Stats as of 2-15-2024<\/em><\/p>\nThis data shows that there is a small but growing demand for Ordinals. You can see the volume for Rare amd Uncommon Ordinals are greater than 26 BTC at the time of writing this. Keep in mind that this is only one marketplace and there are a growing number of OTC deals that are happening between buyers and sellers not to mention demand and business happening in other parts of the world.<\/p>\n
Looking beyond Ordinals marketplaces we are now seeing Ordinals make their way to legendary auction house Sotheby\u2019s further propelling the phenomenon towards the mainstream. If you look across the Pacific Ocean there is also significant demand for Ordinals and BRC-20 tokens, which would not be possible without Ordinals. So the demand for Ordinals is real and it is growing, not waning. <\/p>\n
The last significant item of note that could impact demand for this first block of the halving is the activation of Runes. Runes is another protocol released by the same creator of Ordinals, but the aim of Runes is to make a more efficient token protocol. The kicker on this is that with it going live in the first block of the halving, this alone will cause a significant demand to issue these new tokens as quickly as possible, presumably the first Runes issued will be more valuable than later issued Runes. \u201cYes there will be reorg incentive for block 840,000, but it’s not for epic sat — it’s for the 20btc in fees from Casey’s Runes.\u201d said Charlie Spears on X. This fee revenue call is speculation but it comes from observation from previous Ordinals and BRC20 activity. <\/p>\n
Sifting For Sats<\/h2>\n
In Bitcoin, “dust” refers to an amount of bitcoin so small that it cannot be spent because the cost of a transaction fee would be higher than the amount itself. The concept of a “dust limit” therefore varies depending on the transaction fee and the type of transaction being made. However, there are general guidelines for what is considered dust, based on the type of Bitcoin script or address being used.<\/p>\n
The dust limit is calculated based on the size of the inputs and outputs that make up a transaction. For a transaction to be relayed by most nodes and mined, its outputs must be above the dust limit. The dust limit for a standard P2PKH (Pay-to-Public-Key Hash) transaction output is commonly considered to be 546 satoshis when using the default minimum relay fee of 1 satoshi per byte, but this can vary depending on the network conditions and the policies of individual nodes.<\/p>\n
For different script types, the dust limit calculation takes into account the size of the script and therefore can vary:<\/p>\n
P2PKH (Pay-to-Public-Key Hash): This is the most common type, and its dust limit is usually around 546 satoshis.P2SH (Pay-to-Script Hash): Outputs for P2SH transactions can have a slightly higher dust limit because the script itself is more complex, requiring more data to be included in a transaction.P2WPKH (Pay-to-Witness-Public-Key Hash) and P2WSH (Pay-to-Witness-Script Hash): These SegWit (Segregated Witness) transactions have different weight calculations, leading to lower fees for the same amount of data. Consequently, the dust limit for SegWit transactions can be lower than for traditional P2PKH transactions. For P2WPKH, the dust limit might be closer to 294 satoshis.MultiSig: Transactions involving multiple signatures (MultiSig) have higher dust limits due to the increased data size required to accommodate multiple signatures.<\/p>\n
The exact dust limit can vary because it depends on the transaction’s size and the current fee market. Additionally, changes in Bitcoin’s protocol or node policies can affect these thresholds. It’s also worth noting that some wallets and services might set their own dust limits based on their operational requirements.<\/p>\n
Pools Sifting<\/h3>\n
Based on the information above we can examine blocks found by pools to see if pools are actively sifting blocks. What we see is 44% of the network is or has sifted for sats in the past year. We have reason to believe that additional pools are in discussions with sifting technology developers in deploying the tech on their pools, but nothing has been made public at this time. Our findings reveal that a very significant percentage of the mining network sees value in sifting for these sats, otherwise this would be a hobbyist endeavor. When this many big players are participating, you know there is some market dynamics happening.<\/p>\n
Source: Mempool.space as of 2-12-2024, ranking as of past 6 months<\/p>\n
Beyond blockchain investigation outlined above, miners are developing new markets of their own in mining irregular transactions for various projects. Most notably is publicluy traded mining pool Marathon who launched a new service called Slipstream which will mine complex transactions such as 1 sat UTXO which is far below the SEGWIT dust threshold of 546 sats. I bring this up because as they are offering this service, you can\u2019t help but assume that Marathon sees or will soon see value in Ordinals of they are willing to invest resources in serving Ordinal or Ordinal adjacent projects with this service. Afterall, the obligation of publicly traded companies is to maximize value for shareholders.<\/p>\n
We know more than 40% of hashrate is sifting for sats, but what does that really mean in the grand scheme of things. Afterall, we are talking about one specific sat, the epic sat in block 840,000. We know that Ordinals have value according to the very small market, we also know that this sat will likely be sold for more than a single blocks reward, but the big question is who could forcibly win this block? Proof of Work is all about the longest chain and ethics don\u2019t matter when it comes to Bitcoin and the blockchain. The chain is truth, even if you were to reorg. If you are hashing and following consensus and you build a longer chain then you are the victor. Based on the table from the previous section, we can see who the top pools are from the past six months. With that information we can model the probability of these pools forking and causing a reorg of the blockchain in order to win the epic sat but we need to run the numbers. For this we will explore the mining section of the Bitcoin Whitepaper. <\/p>\n
Mining Explained in the Whitepaper<\/h2>\n
Bitcoin mining is a race to find a valid block by solving a cryptographic puzzle, known as proof of work. The difficulty of this puzzle is adjusted by the network so that, on average, a new block is found every 10 minutes, regardless of the total computing power of the network. Now the security of this is where things get interesting. Section 11 of the Bitcoin whitepaper discusses the mathematics behind the security of the blockchain against attackers who try to alter the transaction history. <\/p>\n
The paper uses a comparison to a gambler’s “ruin problem” to explain how difficult it is for an attacker to catch up with the rest of the network once they fall behind in the race to add new blocks to the chain. Essentially, if honest nodes control more computational power, the probability that an attacker can catch up decreases rapidly as they fall further behind in the blockchain. The probability that an attacker can catch up becomes almost zero if they do not have a majority of the computational power. <\/p>\n
The section outlines the process where transactions become more secure as new blocks are added to the blockchain, using a Poisson distribution to model the likelihood of an attacker catching up from being behind the chain tip. This framework provides the basis for understanding how blockchain achieves security through probabilistic means not absolute guarantees.<\/p>\n
In the Bitcoin whitepaper, the Poisson distribution is used to model the security of mining. It’s used to quantify the probability that an attacker can catch up with the honest nodes after being z blocks behind, which is vital when considering the risk of a blockchain reorganization. It offers a statistical view of how likely it is for an attacker, with a certain percentage of the total network hash rate, to rewrite the blockchain history.<\/p>\n
Converting to C code…<\/p>\n
#include <\/p>\n
double AttackerSuccessProbability(double q, int z)<\/p>\n
{<\/p>\n
\u00a0 \u00a0 double p = 1.0 – q;<\/p>\n
\u00a0 \u00a0 double lambda = z * (q \/ p);<\/p>\n
\u00a0 \u00a0 double sum = 1.0;<\/p>\n
\u00a0 \u00a0 int i, k;<\/p>\n
\u00a0 \u00a0 for (k = 0; k <\/p>\n
\u00a0 \u00a0 {<\/p>\n
\u00a0 \u00a0 \u00a0 \u00a0 double poisson = exp(-lambda);<\/p>\n
\u00a0 \u00a0 \u00a0 \u00a0 for (i = 1; i <\/p>\n
\u00a0 \u00a0 \u00a0 \u00a0 poisson *= lambda \/ i;<\/p>\n
\u00a0 \u00a0 \u00a0 \u00a0 sum -= poisson * (1 – pow(q \/ p, z – k));<\/p>\n
\u00a0 \u00a0 }<\/p>\n
\u00a0 \u00a0 return sum;<\/p>\n
}<\/p>\n
Who Could Pull This Off?<\/h2>\n
Ordinals introduces a new incentive to reorg. Before Ordinals, the threat of a reorg was focused around a double spend attack, but Ordinals introduced the demand for individual sats, in this case the demand to win a specific block. The question is this, does the value of a single Epic sat or block warrant abandoning the longest chain in hopes of finding a couple quick blocks and winning that epic sat? Pubco mining pools will have a hard time justifying such action to shareholders, it seems negligent. But for private mining pools, they have different incentives and have a bit more freedom in how they pursue revenue.<\/p>\n
Looking at the top 10 mining pools by their percent of the network, we can model out who could pull off a reorg. One thing of note, the formulas described in the whitepaper only model catching up with the chain tip, however a reorg would require catching up to the tip +1 block, so our values below show that probability.<\/p>\n
The first thing I noticed was Foundry and Antpool have a higher % probability of pulling off a reorg from 1 block behind than their own % hashrate of the network. How could this be possible? This is because A miner with 30% of the hashrate being 1 block behind and attempting a reorg is at a disadvantage because the rest of the network (70% hashrate) collectively has a higher probability of extending the current longest chain before the miner can catch up and surpass it. However, due to the randomness captured by the Poisson distribution, there’s always a non-zero probability that this miner could, through a streak of good luck, mine enough blocks in a row to take over the longest chain, even from one block behind. This is statistically unlikely but becomes possible with higher hashrate percentages and short reorg depths.<\/p>\n
The next key takeaway is how successful reorgs become less likely for each block they are behind. It is remarkable how Foundry could still reorg from 5 blocks behind. <\/p>\n
Conclusion<\/h2>\n
The Bitcoin space is weird (always has been) and bitcoin miners are the longest of long when it comes to outlook on Bitcoin. Based on the reorg probability and the potential value from the additional value on the first block of the halving, the probability of a reorg feels likely. If you take the BTC mined from this block, the epic sat, plus the projected amount of fees that will be earned from the release of Runes, bigger pools would be foolish to not try and make a move to win this block. The only real downside of a reorg would be by working on the old chain and NOT winning the reorg, so you would miss out on possibly winning 1-2 blocks by mining on the original longest chain. I do hope for fireworks. It will be legendary to hear the talk tracks from the new Wall Street financial bros trying to explain this. At the end of the day, miners will have to make a decision, that is to simply build on the longest chain or to try and build the longest chain with heavy amounts of luck. They must consider the tradeoffs and pick their poisson.<\/p>\n
CODE<\/p>\n
===========REORG-SUCCESS.RB=========================================<\/p>\n
# —-<\/p>\n
# Data<\/p>\n
# —-<\/p>\n
miners = {<\/p>\n
‘\u00a0 \u00a0 foundryusa’ => 30,<\/p>\n
\u00a0 \u00a0 ‘antpool’ => 25.64,<\/p>\n
\u00a0 \u00a0 ‘f2pool’ => 12.35,<\/p>\n
\u00a0 \u00a0 ‘viabtc’ => 10.98,<\/p>\n
\u00a0 \u00a0 ‘binancepool’ => 6.49,<\/p>\n
\u00a0 \u00a0 ‘marapool’ => 3.78,<\/p>\n
\u00a0 \u00a0 ‘luxor’ => 2.93,<\/p>\n
\u00a0 \u00a0 ‘sbicrypto’ => 1.90,<\/p>\n
\u00a0 \u00a0 ‘btcdotcom’ => 1.54,<\/p>\n
\u00a0 \u00a0 ‘braiinspool’ => 1.29,<\/p>\n
\u00a0 \u00a0 ‘unknown’ => 1.27,<\/p>\n
}<\/p>\n
# ——–<\/p>\n
# Equation<\/p>\n
# ——–<\/p>\n
def attacker_success_probability(q, z)<\/p>\n
\u00a0 \u00a0 # p = probability honest node finds the next block<\/p>\n
\u00a0 \u00a0 # q = probability attacker finds the next block<\/p>\n
\u00a0 \u00a0 # z = number of blocks to catch up<\/p>\n
\u00a0 \u00a0 p = 1 – q<\/p>\n
\u00a0 \u00a0 lambda = z * (q \/ p) # expected number of occurrences in the poisson distribution<\/p>\n
\u00a0 \u00a0 sum = 1.0<\/p>\n
\u00a0 \u00a0 for k in 0..z<\/p>\n
\u00a0 \u00a0 poisson = Math.exp(-lambda) # exp() raises e (natural logarithm) to a number<\/p>\n
\u00a0 \u00a0 for i in 1..k<\/p>\n
\u00a0 \u00a0 \u00a0 \u00a0 poisson *= lambda \/ i<\/p>\n
\u00a0 \u00a0 end<\/p>\n
\u00a0 \u00a0 sum -= poisson * (1 – (q\/p)**(z-k) )<\/p>\n
\u00a0 \u00a0 end<\/p>\n
\u00a0 \u00a0 return sum<\/p>\n
end<\/p>\n
# ——–<\/p>\n
# Results<\/p>\n
# ——–<\/p>\n
# Run through each of the miners in the list<\/p>\n
miners.each do |miner, percentage|<\/p>\n
\u00a0 \u00a0 # Print miner name<\/p>\n
\u00a0 \u00a0 puts “#{miner}”<\/p>\n
\u00a0 \u00a0 # Convert percentage to probability<\/p>\n
\u00a0 \u00a0 probability = percentage \/ 100.0<\/p>\n
\u00a0 \u00a0 # Calculate their success of replacing a different number of blocks near the top of the chain<\/p>\n
\u00a0 \u00a0 1.upto(5) do |blocks|<\/p>\n
\u00a0 \u00a0 # NOTE!<\/p>\n
\u00a0 \u00a0 # Add 1 to the number of blocks.<\/p>\n
\u00a0 \u00a0 # This is because we don’t want to calculate the probability of merely catching up to the tip of the chain (which is what the equation calculates).<\/p>\n
\u00a0 \u00a0 # To perform a successful attack, we want calculate the probability of building a chain that is ONE BLOCK LONGER than the current chain. That way, other nodes will be forced to adopt it and we will have successfully rewritten the blockchain.<\/p>\n
\u00a0 \u00a0 # Calculate success for specific number of blocks based on their hash share<\/p>\n
\u00a0 \u00a0 success = attacker_success_probability(probability, blocks+1)<\/p>\n
\u00a0 \u00a0# Convert probability to percentage<\/p>\n
\u00a0 \u00a0 success_percentage = success * 100.0<\/p>\n
\u00a0 \u00a0 # show results<\/p>\n
\u00a0 \u00a0 puts ” #{blocks} = #{“%.8f” % success_percentage}%”<\/p>\n
\u00a0 \u00a0 # NOTE: The %.8f converts from scientific notation to decimal<\/p>\n
\u00a0 \u00a0 # Adjust the number (e.g. 8) to control how many decimal places you want to show<\/p>\n
\u00a0 \u00a0 end <\/p>\n
\u00a0 \u00a0 # Add gap between results for each miner<\/p>\n
\u00a0 \u00a0 puts<\/p>\n
end<\/p>\n
This article is featured in Bitcoin Magazine\u2019s<\/em> \u201cThe Halving Issue\u201d. Click <\/em>here<\/a><\/em> to get your Annual Bitcoin Magazine Subscription.<\/strong><\/p>","protected":false},"excerpt":{"rendered":"This article is featured in Bitcoin Magazine\u2019s \u201cThe Halving Issue\u201d. Click here to get your Annual Bitcoin Magazine Subscription. Calculated probabilities were calculated by Greg @ learnmeabitcoin.com Block 840,000 is not just another block in the blockchain; it triggers the Bitcoin halving where the block reward is reduced from 6.25 BTC to 3.125 BTC, cutting […]<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-24607","post","type-post","status-publish","format-standard","hentry","category-crypto-news"],"_links":{"self":[{"href":"https:\/\/bitcoins-101.com\/wp-json\/wp\/v2\/posts\/24607","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bitcoins-101.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bitcoins-101.com\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/bitcoins-101.com\/wp-json\/wp\/v2\/comments?post=24607"}],"version-history":[{"count":0,"href":"https:\/\/bitcoins-101.com\/wp-json\/wp\/v2\/posts\/24607\/revisions"}],"wp:attachment":[{"href":"https:\/\/bitcoins-101.com\/wp-json\/wp\/v2\/media?parent=24607"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitcoins-101.com\/wp-json\/wp\/v2\/categories?post=24607"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitcoins-101.com\/wp-json\/wp\/v2\/tags?post=24607"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}