Bitcoin NFTs push transaction fees on the blockchain to highest in over a year

FEES for transactions on the Bitcoin blockchain are rising as people start minting hundreds of non-fungible tokens (NFTs) on the network for the first time.

Ordinals, a protocol created recently by Bitcoin developer Casey Rodarmor, has helped to allow people to mint NFTs or inscriptions, directly on the Bitcoin network since last month. Most NFTs, including the popular Bored Ape and CryptoPunks collections, have primarily been issued on Ethereum, making it the most commercially important blockchain.

Bitcoin transaction fees as a percentage of the total block rewards from the blockchain rose above 2.5 per cent on Jan 31 and are climbing even higher on Wednesday (Feb 1), according to data from crypto-mining data provider Hashrate Index. Transaction fees and a fixed amount of the cryptocurrency serve as compensation for so-called miners that use specialised computers to validate on-chain data and process transactions.

“Ordinal NFTs are contributing to the rise in transaction fees we’ve seen this week.” said Colin Harper, head of content and research at crypto-mining services firm Luxor Technologies. There have been other factors that result in a bump in fee volume, but “transaction fees wouldn’t be as high as they are currently if it weren’t for the sudden influx of Ordinal NFT transactions”.

While the protocol is designed in a way for the NFT creators to enjoy a discount for transaction fees, the size of data required for the tokens is much larger than a normal transaction, leading to higher fees. In general, a regular financial transaction tends to cost less than a dollar whereas the cost for an ordinal transaction can be in the range of tens of dollars, according to Harper.

The developer team officially enabled people to mint NFTs directly on Bitcoin in late January and hundreds of the digital assets have been created, Rodarmor said in an interview with Bloomberg News.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

“Because they can be anything from digital images to videos and even video game files, Ordinal NFTs (also called inscriptions) include more data than a standard Bitcoin transaction,” Harper said. BLOOMBERG