Why we can’t enjoy nice things

After the flops of FTX and Three Arrows Capital we had thought that we learned from our mistakes. But meme-coins are back.

Crypto casinos have returned! Some people are making ridiculous sums of cash from tokens with frog images, while others will lose a lot as irrational bids take hold. This time the virus isn’t just infecting greedy minds but also affecting the working of the world’s most valuable blockchain.

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(This past week, the Ethereum-based a href=”https://www.coindesk.com/markets/2023/05/05/pepecoins-bewildering-rise-turned-a-pittance-into-an-almost-5000000-meme-coin-profit/”>Pepecoin rose almost 5,000,000%/a>, then subsequently lowered 50% from its highs. This past week, the Ethereum Pepecoin soared almost 5,000,000% and then dropped 50% from its highs. The Ordinals protocol was created to create Bitcoin-based data inscrip-tions that are non-fungible (NFTs).

They use a lot of data, and therefore increase Bitcoin fees. Recently, Bitcoin miners are earning from transaction fees more than their normal 6.25 bitcoin block rewards. This means that if you only want to send a little bit of bitcoin, you will either not be able to do so or have to pay an exorbitant amount.

I can hear Elizabeth Warren’s “anti-crypto Army” sniggering. “These crypto bros have become so obsessed with mooning in lambos, that they are destroying the core purpose of this technology as a more efficient form of value exchange and money.”

The fight begins

This is not surprising. It’s causing quite a stir in the Bitcoin community. This fight for the limited resource of blockspace is not new. The Block Size Wars in 2016-2017 were a particularly memorable example. The Lightning Network was created to allow small transactions to be processed on-chain, saving valuable blockspace.

In this case, tensions are likely to be even higher. Purists, who think Bitcoin is only used as an alternative currency, are outraged that it’s being used to create frivolous JPGs of frogs. However, those who are building and using the new BRC-20- and Ordinals based tokens argue that nobody can say what Bitcoin’s purpose is. After all, it’s an open standard.

We all know that the rising transaction fees, and the congestion of blockchains are problems. This is at the core of Bitcoin’s resource-efficiency and utility. What can be done?

Dashjr critics claim that Dashjr is guilty of censorship. No matter what you believe Bitcoin is for, surely its censorship-resistance must be preserved.

On our podcast, Troy Cross said that the White House’s proposal to tax bitcoin-mining discriminated against one person’s choice of energy over another. I would say that Bitcoin’s community can’t limit what uses Bitcoin’s blockchain for.

What are the limits to speculation?

In my humble opinion, code upgrades which would relieve the pressure on blockspace limits and improve the overall functionality of the system are fair game.

Does the Ethereum community’s Layer 2 scaling project, Zk rollups, or Optimistic Rollups, offer any lessons for Bitcoin?

Could it be possible or even appropriate to include in the protocol time-lock restrictions or costs for certain speculative actions that threaten the liquidity of the system as a whole? I am specifically thinking about short-term asset reselling. This could only apply to tokens that are not fungible. It’s impossible to limit fungible BRC-20 Tokens because their owner could simply sell another one. This is not a way to limit money.

Read more: Bitcoin developers are arguing over whether to censor BRC-20s.

These suggestions will be criticized by people much smarter than me. If someone was to suggest that asset flipping, which brings liquidity to the markets, is a bad idea, then I’m sure they would point out flaws in my suggestions.

Luke Dashjr would have the same argument if he were to rail against meme-coins. I am judging the activity of one person over that of another.

The core issue isn’t that Bitcoin is used to represent frogs, but rather that blockspace congestion is a problem that undermines its value as a settlement system that is efficient and intermediary-free for transferring all types of value. As David Z. Morris of CoinDesk pointed out this week Bitcoin would still be facing the same issues if millions more people used Bitcoin as a currency. This is where the conversation about governance needs to be centered.

Any blockchain community faces a core challenge: how to balance individual rights with group interests. Bitcoin is no exception.

Ben Schiller is the editor.