New Bitcoin Proposal Could Permanently Ban Ordinals and NFT Transactions

A new proposal, known as "The Cat," aims to permanently remove Ordinals inscriptions and Bitcoin Stamps from the Bitcoin network. This draft has ignited a significant controversy among developers, as it could render millions of small outputs unspendable, raising concerns about its necessity and impact on the Bitcoin ecosystem.

Key Takeaways

"The Cat" proposal seeks to permanently ban Ordinals and NFTs by making small output transactions unspendable.
Critics argue it amounts to theft and would not effectively reduce NFT trading.
Supporters believe it would enhance the UTXO set and clean up spam outputs.
An alternative proposal, "Lynx," suggests a different cleanup method tied to Bitcoin's halving schedule instead of consensus-level changes.
Ongoing tensions regarding the functionality and future of Bitcoin continue to create divisions in the developer community.

New Bitcoin Proposal Could Permanently Ban Ordinals and NFT Transactions

Controversial Proposal Overview

A contentious development proposal in the Bitcoin community aims to permanently eliminate Ordinals inscriptions and Bitcoin Stamps. This proposal, titled “The Cat,” intends to categorize millions of small outputs that contain NFT data as permanently unspendable through a consensus-level soft fork.

Claire Ostrom, the proposal's author, highlights the rapid increase in Bitcoin’s Unspent Transaction Output (UTXO) set. From 2009 until early 2023, the UTXO database grew steadily to about 80-90 million entries. However, in just a year, this number ballooned to over 160 million entries, with analyses indicating that almost half of all UTXOs now hold less than 1,000 satoshis.

Bitcoin Ordinals NFT Transactions - UTXO Set Size Over Time Chart

The Cat suggests using external indexers, such as Ord and Stamps, to identify these outputs and then make them unspendable, while allowing nodes to prune them entirely from the UTXO set.

Criticism from Developers

Bitcoin Core developer Greg Maxwell has been vocally critical of this proposal, labeling it a “total non-starter” that essentially constitutes theft. He argues that “this proposal would intentionally and knowingly confiscate millions of dollars in funds,” as stated in his response on the Bitcoin development mailing list.

Maxwell disputes claims that existing spam filters are ineffective, stating that the current system already blocks most unnecessary data storage, aside from specific cases that add value due to Bitcoin's inherent limitations. He cautioned that the proposal could lead to a surge of evasion transactions, ultimately failing to curb NFT trading since indexers function independently of consensus rules.

He further criticized the proposal for its convoluted language and technical complexity, suggesting it should have been presented more simply to better address the issue of NFTs and their impact.

Bitcoin Ordinals NFT Transactions - Greg Maxwell Comment Screenshot

Support for UTXO Cleanup

Coincidentally, Bitcoin Mechanic, an advocate against spam, has provided cautious support for the proposal despite some philosophical misgivings regarding UTXO deletion. He believes it isn’t unreasonable for Bitcoin users to seek to prune the UTXO set, as maintaining it requires ongoing resource investment.

Proponents of The Cat assert that approximately 40-50% of the UTXO set comprises spam outputs with insignificant amounts. Eliminating these outputs would significantly free up disk space, especially for highly pruned nodes.

Developer Nona YoBidnes has shared that the proposal could send a strong message discouraging future spam activities. “Less spam is the objective here. I’m not concerned with the price of spam, only the quantity,” she stated. Nevertheless, supporters recognize the unprecedented nature of consensus-level UTXO deletion.

Bitcoin Mechanic pointed out that while spam filters can be rectified if they are misconfigured, the accidental deletion of UTXOs would have severe consequences. The proposal aims to mitigate this risk by requiring extensive verification and encouraging the community to validate snapshots of the targeted outputs independently.

Alternative Proposal: Lynx

An alternative proposal, called “Lynx” and introduced by Matteo Pellegrini, takes a different approach. It suggests a periodic cleanup linked to Bitcoin’s halving schedule instead of specifically targeting certain protocols. According to Lynx, UTXOs remaining unspent for four years and below 999 satoshis would be made unspendable following each halving.

Pellegrini argues this method avoids The Cat’s dependence on external indexers and protocol-specific criteria. “By using a threshold rather than a list, Lynx requires no external indexers, makes no judgment about why a UTXO is small, and applies equally to all participants,” the proposal explains.

However, Maxwell has also dismissed Lynx, arguing that dust thresholds are not consensus parameters and that infrequently used outputs have a minimal impact on performance. He suggested implementing a ban on future proposals to confiscate coins for a year, warning that such moves could undermine public confidence in Bitcoin.

Ongoing Tensions Over Bitcoin's Role

This controversy is part of an enlarged and ongoing debate surrounding Bitcoin’s purpose. Earlier in the year, Leonidas, a leader in the Ordinals community, threatened to fund a Bitcoin Core fork if developers moved to enforce censorship, claiming he had backing from miners controlling over 50% of the hash rate and startups that had contributed over $500 million in transaction fees since 2023.

Additionally, developer Jimmy Song criticized the earlier Taproot upgrade, stating it created a “social attack surface” that allowed spam-like activities while failing to fulfill its privacy promises and enabling non-financial transactions.

In a related change, the recent October Bitcoin Core v30 upgrade removed the 80-byte OP_RETURN limit, allowing data payloads of up to 4MB per transaction. This adjustment has also resulted in a migration to Bitcoin Knots, an alternative implementation that now comprises 28% of the network.