On-chain data shows that Bitcoin network activity is now at its highest level since May 2021 as Ordinals NFTs quickly gain popularity.
CryptoQuant’s Bitcoin Network Activity Index recently appeared
According to data from on-chain analytics firm CryptoQuant, the BTC network has seen a significant spike in activity. A relevant indicator here is CryptoQuant’s “Network Activity Index”, which assesses Bitcoin’s network activity using four metrics.
The four indicators it uses are the total number of active addresses on the network (that is, the addresses involved in at least one send/receive transaction), the number of transactions, the number of unspent transaction outputs (UTXO) (UTXO is basically the amount left in wallets after a transaction is made) and the size Bloc.
Here is a chart showing how the value of the CryptoQuant Network Activity Index has changed over the past few years:
Looks like the value of the metric has been pretty high in recent days | Source: CryptoQuant
As seen in the chart above, Bitcoin network activity as measured by CryptoQuant has seen a huge spike recently and reached the highest level since May 2021. The reason behind this boost in activity is that Non-Fungible BTC Tokens (NFTs) were quickly becoming popular.
NFTs are made possible on the BTC blockchain thanks to a system called “Ordinals”. This protocol stores images directly on-chain using Taproot transactions.
Because these NFTs are “recorded” directly to the blockchain itself (a fact that has earned them the name “patterns”), the block size of Bitcoin is inflated when added to transactions. The “block size” here refers to the total amount of data that is stored in a BTC block.
As NFT transactions skyrocketed on the network, average block size has seen an increase and is at an all-time high. Since the Network Activity Index uses block size as one of the components to measure activity, naturally increasing block sizes would have caused the index to also see an increase.
“Obviously, due to the patterns, some recent bitcoin blocks in the past few days have exceeded the 4MB block size limit,” CryptoQuant notes. These blocks were the largest in Bitcoin history.
The number of daily BTC transactions, another factor that the index considers, has also been growing on the network recently, reaching highs not seen since April 2021.
Since these images occupy a large amount of BTC block space, whether they are useful or not has become a hot topic for discussion in the community. CryptoQuant believes that NFTs can increase demand on the network, thus increasing the fees miners are charged.
In the future, miners will have to rely on transaction fees as their primary source of income, so any increases in them could help them be more sustainable in the long run.
However, the analytics firm also notes that introducing non-fungible aspects like these into satoshis could cause a negative impact on BTC’s privacy and fungibility.
BTC price
At the time of writing, Bitcoin was trading around $22,700, down 4% in the past week.
BTC has declined in the past day | Source: BTCUSD on TradingView
Featured image by Jievani Weerasinghe o Unsplash.com, Charts by TradingView.com, CryptoQuant.com