Bitcoin Miner Income Steady as Inscription Demand Weakens

Since early 2023, a new type of non-fungible token (NFT) known as Bitcoin Ordinals has sparked widespread interest in the cryptocurrency space.

The popularity of inscriptions can be attributed to their novelty and the unique value proposition they offer. They provide a way for users to permanently store messages on the immutable Bitcoin blockchain, adding a new layer of functionality to Bitcoin’s usefulness as a store of value. This opens up a new avenue for creativity and personal expression in the Bitcoin ecosystem, enabling users to create lasting legacies on the blockchain.

In addition, the emergence of Inions is an important milestone for Bitcoin, marking its entry into the NFT field, which was previously dominated by Ethereum and other smart contract platforms.

However, the surge in popularity of the inscription has had a major impact on the Bitcoin network. Increased demand for these new types of NFTs has led to massive increases in transaction costs and network congestion, leading to an unprecedented surge in mining revenue due to increased transaction fees.

However, recent data suggest that enthusiasm around the inscription has cooled. Various miner-related indicators point to a return to pre-Inscription levels, signaling a normalization of the market.

Miner revenue per exahash (a measure of how much miners earn per exahash of computing power contributed to the network) has declined significantly since its peak on May 8, 2023. Revenue per exahash in dollar terms fell more than 44 percent since May 8, following a 110 percent rise from January to May.

A similar trend was seen in miner revenue when denominated in BTC, down 48% since May 8.

Graph showing year-to-date revenue per exahash miner (source: Glassnode)

The inscription craze had a major impact on the composition of miners’ income. On May 8, transaction fees accounted for 42.59% of all miner revenue, the second highest level in history. The all-time high was on December 22, 2017, when Bitcoin rose to $20,000, when transaction fees accounted for 43.57% of total revenue.

To put that in perspective, as of January 1, 2023, transaction fees accounted for only 0.73% of miner revenue. As of June 16, 2023, transaction fees accounted for approximately 1.56% of miners’ income, indicating that the majority of income comes from block rewards.

Graph showing year-to-date transaction fees as a percentage of miner revenue (Source: Glassnode)

The normalization of miner revenue and the decline in transaction fees show that the market has adjusted to the inscription phenomenon. While the inscription trend provides temporary financial gain to Bitcoin miners, the Bitcoin network appears to be returning to normal operations.

This return to normalcy is a positive sign for the Bitcoin network, indicating its resilience and ability to adapt to new developments and trends.