Impact of Removing OP_Return Limitations in the Bitcoin Ecosystem

A proposal recently appeared in the Bitcoin Core code repository aimed at removing the size limit on OP_Return outputs. OP_Return is a type of output used to store non-transactional data on the Bitcoin blockchain. Currently, Bitcoin Core nodes do not relay transactions that exceed the limit, but this is not a consensus rule, and nodes will still accept blocks containing such transaction outputs.

This proposal has sparked controversy. Supporters believe that lifting restrictions is necessary, while opponents worry that it could lead to an influx of spam. Some people hope that Bitcoin is used only for financial transactions, viewing images and other data as non-standard transactions.

However, a trend of storing images on the Bitcoin blockchain has emerged. The "Ordinals" movement that began in early 2023 is an example. Unlike using OP_Return, Ordinals store images in the input scripts of Taproot outputs. Most Ordinals transactions are standard transactions and are relayed by Bitcoin core nodes. In some cases, this method is more economical than OP_Return because it benefits from the 75% witness data discount brought by Segregated Witness.

Data shows that the usage of Ordinals has been very high, with over 88 million inscriptions and more than 7,000 Bitcoin paid in transaction fees, amounting to over $660 million at current prices. Many enterprises are flocking to this field, with millions of dollars invested in the development of related tools.

Although some people view these images as spam, the situation is not always so from the perspective of the intent of the creators. Most people seem to do it for personal entertainment or speculative purposes, rather than with malicious intent towards others. According to the theory of subjective value, the value of these images depends on individual assessment, and since someone is willing to pay for it, we have no right to question it.

The professional management teams in the Bitcoin mining industry generally welcome Ordinals, viewing them as an important source of revenue. In an intensely competitive industry, this revenue driver is crucial. The viewpoint that Ordinals are spam information that should be filtered out does not align with the current business reality.

If the OP_Return restriction is maintained, miners may establish systems to directly receive non-standard transactions, bypassing the public mempool. This could increase the discrepancy between the blocks produced by miners and the transactions users expect to see, undermining technologies such as Compact blocks and affecting block propagation efficiency. This may exacerbate the centralization of mining, putting smaller participants at a disadvantage.

From the perspective of node operators, increasing the usage of OP_Return may actually make running full nodes easier. OP_Return outputs do not inflate the UTXO set, and the block size containing OP_Return outputs is usually smaller than the maximum limit.

The key to preventing spam is transaction fees. To enter the blockchain, you need to bid higher than other users; this is the only viable spam prevention model. Regardless of whether the transaction is spam or uses OP_Return, appropriate fees must be paid.

Overall, removing the OP_Return limit may be a wise move to face economic realities and maintain competitiveness. This helps keep the public mempool functioning effectively and makes the public p2p transaction broadcasting system more competitive. Although this may lead to some losses for investors, in the long run, Bitcoin may become stronger as a result.