Degens are so high on inscriptions they just poured $106m into a Bitcoin NFT game that hasn’t even been created

The numbers don’t lie — inscriptions are out of control.

These experimental data files were supposed to be a passing fad when they emerged in early 2023 with the introduction of a protocol called Ordinals.

But now the use of inscriptions has opened another gambling playground for the rapacious crypto degen crowd.

Despite being dismissed by Bitcoin purists like Jimmy Song and condemned by longtime developer Luke Dashjr, their allure is greater than ever.

The total market size for Bitcoin inscription tokens has grown to $1.5 billion.

Bitcoin Cats

ORDI, the biggest of the lot, accounts for the bulk of this valuation with a market capitalisation of $1 billion, making it the fourth largest crypto meme coin behind staples such as Dogecoin and Shiba Inu.

This week, crypto degens ploughed $106 million in Ether and other tokens into Bitcoin Cats, a so-called NFT game which hasn’t even been created but is based on the Ordinals inscription hype.

The development further demonstrates the increasing appetite for exposure to this burgeoning crypto market among investors.

This trend wasn’t supposed to happen.

Panned by many Bitcoin purists, some like Song in May even jibed that the Ordinals minting craze would eventually run out of steam.

Seven months on and the opposite is proving to be the case. The Bitcoin Cats raise, which ended on Tuesday, was oversubscribed 150 times indicating the massive appetite for high-risk crypto ventures.

Bitcoin Cats’ pitch to investors was that their investments would grant them access to the game’s NFT collection. Investors will receive this NFT in exchange for staking their share of the project’s native 1CAT tokens.

Inscriptions allow users to emulate Ethereum’s smart contract functionality on Bitcoin. This meant users could tap embedded data such as image and audio files to create NFTs like Bored Apes and meme coins similar to Shiba Inu on Bitcoin.

This used to be a virtually impossible feat because Bitcoin’s blockchain software does not have native support for smart contracts necessary to create NFTs and tokens.

Pivot to other blockchains

Inscriptions started out as a Bitcoin-only trend and rightly so because, unlike Bitcoin, other major blockchains have native smart contract functionality.

Developers can easily create and deploy tokens — both fungible like Shiba Inu and non-fungible like Bored Apes on blockchains like Ethereum, BNB Smart Chain, Avalanche, Polygon, and Arbitrum among others.

Despite this, some developers have deployed Bitcoin-style inscriptions on these blockchains.

Rather than creating tokens using smart contracts, these developers are inscribing data for meme coins on a blockchain transaction field called CALLDATA, an optional data string that is sent along with transactions on these networks.

Why do they do so?

Because it is cheaper than storing the same data on a smart contract as is the norm for creating tokens or NFTs on these blockchains.

Stress test

Despite being cheaper, there is a major downside to this type of token deployment.

The data can be spammed — sent repeatedly — since it doesn’t cost a lot of money to transmit on the network. As a result, many blockchains have experienced significant transaction loads in the past week.

The uptick in transaction count has proven to be a major stress test for these affected blockchains, as was the case for Bitcoin in May, leading to a degraded user experience.

Gas fees, or transactions costs on blockchains, have spiked, even on networks like Avalanche that are supposed to be cheaper alternatives to Ethereum.

Users spent over $1.2 million for gas fees in total to inscribe data on Avalanche on Monday, an activity that was virtually nonexistent on the chain only a few days ago.

Such is the extent of the strain caused by these inscriptions that they even caused Arbitrum to go offline for over two hours on December 15. Inscriptions accounted for over 90% of all transactions on Arbitrum in the two hours before the chain halt, according to a Dune data dashboard created by pseudonymous blockchain analyst Hildobby.

Polygon leads the way with 161 million inscriptions, followed by BNB Chain and Avalanche with 78 million and 66 million respectively. Despite hosting more than twice the number of inscriptions on Avalanche, transaction fees on Polygon did not exceed $0.10, according to the network’s founder Sandeep Nailwal.

This recent spike in inscriptions has coincided with a major run-up in the market value of early Bitcoin Ordinals like ORDI whose value has increased 17-fold in the last four months.

Major exchanges like Binance have begun to list these inscription tokens on their platforms contributing to this recent spike in value.

As a result, there appears to be no shortage of developers looking to leverage the current hype to create their inscription meme coins.

Despite the hype, the fad is not without its detractors who say inscriptions are spam. Longtime Bitcoin developer Luke Dashjr has been vocal about his opposition to inscriptions, calling them a vulnerability in Bitcoin.

Some critics even said Ordinals were “destroying lives” earlier in the year, condemning the practice for making Bitcoin expensive to use in places like El Salvador.

An unknown Bitcoin purist even reported Ordinals as a vulnerability to the US government.

Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.