin block space.

Are you seeing the same thing as the data bearing that out? 100%. We see a, so we famously miners are thought of as buyers of last resort for energy. In this case, inscribers or artists are buyers of last resort for block space. We very, very rarely hit the one Satoshi floor anymore. Generally, we're seeing that if the fee rate gets down to around five, then my then that's where artists start putting in a lot of transactions right now. But that has, and that's also moved up almost 5X over the last, you know, three weeks. It used to be, you know, basically there was a floor at one because that's where artists would just put all their art was at one.

And then, you know, if miners get there, great. If not, leave it. But now that, that floor seems to be around five. And the reason I think we're getting there is because there's so much more tool. Like, the tooling is coming around incredibly fast. You know, there's way better wallet support. I mean, in the early days, it was you either run. ord or you run sparrow and sparrow is not even ordinal aware really all you're doing is like

selecting u txos that you personally know are our our inscriptions but has nothing it doesn't know what those inscriptions are and so and then running ord is no easy task it requires you know a multi-day sync you also have to run a tx index which can take multiple days uh so in that first couple weeks you know they're most likely what was just happening was all these new nodes were getting synced and and not a lot of activity so that's how we accelerate it so quickly And I think that that's going to continue to accelerate. And so I 100% agree with Casey that we're in this new fee regime, at least for now, until either this blows up and ordinals are not really a thing, which I don't think is going to happen.

I don't think that we'll see a change in that, you know, in that fee regime. So one thing you mentioned was interesting. I've seen this in the data as well is a certain element of countercyclicality in fees due to ordinal inscribers. So basically they wait strategically to do their mints until times when block space is relatively cheap. So basically smooth out the volatility block space. You're seeing that as well. So it seems like right now box are effectively always full, whether they're paying one megabyte or one sat or 30. They're almost always full.

You point out a really interesting thing is that there's in, in ETH, the reason there were these big spike. in fee volume is because there was a race. You needed block space and you needed it like right now. In ordinals, you don't really see that because like you said, you can just let those sit in the men pool and when they get mined, they get mined. As we see different mint mechanics, like the way that Bitcoin punks do it or some of these others where it is actually a race to get your transaction in, folks will pay up a lot to get those in. And so as new mint mechanics come around, I think we'll see more interesting and compelling transaction fee volume.

But there also is now just so much more activity that that floor is naturally increasing where, you know, three, four weeks ago it was one sat. Now it's at five. And maybe in, you know, two weeks or three weeks, it'll be at eight or ten, which is a very meaningful amount of fee reward for minors going from making one to 10. That's a 10x increase for minors from a fee perspective. If you're a public markets analyst covering the public names here, at what point do you start to care about this? Because fees are still, of course, I would say one to maybe five percent of minor revenue. When is the tipping point where it starts to actually

impact their economics? Or is it still where just ordinals can be interested? in the future. I think there's a good chance we're there. Like there's a good chance we're there. I mean, transaction fees is a percent of block reward over, you know, from March 8, so I'm looking at hash rate index right now, from March 8th to March 10th, transaction fees as a percentage of a minor reward were over 5% for three days. And we haven't seen that level of mining fee reward basically since 2021.

The highest next was when Biance did that. that big aggregation in November, November 17th or 22, and fees were at 5% for one day, 5% of total reward for one day. And that's the highest spike that we've seen basically since 2021. And so I don't, I can't see how you wouldn't, if you were analyzing public markets, I don't see how you couldn't mention this phenomenon as being very impactful to, to the companies that you're covering. So to talk about the tooling, the infrastructure, structure. It is a fundamentally different way of doing NFT transactions using PSBTs. I think I'm going on that right. It's nothing like Ethereum. In fact, how do you contrast it? And is it better

actually to use PSPTs? So it's very different. So PSBT stands for a partially signed Bitcoin transaction. And basically what it is is that I can go through and construct a transaction that includes, let's just say, three different inputs and three different outputs. And I then sign for the inputs, which I have a private key. And then I can distribute it to others that I think have the private key. And the reason I mentioned no sir is because that's a very natural and decentralized way for us to distribute these. It's basically just a little blob of data.

Maybe a couple hundred bytes. I send it over to you, who I know has the private key for some of the other inputs. you sign it. And then you can actually do multiple folks, but in like in the case of, you know, in Ornals exchange, you know, I sign my side, you sign your side. And when that's been broadcast to the network, the outputs change hands and off we go. That produces a very compelling and secure mechanic, which doesn't require any sort of smart contracts. So like smart contracts in ETH basically you, you authorize that a contract is able to interact with your wallet. And so you then have to somewhat trust, you have to trust that that contract isn't going to, you know, say,

steal all your ETH or steal something else, that it's going to only interact with your NFTs, your ERC 721s. That's, that's, you know, a very interesting, you know, obviously that's a big security fall. A lot of folks have lost a lot of money in ETH because they interacted with, you know, with contracts that were, you know, insecure. In this way, there's no, no contract. So I would say they're vastly more superior vastly superior from a security perspective. So I would definitely agree.

The yeah, I mean think about the amount of fishing that occurs for regular NFT folks, especially because they tend to be a little bit newer to crypto. I'm not saying that pejoratively. It's just true. And the amount of fishing in the NFT space is enormous because of this workflow where you're used to

going to strange websites and authorizing them to interact with your wallet. So I'm surprising that leads to just carnage in the in the NFT space. So with Bitcoin, it's just not a similar workflow. So it's in theory kind of protects the individual a little bit more. Certainly does. Yeah. And while, you know, the the wallet infrastructure for partially signed Bitcoin transactions can be built such that it's very, very robust and leaves very little room for error in this, you know, as long as you're using a a wallet that's open source been vetted and is, you know, is a, you know, is, is, is, is, is quality wallet software, then you can be very, very confident that the, that the

transactions that you're interacting with are not going to steal the rest of your Bitcoin per se. And so that's, that's a great, you know, it's a really compelling, uh, and attractive, uh, feature of, of these. And then there's also like this much more decentralized nature to it being that it's effectively infinitely scalable because if I want to produce a you know say I want to do a a dutch auction for a psvv t dutch auction I can give it to you and everybody else in the world peer to peer I don't have to go through any centralized authority and it also doesn't require it actually doesn't require any on-chain transactions to distribute a psvt I produce a

transaction that is not completely signed or formed yet and it isn't completely signed or formed until somebody else decides to agree and pay the you know complete the transaction and then broadcast it so it's very very scalable as well so the nfts primitives that exists today mince auctions royalties controversially are those can those be recreated in the bitcoin paradigm yeah so like mince and things mince and drops so the the way they used to work is you like somebody would drop the smart contract that would randomly select one of say 10,000 NFTs for you and you were the one that minted it. So you pay the fee, you pay the gas. And so it's a very hot product, a very hot topic. Like this happened when Yuga Labs did other deed,

the land grab. They ended up paying more in transaction fee or than they did in mint cost because it was such a race to grab those pieces. Regardless of what you think about NFTs and the usefulness of them, there was almost $350 million worth of economic activity surrounding this one particular event. And so this mint was very attractive. Now, there isn't a way to do that in Bitcoin right now, not as structured anyway, meaning you have to inscribe the art up front to drop it to folks. There is a really interesting way where you can show the art in a deep, like you can show the art in a centralized way and then have everybody else go mint it.

And then it's like whoever, whoever mints first is the owner. That's what Bitcoin punks did. They basically went and took all of the crypto punts art said, whoever gets this art onto the chain first owns the art itself owns the art and the rights to the inscription. but that ends up producing a lot of bloat, like random bloat, because now there's like a bunch of people competing for the same pieces, and you get duplicates introduced into the chain. So I don't know if that's the best way to do it, but that way does produce the more traditional mint mechanic,

and then also the gas war that you see as a result. I don't like calling it gas. I either they call it gas war, but it's a transaction fee. We don't have gas in Bitcoin. It's transaction fees. Right. We also don't strictly want a gas war. I mean, as beneficial as it is for miners, that's not something that's very, that's kind of user hostile at the end of the day.

I kind of want a gas war because I'm a Bitcoin miner, but I understand exactly what you mean. And that it is a little bit, it is certainly concerning and does impact the users. If there were users during, let's just say a mint takes an hour. If there were users during that time, they were trying to use Bitcoin for whatever other reason, for whatever other reason, there would be, they'd be paying absorbent fees for their transaction. I guess on the plus side, a Bitcoin transaction is so comparatively small that even if they have to pay 50 sats per V byte, the dollar amount is still very low relative to other things. But it is certainly, you know, it would be 50 times higher than if it was one sat per V byte. So for example, like sending a transaction between you and I at one sat is probably 10 cents, 20 cents maybe.

you know, that number would be significantly higher. If, you know, if we were at 50, it'd cost me $10, which maybe you and me is not a ton. But if we're trying to build internet money for everybody where $10 is a lot, maybe that's like their daily income, then, you know, that certainly does impact, that certainly does impact users of Bitcoin in a negative way. And so definitely want to be cognizant of that. So a lot of the conversation I had with Casey on the topic of inscriptions had to do with the quality of Bitcoin block space and the long-term assurances you get as someone that is putting some data in that block space. And you're familiar with a bunch of different blockchains.

What is your assessment of the like effectively property rights that you're getting by inscribing some data on Bitcoin as opposed to somewhere else? is it the most premium block space or is there some kind of long-term risk that a faction in the Bitcoin community gets fed up with this and forks it all out and then you have a data availability issue in the long term? So technically I don't know how you would fork out previous activity. Going forward, they could read and I also don't know how you fork it going forward. Like how you would stop this going forward. So, right, how do I touch on this? Because there's a lot of parts to unpack there.

The block space point, given the security budget, I would say that Bitcoin block space is clearly the most valuable. Folks are paying more for Bitcoin's block space than any others. So I think that's clearly the most important. It also has the most chain weight, basically by every metric. Bitcoin block space is by far the most premium block space that exists in the world today. And I think that any any real

monetarily motivated NFT project is going to come to Bitcoin because they're going to see how much market they have the opportunity to capture and produce their most premium product on Bitcoin. I firmly believe that the D-Gods that are on Bitcoin and the 12-folds by Yuga Labs, those will be their most premium product because they're much

more limited and they're on the most premium chain. They're not yet, I mean, but I do think that they will be eventually. I guess I should caveat out and say that I do have exposure to both of those, both of those. But that's because I firmly believe that it's going to be, that that's the case. So I guess I should have said state. So how confident are you that the Bitcoin state will be persisting indefinitely? Yeah.

Especially as there's some political questions now. Oh, is it okay? What are we really like is it wrong to have blocks be consistently four megabytes as opposed to sort of like one and a half gigabytes or whatever they were before? So I don't think there's any way to get rid of data that's added today because you're you would change the chain would change. You know, if I if I add a transaction today, every transaction that occurred or every block that occurs after that is cryptographically attached to that transaction by it was called the Merkel route. if somebody wants to go look into that, that transaction cannot change. So right now, I think any inscriptions that are in today are in. They will never be removed because you would have to fundamentally change Bitcoin to make that work.

And effectively, I don't know how you would rehash. You can't rehash all of the data if you go through and prune out the transactions that include ordinals and inscriptions today. So I think the state that is here today is 100% there. there's effectively a zero chance that this gets removed in the future. What could be removed is the ability to add new inscriptions in the future, which then I think also makes these inscriptions worth even more. But what you could do is you could remove the discount. It's called the witness data discount.

So any data that's in the witness data pays one fourth of the fee of any other data. And the reason, there is a reason for that. But that's what caused inscriptions to become possible. So instead of paying $100 to inscribe something, you pay $25, or $25 is a far more compelling than $100. Similarly, you know, $250 is much more compelling than $1,000, whatever, you know, that number happens to be. So the reason that witness was that was introduced was to compress what's called the UTSO set.

So the UTCSO set is all of the transactions that have not, or all of the UTXOs that have not yet been spent, your wallet needs to keep track of those to know what the state of the chain is at a point in time. Once a UTXO has been used, you don't really need to keep track of it anymore. So that's where pruning comes in, things like that. The reason that that was introduced was that the scripts in Taproot, not just Taproot, the witness scripts, they allow for a consolidation of UTXO. So over time, and so by reducing the fee rate for those transactions, we incentivize wallets to use that data to compress the UTXO set. So over time, there's this like compression.

I actually didn't know that. I did not know that part. So I'm glad that you told me. I probably should know because it was five years ago. There's the, yeah, exactly. So there's this compressionary force naturally on on wallets to use the witness data to compress. to compress the UTXO set size. And so that's why that was introduced.

Now, if you remove that, it just becomes cheaper to just expand the UTXO set size rather than attempt to compress it. So over time, there's this inflationary problem, which, well, I'm not so concerned about the actual size of the Bitcoin blockchain. I am concerned about the size of the UTXOsets. If it becomes, say, $10 billion, running a full node will become. a much different, you know, a much more difficult task than today. Today it's about 80 million to 100 million. And so I think that that is, you know, I think that the benefit certainly outweighs the downside

where I think running a, running a full node that has a very large UTXO set size becomes a much more difficult problem than running a node that has a large blockchain. So this is an important point. would you because the people that designed segueit did not necessarily anticipate ordnals or inscriptions is it a violation of the social contract the implied social contract to re repurpose that block space that was envisioned for you know like smart contracts and interesting types of transactions and just use it for arbitrary data insertion if you're not adhering to sort of like what the

segwit creators envisioned yeah so this a it's a permissionless network so i don't really think there is um that any any sort of social contract and if somebody anybody says that there is um i i just can't this is a permissionless network um the the the social constructs of different cultures are vastly different i can't see how we could all have like one cohesive social construct for what what is an acceptable use of Bitcoin. So in that regard, would reject the idea of like a social construct for Bitcoin entirely. Going back to whether this, I would consider this an exploit. This is, you know, exploit is a can be somewhat of an overloaded term, but I would consider this to be an exploit because you're using a feature in a way that it's not intended to be used in some other way.

So. Yeah. You know, but you can't put the toothpaste bag at the tube. You know, I very much agree. I would say sentiment has changed also regarding ordnals. People are seeing that it's not really, people are seeing that it's not really that big of a deal. You know, they're between four megabytes and two. It's not that much. And then really the point that I make or that really seems to resonate is that in 2017, when all of these debates were being had around like, is this a good thing?

Is this a bad thing? should we do this when we all decided that this is what we're going to do this is what we agreed to we agreed to four megabyte blocks we agreed you know somebody's like well it's going to add 200 gigabytes of data extra to the blockchain every year if every block is full which they're not all the full but they're close um and then the the the only argument is that we agreed to that like that was that you know that's what we've determined predetermined rules yeah so uh all right so if that happens to be filled with you know pictures of crypto dip buts and crypto punks, that's just the way it is.

And unfortunately, I always go back to if the protocol allows it, it's value to Bitcoin. I said the same thing when Marathon was mining their OFAC blocks, like they were filtering the MnPool, completely uneconomic thing to do, but the protocol allows it. Yeah. And actually, there's a lot of pools that do transactions that are not considered standard. Like, for example, like F2Pool mines their own, minds their own payouts. So they don't pay any transaction fee for those, which is like an out-of-band use of MMP pool space.

Like this is not, the act, Bitcoin accelerators have been around for a long time. So like if your transaction list up pre-RDF, that's an out-of-band payment for a Bitcoin transaction. This just happens to be much more front and center. And so none of these things are like new problems. They're just front and center now because of how popular and ubiquitous ordinals have become within the last six weeks, five weeks. So my thinking around ordnals is I'm torn a little bit because on the one hand, people are now saying, oh, because there's this unintended usage of the new rules

that came in with Segwit and then Taproot that we can't risk adding a new op code to Bitcoin ever again because we had this change and we workshopped it. thought about it, Segwit for years and years, top period also for years, and people used it in a way that we didn't intend, so it's too dangerous to change Bitcoin anyway. So there's a camp that thinks that the success of ordinals and inscriptions has made Bitcoin more rigid. And on the other hand, I think it's also introduced a new vibrancy and a new set of stakeholders and a new developer ecosystem and I'm seeing a lot more enthusiasm now understanding that the stasis, the development stasis has been broken in a way. I'm seeing new enthusiasm for things

like ZK roll-ups on Bitcoin, EVML2s on Bitcoin, constructs like that that might actually require an op code. So what's your stance on that? Do you think that inscriptions made Bitcoin more or less malleable, basically? I think Bitcoin is completely ossified for a genera. as a result of this. Really? There will be no new forks until the current guard is dead and gone, probably me included. And so then once the cognitive, I guess, how do I say, the global psyche has somewhat been reset. And we can start talking about, you know, a ZK Prover, some of these other forts that have been out for a long time.

or sorry, not for it's, these bips have been out for a long time. I think then at that point we could start to have that discussion again, but I think that the current ecosystem is entirely ossified. I guess the one caveat to that would be that if we get enough new blood into the ecosystem as a result of all of this, this is a pretty lofty goal. But if we basically resusc- like, you know, if the 100% that is the Bitcoin ecosystem today becomes 10% in three years, then all bets are off and who knows what Bitcoin will be at that point. Very exciting, though, very exciting to think about. And, you know, if we grew by 10x

and had a completely different guard and control of everything, I think that we'd be in a better place than we are today. And so I do look forward to that. But if that doesn't happen, then I do think that we're, you know, I think that we're ossified for a generation. So last question then that I have to let you run. Actually, we woke you from your slumber very early in the morning over there. So thank you for joining us and being so clearheaded shortly after waking up. M.AV on Bitcoin. I would argue there's already MEV on Bitcoin, basically like an out-of-band payment for a large block,

things like that. That seems to me to be M-AV adjacent. Yep. There have been discussions recently about the new space affordances made available by TabScript, about them potentially introducing new structures to Bitcoin, which might cause MEV opportunities to merge. Do you share in that view that basically there will now and may already be MEP on Bitcoin? So you said that you don't think that out of band.

payments for large transactions or MEP, really? No, I think they are. Then in that regard, I mean, MEP then has been on Bitcoin for a long time because like I said, transaction accelerators and, you know, these pools that mine their own transactions or you could almost consider, you could almost consider mining empty blocks to it. It's called spy mining as being MEP. Spy mining is where you build on other pools blocks before you know what the transactions are. Anyway, you can go look that up if that's confusing.

But that's been around for long before any of the current, you know, set of topics have been a discussion. So what's had, MEV has certainly been around for a long time. And but I do think, okay, so being somewhat pedantic here, though, I do think this changes that entirely. I think that we go from, if that was, you know, 100% then, you know, that's less, that's less in a drop in the bucket where what could be possible for MEV in the future. there are already being protocols built on this extra data now. Like there are people, I went to a conference turned off, turned off ordnals for a minute, and went back to like CEO of a mining pool for a couple of days and came back. And they started mining, minting BRC 20 tokens in this extra data.

And then they apply this like extra layer on top of this BRC 20 that allows you to move them around, which I don't know if that's really, it seems rather centralized because you shouldn't really need a second layer. Still, it's very, very interesting that this stuff is like there's so much innovation already occurring. If you're familiar with ENS, which is the Ethereum Name Service, there's two competing protocols for that in Bitcoin. There's BNS and dotSats. And so that's where you see like folks minting all these words. Yeah, it's really, really interesting. I don't know where all of that is going to land, how that will impact miners in the consensus model.

but it is very dynamic. And so anybody that's interested in Bitcoin should be paying very close attention right now because this is probably the most dynamic time in Bitcoin that I've seen since, maybe since the fork war, but that was a very different, you know, there's a very different thing where it was very clear what the outcome was going to be and just like, how do we get there? Where in this case, nobody knows what the outcome is going to be as a result of this.

So we have to be kind of prepared for anything. Yeah, I share that view of the level of excitement I'm seeing in the start. startup ecosystem as well. It is remarkable. I'm seeing venture firms that have never done any Bitcoin deal ever that are now focusing on these on these Ornals, description startups, L2s. Yeah, Ordle Hub has gotten inbound for investment probably five or six times. It's, it's, and the number of times that happens at a mining pool is zero. So this is a very interesting and compelling thing that is bringing in new blood, new talent, new money that's never been here before. Traditional venture is looking at ordinals the way they looked at, I hate to say it,

web three, which regardless of what you or I or any of the bitcoinsers listen to this podcast think, there were billions, tens of billions of dollars of venture funding dumped into all of those different things. If that comes to Bitcoin, a Bitcoin protocol, because venture has been effectively turned off to Bitcoin, traditional venture. There's like Bitcoin, focused funds, which you know, you're part of. But that's a drop in the bucket compared to the injuries in Rivet, Sequoia. That's hundreds of billions of dollars of potential backing for these, you know, for what could be a really new, big ecosystem in Bitcoin. And it's incredibly exciting. Well, Nick, we're going to have to leave it there. This has been an awesome conversation.

Really, really appreciate your time. And super excited to see what you do here. So I'll be, I'm in your corner. I'll be paying close attention. All right. Thanks for joining. us. And just for the listeners, where would you direct them? Where should they go to follow you more closely? So the ordinal people can follow me on Twitter, hash underscore bender or Ordinolhub. That's really ordialhub.com. The miners, check us out at at Luxor Tech team on Twitter. Also, luxor.com. That's our, you'll find everything related to mining there. And then mining data is at hash rate index on Twitter or hash rate index.com. Check us out there. Definitely look forward to chatting about chatting with everybody about this. And thank you again for having me on. And apologies for being late.

Thanks, Nick. This has been great.