Bitcoin Inscription Frenzy Hits EVM Blockchains

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In the wake of Bitcoin’s inscription phenomenon, Ethereum Virtual Machine (EVM)-compatible chains are experiencing a surge in similar practices, leading to unexpected service outages and a little confusion over their use.

EVM Chains Face Surge in Token Inscriptions

Over the past year, Bitcoin inscriptions have surged in popularity due to the advent of Ordinals, significantly impacting the Bitcoin blockchain. This controversial method has led to a sharp increase in transaction costs and a congested mempool, reigniting debates reminiscent of 2017’s block size war.

The phenomenon has now extended to Ethereum and other EVM-compatible chains. Despite the initial skepticism about introducing inscriptions on smart contract-capable blockchains, the demand for EVM inscriptions has been so high that it caused a service outage on Arbitrum on Dec. 15, 2023.

Summary of the Arbitrum outage and high Ethereum gas prices:

– People are spamming inscription transactions on Arbitrum. These are transactions that submit some hex data on-chain (images and metadata mostly).

– My guess is this overwhelmed the sequencer itself, preventing L2… pic.twitter.com/deJn4yVsT1

— cygaar (@0xCygaar) December 15, 2023

The intensifying discourse around Bitcoin inscriptions, along with the evident interest in EVM inscriptions, suggests that they are here to stay. People are discovering what EVM inscriptions are, and why they are gaining popularity on blockchain’s that already have native NFT functionality. In order to do this, it’s first necessary to understand Bitcoin inscriptions. This article is informed by Jarrod Watt’s wonderful thread on X about EVM inscriptions, which I encourage you to read.

Historical Context of Bitcoin Inscriptions

Bitcoin inscriptions began shortly after Bitcoin’s creation in 2009. Early Bitcoin enthusiasts started embedding various forms of data, including messages, political statements, and tributes, directly into the blockchain. While this practice gained traction, with inscriptions ranging from simple texts to complex ASCII art, what could be added was limited to a mere 80 bytes in size.

The Taproot upgrade that the network underwent in November 2021 removed this limitation by extending the length of Bitcoin transactions to almost the whole size of a block. In December 2022, Bitcoin Ordinals inscriptions kicked off the current inscription frenzy following a near 4-megabyte block mined in February, which was made possible by the Taproot upgrade.

Bitcoin Inscriptions and Ordinals

Bitcoin inscriptions are a technique for embedding additional data within Bitcoin transactions on the blockchain. This is achieved by utilizing the extra space in a Bitcoin transaction, which typically includes inputs, outputs, and transaction amounts. The `OP_RETURN` opcode is the most common method used for this purpose, allowing users to insert a limited amount of arbitrary data—such as text, numbers, or small images—into a transaction.

While this data is non-executable and doesn’t impact the transaction’s financial aspects, it becomes a permanent, immutable part of the blockchain once the transaction is confirmed. Bitcoin ordinals inscribe individual satoshis, the smallest unit of a Bitcoin, with some data, for example, image data to make a pseudo NFT. Each satoshi, among the quadrillions available, can be uniquely inscribed with extra data. The concept of Ordinals arises from assigning unique ordinal numbers to each satoshi based on their mining order, facilitating their identification and transfer.

This system, which requires no additional tokens, blockchain modifications, or smart contracts, supports various representations of these Ordinal numbers, enabling the attachment of diverse assets like NFTs, security tokens, or stablecoins to individual satoshis. Thus, Bitcoin has expanded its functionality to include NFT-like features, despite its original design lacking smart contract capabilities.

The Surge in EVM Inscriptions

The surge in Bitcoin inscriptions via ordinals starting from April of this year has led to a similar trend in EVM chains around November despite the presence of native fungible and non-fungible functionality already. Aside from the spillover effect from the popularity of Bitcoin inscriptions, is there any other reason to explain the sudden increase in popularity in EVM inscriptions?

The explanation isn’t that EVM inscriptions are bringing new functionality to EVM fungible and non-fungible tokens. EVM inscriptions mirror the functionality found on Bitcoin’s blockchain, without introducing novel features. If there is a reason other than the spillover effect, it’s that EVM inscriptions are cost-effective. They significantly reduce gas fees compared to NFTs and related smart contract interactions, as EVM inscription transactions usually consist of straightforward transfers without the need for complex EVM operations, making them more economical than traditional smart contract interactions.

The Mechanics of EVM Inscriptions

The essence of EVM inscriptions is the incorporation of calldata in transactions. Calldata is a form of read-only data that can be included in a transaction. In the case of EVM inscriptions, calldata stores image data in the case of NFTs, or token information and instructions, like minting a certain quantity of a token, in the case of fungible ERC20-like tokens.

This method is cost-efficient, as it generally involves basic transfers without complex EVM operations. Calldata is now predominantly used for inscribing tokens. These tokens, unlike ERC20 tokens that rely on onchain smart contracts for rule enforcement, store their data in calldata and have their logic processed off-chain, with indexers interpreting the transactions.

The process involves creating a transaction, sending zero native tokens (e.g., ETH on Ethereum or MATIC on Polygon), and embedding calldata with specific instructions, such as minting. This approach allows for a range of inscriptions, from simple token-related data to more complex operations governed by smart contracts, including NFT-like inscriptions with image data embedded in the calldata.

Despite their benefits, EVM inscriptions come with a significant caveat: the reliance on off-chain indexers. While the inscriptions’ data is stored onchain and is technically accessible to anyone, real-time onchain reading isn’t feasible. As a result, to understand the state of an inscription token or collection, one must rely on off-chain methods. In practical terms this will entail relying on using a centralized API, although it is conceivable to index every inscription transaction calldata independently.

Conclusion

In summary, these EVM inscriptions, mirroring Bitcoin’s methodology but adapted for Ethereum’s capabilities, offer a practical, cost-effective alternative to traditional smart contracts. This approach significantly reduces gas fees and operational complexity for both fungible and non-fungible tokens. However, they depend heavily on off-chain indexers to reconstruct the history and current state of any given inscription-based token. This reliance introduces a degree of centralization, as users will most often depend on third-party services for data interpretation.

Do you think EVM inscriptions are mostly hype, or will they last over the long-term? Share your thoughts and opinions about this subject in the comments section below.