On-chain data shows that Bitcoin network activity is now at its highest level since May 2021 as Ordinals NFTs have been rapidly gaining popularity.
CryptoQuant’s Bitcoin Network Activity Index Has Shot Up Recently
As per data from the on-chain analytics firm CryptoQuant, the BTC network has seen a significant uptick in activity. The relevant indicator here is CryptoQuant’s “network activity index,” which evaluates the activity of the Bitcoin network using four metrics.
The four indicators it uses are the total number of active addresses on the network (that is, the addresses being involved in at least 1 send/receive transaction), the number of transactions, the Unspent Transaction Output (UTXO) count (UTXOs are basically the amount left over in wallets after a transaction takes place), and the block size.
Here is a chart that shows how the value of the CryptoQuant network activity index has changed over the last few years:
Looks like the value of the metric has been pretty high in recent days | Source: CryptoQuant
As displayed in the above graph, the Bitcoin network activity according to CryptoQuant’s index has seen a significant surge recently and has reached the highest level since May 2021. The reason behind this boost in activity is that BTC non-fungible tokens (NFTs) have been quickly becoming popular.
These NFTs have become possible on the BTC blockchain thanks to a system called the “Ordinals.” This protocol directly stores images on the chain using Taproot transactions.
As these NFTs are directly “inscribed” on the blockchain itself (a fact that has earned them the name “inscriptions”), the Bitcoin block size gets inflated when these are added to transactions. The “block size” here refers to the total amount of data that is being stored in a BTC block.
With the rise of NFT transactions on the network, the average block size has observed an increase and has hit new all-time highs. Since the network activity index uses block size as one of the components for measuring the activity, the increased block sizes have naturally resulted in the index also seeing a surge.
“Evidently, due to inscriptions, some recent Bitcoin blocks in the last few days have exceeded the 4 MB block size limit,” notes CryptoQuant. “These blocks were the largest in Bitcoin history.”
The number of daily BTC transactions, another factor that the index considers, has also grown on the network recently, hitting highs not seen since April 2021.
As these images are taking up a large amount of BTC block space, whether they are useful or not has become a hot topic of debate around the community. CryptoQuant thinks that NFTs can drive more demand on the network, and hence boost the fees that miners get.
In the future, miners will have to depend on transaction fees as their primary source of income so any increases in it can help them be more sustainable in the long term.
However, the analytics firm also notes that inscribing non-fungible aspects such as these to satoshis can cause a negative effect on the privacy and fungibility of BTC.
At the time of writing, Bitcoin is trading around $22,700, down 4% in the last week.
BTC has declined in the past day | Source: BTCUSD on TradingView
Featured image from Jievani Weerasinghe o Unsplash.com, charts from TradingView.com, CryptoQuant.com