In the Bitcoin Core software repository, a proposal was recently made to remove the limit on the size of OP_Return outputs. OP_Return is an output type designed to store arbitrary (non-transaction) data on the Bitcoin blockchain. Under the existing size limit, Bitcoin Core nodes will not relay transactions that exceed this limit. However, this is not a consensus rule, and Bitcoin Core nodes will always accept blocks containing such transaction outputs as valid blocks.
Removing this limit has sparked some controversy, with some arguing that the limit is necessary to stop or prevent spam. Many who advocate keeping the limit want Bitcoin to be used only for "financial transactions" and want to treat data such as images as non-standard transactions.
Ordinals Craze
However, there has been a surge in the use of images to store them on the Bitcoin blockchain. This surge began in early 2023 and is known as “Ordinals.” Instead of using OP_Return outputs, images are stored in the input script of a Taproot spend. The vast majority of these Ordinals transactions are already standard transactions, and they are relayed by Bitcoin Core nodes. In some cases, this Taproot method is cheaper than OP_Return because it benefits from the 75% witness data discount brought about by the Segregated Witness (SegWit) upgrade.
According to a dashboard on Dune.com , Ordinals usage has been high, with over 88 million inscriptions and over 7,000 bitcoins paid in transaction fees. At current bitcoin prices, that’s over $660 million. Many businesses have emerged in the Ordinals space looking to capitalize on this growth, and millions of dollars have been invested in Ordinals-related tools, such as wallets, inscription trading systems, and methods for creating Ordinals and submitting them to the network.
Many people view these images as spam. In our opinion, in this context, we tend to view spam in terms of the intent of the person creating the transaction. Are they trying to intentionally harm someone, or are they trying to profit from it? With this in mind, we believe that storing images on the blockchain is not always spam, as the people who do this seem to be doing it primarily for personal entertainment or speculation and trying to profit. However, if someone is putting an image on the blockchain with the intent to maliciously attack someone (which is certainly the case to a certain extent), then yes, it is spam.
While images on the blockchain may seem like spam to many, we agree with the Subjective Theory of Value :
The value of various consumer goods and services is not derived objectively and intrinsically from the things themselves, but depends on the individual who makes the assessment. His valuation is a subjective matter that even he cannot reduce to objective terms or measures.
Some people seem to love images on the blockchain and have paid over $600 million for them. Since the value of these goods is subjective, who are we to question it? All we can say is that we don’t value these images and we won’t pay for them. We think that businesses and individuals who hope to profit by investing in this space will most likely lose money in the end. But let the market decide!
Our view is that the horse has already been run, people are already using blockchains for storing images at scale, and keeping the OP_Return restriction does not change that. Systems that use a portion of the Taproot input script to store images already exist, and are four times cheaper per byte than OP_Return .
Bitcoin Mining
We have been following the Bitcoin mining space for over 14 years. We have watched Bitcoin mining transform from a hobbyist activity to an industry with public companies. We closely follow 10 of these public companies and have read nearly all of their public disclosures. These miners report their financial statements quarterly and update the market on their production figures monthly. We frequently interact with the investor relations officers and management teams of these companies. These management teams love Ordinals and see them as a potential revenue driver, a critical revenue driver in a highly competitive industry. The idea that Ordinals is spam and should be filtered does not and will not resonate with these professional management teams. Some may not like it, but this is the reality of business. This is also the reality that some of us have been expecting. Bitcoin has grown, it is a business, and businesses need to maximize earnings and return on equity.
Bitcoin is about incentives and the pursuit of incentive compatibility. Bitcoin does not work because the space is made up of a group of altruistic, well-intentioned people with aligned goals. The Bitcoin space is made up of a diverse group of people with different perspectives and philosophies. Bitcoin does not work because we are all on the same team, but because it is robust and incentives are aligned. We believe it is time to remove the paternalistic protections of OP_Return restriction and embrace the economic realities of the blockspace market.
If larger OP_Return outputs are still considered non-standard transactions, but people still want to use them, miners will simply set up businesses that receive these transactions directly, bypassing the public mempool. The largest publicly traded miner, Marathon [ticker: MARA US], has already done this. However, we understand that this service provided by Marathon is currently unpopular. Still, if miners start receiving transactions off-chain, this has a lot of negative implications for Bitcoin. It would mean that the difference between the transactions in the blocks produced by miners and the transactions that users expect to see would increase. This could undermine technologies such as Compact blocks, which help blocks propagate faster through the network by removing the need for nodes to download transactions twice (once for the mempool and again after the transaction is included in the block). It might be wise for Bitcoin Core to remove this restriction upfront to ensure that Compact blocks is not broken. If it is broken and block propagation latency increases, then this could benefit larger miners and mining pools at the expense of smaller miners, thus increasing the centralization of mining.
There are other negative consequences for miners and mining pools setting up businesses that accept non-standard transactions. There are costs to setting up such businesses, such as technical costs and marketing costs. This business model can also be monopolistic, and users may want to use a simple platform to submit their non-standard transactions. This increases the entry barrier for mining and mining pools, making mining more difficult for small players. This again leads to more centralization pressure. Once these systems gain development, it will be difficult to stop these businesses even if Bitcoin Core's policies are later relaxed. For example, once the infrastructure is built, lazy customers may continue to use these services instead of the public mempool.
We believe that Bitcoin developers should strive to keep the software competitive. Make the open source transaction selection algorithm competitive in terms of maximizing revenue, discouraging miners from building their own proprietary algorithms, and make the public mempool competitive, discouraging miners from setting up private mempool businesses. We understand that not everyone sees it this way, but that is the economic reality of mining today. We want mempools to work efficiently, and we think removing the OP_Return limit is a better option than pretending that junk transactions aren't being mined. The choice is between having an efficient mempool or an inefficient mempool.
Node Operator
If the blockchain is assumed to be full, then the increase in OP_Return usage actually makes it easier to run a full node. Remember that OP_Return does not enjoy the witness discount, so the maximum size of a block containing only OP_Return outputs is 1MB, which is much smaller than the maximum of 4MB. At the same time, OP_Return outputs do not bloat the UTXO set. Other protocols use alternative systems (such as fake addresses) to store arbitrary data, and this approach has serious negative consequences for those seeking to verify all Bitcoin transactions. OP_Return is just data that does not need to be verified and can then be ignored. Those who are worried about making it cheaper to operate a node do not have to worry about what problems will be caused by removing the OP_Return limit.
How do we stop spam?
At the beginning of this section, we will quote Eric Voskuil’s book Cryptoeconomics. In the book, Eric writes:
Censorship resistance is a result of transaction fees.
Bitcoin’s core goal is censorship resistance, and transaction fees are a fundamental component of the security model designed to achieve that goal. An attacker who wishes to censor transactions cannot succeed by incentivizing node operators to filter certain transactions from their memory pools. If that were possible, Bitcoin would not be particularly good at censorship prevention. Instead, it’s all about fees, rates, and miners trying to maximize revenue per block. This is true whether a transaction is spam, whether a transaction uses OP_Return , or whether a transaction uses SegWit. The only viable spam prevention model is one that requires outbidding other users to get into the blockchain. As Satoshi said:
As long as you are willing to outbid other users, at a certain price you can almost always get in.
This spam prevention model has been understood for years. As we said in our September 2017 article on SegWit:
Granted, a spammer could generate such a 4MB block for the same fee as a 1MB block. This is a potential problem. However, this does not change the security properties of the system, because a 4MB block is not cheaper than a 1MB block, it just costs the same. Spammers can always outbid legitimate users with or without SegWit. In fact, an attacker can simply generate 1MB of non-witness data to compete with "legitimate" users, and the cost of this attack is the same as before. SegWit does not and cannot change this security dynamic: if an attacker wants to outbid a user with spam data, they can.
To ensure your transaction is confirmed in a timely manner, you need good information about what miners are likely to mine in the next block so that you can set an appropriate transaction fee. This is another reason why node operators may want their mempool strategy to match miners' actual operations as closely as possible. If Bitcoin Core does not remove the relay restriction for OP_Return , users will have to run other software or use third-party websites to get information about what transaction fees to use.
Granted, there has always been a limit on OP_Return outputs, and Bitcoin has worked fine with that limit for over a decade. So why remove it now? To us, this reasoning sounds a bit like the discussion that was often had during the block size debate between 2015 and 2017. The “big blockers” often said that Bitcoin has worked fine for years without full blocks, so why introduce full blocks now? The answer is that it is simply a successful economic reality. As former Bitcoin developer Gregory Maxwell said in an important 2015 email:
The demand for cheap, highly replicated, permanent storage is unlimited.
In our opinion, these changes were always inevitable. The demand to store images on the blockchain is infinite, and the only way to prevent it is transaction fees. It’s just that some people always think so, while others don’t, which can lead to arguments.
We are lucky that the small blockers won the block size war. If the big blockers had won and adopted something like Bitcoin XT, the block size limit would probably be around 250MB right now. Blocks would probably be filled with images, 250MB of images every 10 minutes. This would have made it impossible for regular users to run nodes and could have killed Bitcoin.
in conclusion
We are moderately supportive of removing the OP_Return limit. It is time to face economic reality and remain competitive. We want local mempools to work effectively and for the public p2p transaction broadcasting system to be the ultimate winner. If attackers or spammers want to outbid other users, they can, and we should embrace that reality. Spam budgets will not last forever, and many people who have invested in blockchain imagery will likely collectively lose millions of dollars. Hard lessons will be learned, and Bitcoin will be stronger for it.
