Challenges Facing the Bitcoin Ecosystem: The Impact of OP_Return Limitations

The Bitcoin core development team recently proposed a plan to remove the size limit on OP_Return outputs, which has sparked extensive discussion within the industry. OP_Return is an output type that allows for the storage of non-transactional data on the Bitcoin blockchain. Currently, Bitcoin core nodes do not relay transactions that exceed the limit, but they do accept blocks containing such transactions.

This proposal has sparked controversy, with some believing that restrictions help prevent spam. Those in favor of retaining the restrictions hope that Bitcoin is used solely for financial transactions, viewing data like images as non-standard transactions.

However, a craze for storing images on the Bitcoin blockchain has emerged. The "Ordinals" phenomenon that arose in early 2023 uses Taproot spending input scripts to store images, with most such transactions being treated as standard transactions and relayed by Bitcoin core nodes. In some cases, this method is cheaper than OP_Return, as it enjoys a 75% discount on witness data due to Segregated Witness.

Data shows that the usage of Ordinals is very high, with over 88 million inscriptions and transaction fees paid exceeding 7,000 Bitcoin. Many companies are flocking to this field, with millions of dollars invested in Ordinals-related tools.

There are different views on whether these images should be considered spam. From the perspective of the trader's intent, if it is for personal entertainment or speculative profit, it may not be considered spam; however, if it is a malicious attack on others, it can be seen as spam.

According to the theory of subjective value, the value of goods and services depends on individual assessment. Since someone is willing to pay a high price for images on the blockchain, we have no right to question their value. Let the market decide the development in this field.

Currently, systems that store images using Taproot input scripts already exist, and the cost per byte is four times lower than OP_Return. Retaining the OP_Return limitation can no longer stop this trend.

The Bitcoin mining industry has evolved from a hobbyist activity to an industry with publicly listed companies. The management teams of these companies generally welcome Ordinals, viewing them as an important source of revenue. In this highly competitive industry, this business reality is difficult to change.

The operation of Bitcoin relies on the coordination of incentive mechanisms, rather than the unified goals of participants. Now may be the time to remove the OP_Return limitation as a protective measure and accept the economic realities of the block space market.

If large OP_Return outputs are still considered non-standard transactions, miners may establish direct channels to receive these transactions, bypassing the public mempool. This could lead to many negative impacts, such as undermining Compact blocks technology, increasing block propagation delays, and exacerbating mining centralization.

Bitcoin developers should strive to keep the software competitive, ensuring that the public memory pool and open-source transaction selection algorithms have advantages in maximizing profits. This helps to prevent miners from building proprietary algorithms and private memory pool businesses.

For node operators, if we assume that the blockchain is full, increasing the use of OP_Return may actually make running a full node easier. OP_Return outputs do not cause the UTXO set to expand, and the block size containing only OP_Return outputs is far smaller than the maximum size.

To prevent spam information, the key lies in transaction fees. The core goal of Bitcoin is to resist censorship, and transaction fees are a fundamental component of the security model that achieves this goal. To enter the blockchain, one must bid higher than other users, which is the only viable spam prevention model.

Removing the OP_Return limit may help users estimate the required transaction fees more accurately and improve transaction confirmation efficiency. Although the OP_Return limit has existed for many years, changes in economic realities have made it necessary to reconsider this restriction.

Overall, removing the OP_Return limit may be beneficial for the development of the Bitcoin ecosystem. This helps to face economic realities, maintain competitiveness, and promote the effective operation of public p2p transaction broadcasting systems. While some spam may occur, this situation will not last forever. Ultimately, Bitcoin may become stronger as a result.