Remove OP_Return: What impact does it have on the Bitcoin ecosystem?

In the code repository of Bitcoin Core software, it has recently been proposed to remove the limit on the output size of OP_Return . OP_Return is an output type designed to store arbitrary (non-transaction) data on the Bitcoin blockchain. Under existing size limits, Bitcoin core nodes do not relay transactions that exceed this limit. However, this is not a consensus rule, and Bitcoin core nodes will always regard blocks containing outputs of such transactions as valid blocks and accept them.

Removal of this restriction has sparked some controversy, which some believe is necessary to block or prevent spam. Many people who advocate retaining this restriction want Bitcoin to be used only for "financial transactions" and want to consider image-related data, etc. as non-standard transactions.

Ordinals craze

However, the craze for storing images on the Bitcoin blockchain has long been around. The craze started in early 2023 and was called "Ordinals". Unlike using OP_Return output, images are stored in the input script for Taproot expenditure. The vast majority of these Ordinals transactions are already standard transactions, and they will be relayed by Bitcoin core nodes. In some cases, this Taproot method is cheaper than OP_Return because it benefits from a 75% witness data discount from the SegWit upgrade.

According to a dashboard on Dune.com , Ordinals has been used very high, with more than 88 million inscriptions paying transaction fees for more than 7,000 bitcoins. Based on current Bitcoin prices, this is more than $660 million. There are many businesses in the Ordinals space that want to take advantage of this growth trend and have already invested millions of dollars in Ordinals-related tools such as wallets, inscription trading systems, and ways to create and submit Ordinals to the network.

Many people regard these images as spam. In our view, in this context, we tend to look at spam from the intentions of the person who created the transaction. Are they trying to intentionally hurt others, or are they trying to profit from it? With this in mind, we think storing images on a blockchain is not always spam, as people who do so seem to be primarily for personal entertainment or speculation and trying to make a profit. However, if someone puts an image on the blockchain to maliciously attack others (this case does exist to some extent), then yes, that's spam.

While images on blockchains may seem like spam to many, we agree with the subjective value theory :

_The value of various consumer goods and services is not objectively

and inherently owned from the things themselves, but depends on the individual being evaluated. His valuation is a subjective problem, and even he himself cannot reduce it to an objective term or measure._

Some people seem to like images on blockchain and have paid more than $600 million for it. Since the value of these commodities is subjective, what qualifications do we have to question? All we can say is that we don't value these images and don't pay for them. We believe that businesses and individuals who want to make a profit by investing in this field are likely to lose money in the end. But let the market decide!

Our view is that horses have run away, people have used blockchains on a large scale to store images, and the limitation of retaining OP_Return does not change that. The system that uses part of the Taproot input script to store images already exists, and bytes, this method is four times cheaper than OP_Return .

Bitcoin mining

We have been following the Bitcoin mining field for more than 14 years. We have witnessed Bitcoin mining transforming from an amateur activity to an industry with publicly owned companies. We closely monitor 10 of these listed companies and read almost all of their publicly disclosed documents. These miners report their financial statements quarterly and update their production data to the market every month. We often communicate with investor relations officials and management teams of these companies. These management teams love Ordinals very much, and they see it as a potential revenue driver, a crucial revenue driver in a highly competitive industry. The idea that Ordinals are spam and should be filtered will not resonate with these professional management teams now and in the future. Some people may not like it, but that's the business reality. This is also a reality that some of us have always expected. Bitcoin has grown and is a business, and businesses need to maximize returns and return on equity.

Bitcoin is about incentivizing and pursuing incentive compatibility. Bitcoin does not work because the field is composed of a group of altruistic, kind-hearted and consistently targeted people. The Bitcoin field is composed of a variety of people who share different perspectives and ideas. Bitcoin works not because we are all on the same team, but because it is robust and the incentives are coordinated. We believe it is time to remove OP_Return 's paternalistic protections and embrace the economic reality of the block space market.

If the larger OP_Return outputs are still considered non-standard transactions, but people still want to use them, miners will only build businesses that directly receive these transactions, bypassing the public memory pool. Marathon, the largest listed mining company, has done so. However, as we understand, this service provided by Marathon is not currently popular. Still, if miners start receiving transactions off-chain, this has a lot of negative impact on Bitcoin. This will mean that the difference between transactions in blocks produced by miners and transactions that users expect to see will increase. This could undermine technologies such as Compact blocks, which helps blocks spread faster across the network by eliminating the need for nodes to download transactions twice (one for memory pools and the other after the transaction enters the block). It may be wise to remove this restriction in advance to ensure Compact blocks are not destroyed. If it is broken and block propagation delay increases, this may benefit larger miners and pools at the expense of smaller miners, thereby aggravating the centralization of mining.

Miners and mining pools establish businesses that accept non-standard transactions, and other negative consequences can also be caused. Building such businesses requires costs, such as technical costs and marketing costs. This business model may also be monopolistic, and users may want to use a simple platform to submit their non-standard transactions. This increases access barriers to mining and mining pools, making mining for small participants more difficult. This once again leads to more centralized pressure. Once these systems are developed, it will be difficult to stop these businesses even if the core strategies of Bitcoin are relaxed later. For example, once the infrastructure is built, lazy customers may continue to use these services instead of public memory pools.

We believe that Bitcoin developers should work hard to keep the software competitive. Make open source transaction selection algorithms competitive in maximizing revenue, prevent miners from building their own proprietary algorithms, and make public memory pools competitive, prevent miners from building private memory pool businesses. We understand that not everyone thinks so, but this is the economic reality in the current mining field. We want the memory pool to work efficiently, and we think removing the OP_Return limit is a better option, rather than pretending that the spam is not dug out. The choice is whether to have a valid memory pool or an invalid memory pool.

Node runner

If the blockchain is assumed to be full, the increase in OP_Return usage actually makes running the full node easier. Remember that OP_Return does not enjoy witness discounts, so the maximum size of the block that only contains OP_Return output is 1MB, much smaller than the maximum value of 4MB. Meanwhile, the OP_Return output does not swell the UTXO set. Other protocols use alternative systems (such as fake addresses) to store arbitrary data, and this approach has serious negative consequences for those seeking to verify all Bitcoin transactions. OP_Return just data that does not require verification and can be ignored. Those who worry about cheaper node operation costs don't have to worry about the problems that remove OP_Return limit.

How do we block spam?

At the beginning of this section, we will quote Eric Voskuil's book Crypto Economics. In the book, Eric writes:

Resistance to review is the result of transaction fees.

Bitcoin’s core goal is to resist censorship, and transaction fees are an essential part of the security model designed to achieve that goal. An attacker who wishes to review transactions cannot succeed by encouraging node runners to filter out certain transactions from their memory pools. If that works, Bitcoin wouldn't be particularly good at preventing censorship. Instead, it all has to do with fees, rates, and miners trying to maximize revenue per block. This is true whether the transaction is spam, whether the transaction uses OP_Return or not, or whether the transaction uses quarantine witness or not. To enter the blockchain, you need to bid higher than other users, which is the only viable spam prevention model. As Satoshi Nakamoto said:

As long as you are willing to bid higher than other users, you can almost always enter at some price.

This spam prevention model has been understood for many years. As we said in our September 2017 article on Quarantine Witness:

Admittedly, spammers can generate such a 4MB block with the same cost as a 1MB block. This is a potential problem. However, this does not change the security properties of the system, because a 4MB block is not cheaper than a 1MB block, it just costs the same. Spammers can always bid higher than legitimate users, regardless of whether they are using Quarantine Witness. In fact, an attacker can simply generate 1MB of non-witness data to compete with "legitimate" users, and this attack cost the same as before. Quarantine Witness does not and cannot change such a security dynamic: if an attacker wants to bid higher than the user with spam data, they can do it.

To ensure that your transaction is confirmed promptly, you need good information about what the miner might dig in the next block so that you can set the appropriate transaction fees. This is another reason node operators may want their memory pool strategy to match the miner's actual operations as much as possible. If the Bitcoin Core does not remove OP_Return relay restrictions, users will have to run other software or use a third-party website to obtain information about what transaction fees to use.

Admittedly, there have been limits on OP_Return output, and Bitcoin has been running well for over a decade with that limit. So why remove it now? In our opinion, this reasoning is somewhat similar to the discussion that was often held during the block size dispute between 2015 and 2017. "Big Block Par" often says that Bitcoin has been operating well for many years without full blocks, so why should we introduce full blocks now? The answer is, this is just the economic reality of success. As former Bitcoin developer Gregory Maxwell said in a major 2015 email:

The need for cheap, highly replicated, and permanent storage is unlimited.

In our opinion, these changes are always inevitable. The need to store images on a blockchain is unlimited, and the only way to prevent this need is transaction fees. It’s just that some people always think so, while others don’t, which can lead to debate.

We are very lucky that the small block group won the battle between block size. If a large block pie wins and adopts a Bitcoin XT, the block size limit may now be around 250MB. Blocks may be full of images, with 250MB of images every 10 minutes. This may prevent the average user from running nodes and may have killed Bitcoin.

in conclusion

We have some support for removing the OP_Return limit. Now is the time to face economic reality and stay competitive. We hope that the local memory pool will work effectively and that the public p2p transaction broadcast system will be the ultimate winner. If an attacker or spammer wants to bid higher than other users, they can do it, we should embrace this reality. Spam budgets won’t last forever, and many people who invest in blockchain images are likely to collectively lose millions of dollars. People will learn from a painful lesson, and then Bitcoin will become stronger because of this.