Are Inscriptions the Future of Blockchain, or Just a Passing Trend?

Abstract and 1. Introduction

1.1 Research Questions and Contributions

2. Related Work

3. Background

4. Inscriptions and ordinals

   4.1 Operation Types

   4.2 Comparison with NFTs and ERC-20s

5. Data Collection

6. Empirical Analysis and 6.1 Overall Transactions

   6.2 Inscriptions Characterization

   6.3 Inscription Trading

   6.4 Impact on Gas Fees

7. Discussion

8. Conclusion and References

In this section, we discuss various aspects of inscriptions, starting with the impact of blobs on inscription ownership. We then explore whether inscriptions are beneficial or detrimental to the blockchain ecosystem. Finally, we address the potential for pump and dump schemes associated with inscriptions.

\ Impact of blobs on inscription ownership. On March 13, 2024, Ethereum underwent the Dencun upgrade [2], which introduced temporary data storage called blobs. Blobs, initially designed to increase the efficiency of Ethereum rollups, were used to issue new inscription directly in Ethereum blockchains, called BlobScriptions [1]. Yet, blob data is intended to be stored by Ethereum nodes for 18 days, during which rollup operators or other parties verify their transactions. After the 18-day period, BlobScriptions disappear from the Ethereum blockchain and are only stored (and available) in the indexer of the creator protocol, outside the blockchain. Similarly, rollups are not required to store (outside of blobs) the transaction input data used by rollup-based inscriptions, raising questions about the ownership of inscriptions.

\ Inscriptions: good or bad? A report by Binance on BRC-20 highlights that the unexpected surge in transactions resulted in an increase in transaction fees for many blockchains and rollup [32]. The report suggests that such an increase in fees can be seen as a natural progression in blockchain adoption. To illustrate, if a few million more individuals had chosen to use Bitcoin or other blockchains for peer-to-peer transactions, a similar spike in transaction fees would have occurred. Therefore, attribution of this spike solely to BRC-20s is considered irrelevant. What is perhaps more troubling, other protocols, such as Arbitrum, experienced downtime of approximately 78 minutes [33]. Consequently, this led to users worrying about long transaction inclusion times. This led the blockchain community to debate whether ordinals and inscriptions benefit the blockchain users.

\ However, others might argue that the existing blockchain protocols were not fully equipped to handle such a significant influx of transactions. As described earlier, zkSync Era encountered higher transaction-per-second (TPS) rate, approximately 96% of all transactions were related to inscriptions for a couple of hours, and a reduction in gas fees.

\ Challenges and opportunities for trading inscription. Inscriptions are not compatible with ERC-20 tokens and therefore cannot be traded on traditional decentralized exchanges based on automated market makers (AMM) such as Uniswap [3], which is the base for trading tokens with low market capitalization. Today, inscriptions are listed at NFT-marketplaces in a limited-order book type, reducing their liquidity [16, 8, 44]. Also, for many inscription-based meme-coins, their minting processes have not yet finished, and new tokens are expected to be minted until the token limit declared in the deploy operation is fully researched. The wrapper of inscription-based meme-coins into the ERC-20 token could allow one to list of inscriptions at decentralized exchanges and to attract traders of meme-coins that are not used to NFT marketplaces. We see this as the next evolution of inscriptions if they are intended to stay.

\ Hope or Hype? During minting periods, platforms utilized various channels to engage users, including communities, influencers, and specific chains that amplified them. Consequently, numerous users issued inscriptions across different platforms [8, 16, 44].

\ Understanding user expectations, often influenced by FOMO, regarding inscriptions is crucial. For instance, are inscriptions more about hope or hype? This question relates to whether inscriptions are a novel concept or just a passing trend. In the case of Bitcoin, there was a significant surge in interest and user participation during the BRC-20 movement, followed by a subsequent decline in enthusiasm over the following months [36, 37]. Our work shows similar results for EVM-compatible chains: inscriptions peak initially but witness a decline in user interest over time, as shown in Section 6.1.

\ The evolution of inscriptions fuels discussions on innovative features and integration with tokens and NFTs. Despite potential profitability, marketplace platforms encounter challenges in translating inscriptions into substantial profits for users, particularly across different chains. Due to the nature of inscriptions, which rely on off-chain applications, there is currently no mechanism to prevent users from purchasing previously sold inscriptions. Additionally, users can utilize software programs to automatically claim the majority of inscriptions during the minting or claiming period. Hence, should inscriptions be distributed directly to wallets, similar to traditional airdrop methods [22]?

\ Addressing these questions could potentially improve inscriptions, transforming them into a promising addition to the blockchain ecosystem.

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:::info Authors:

(1) Johnnatan Messias, Matter Labs;

(2) Krzysztof Gogol, Matter Labs, University of Zurich;

(3) Maria Inês, Silva Matter Labs;

(4) Benjamin Livshits, Matter Labs, Imperial College London.

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:::info This paper is available on arxiv under CC BY 4.0 DEED license.

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