BitMEX Research Backs Removal of OP_Return Limit to Boost Mempool

• BitMEX supports removing Bitcoin’s OP_Return limit to enhance mempool efficiency.
• Ordinals’ popularity highlights rising demand for non-financial blockchain uses.
• Removing the OP_Return limit could prevent mining centralization and improve block propagation.

The recent ongoing debate over the potential removal of the OP_Return policy limit in Bitcoin Core has raised concerns in the cryptocurrency community. With Bitcoin mining being industrialized, the proposal to eliminate the OP_Return limit has gained some support.

On the other hand, others argue that it could lead to unintended consequences. BitMEX Research argues that removing the OP_Return limit can make Bitcoin’s mempool more useful, allowing users to set appropriate Bitcoin transaction fees and enhance the network functionality.

OP_Return Policy and Its Impact on Bitcoin’s Mempool

The OP_Return output type in Bitcoin Core is intended to hold arbitrary data in Bitcoin’s blockchain. Bitcoin Core currently has an OP_Return output size restriction, which prevents nodes from propagating transactions that exceed the limit.

However, this is not a consensus rule, and blocks with such transactions are still valid. Some have proposed that limiting the size of the blockchain will help prevent spam and unnecessary bloat, ensuring that Bitcoin maintains focus on financial transactions and not other data like pictures or text.

Conversely, BitMEX Research notes that the demand for data storage within Bitcoin’s blockchain has already caused a boom with the Ordinals, which employs an approach to storing images in the blockchain. This trend started in 2023 and has been gaining momentum, where millions of dollars have been spent in transaction fees for these non-financial data transactions. Although some consider this spam, BitMEX points out that the value of these transactions is subjective, and the market should ultimately decide their fate.

Related: Bitwise Cites Buffett’s US Dollar Warning as Core Reason to Buy Bitcoin

Economic Realities of Bitcoin Mining and Blockspace Markets

BitMEX Research argues that Bitcoin miners, motivated by profit, will always aim to maximize their revenue. With the rise of Ordinals and similar initiatives, miners have found a lucrative way to generate fees through non-standard transactions.

According to the research, removing the OP_Return limit could align the mempool with the economic reality of blockspace markets. Miners could continue to include non-financial transactions, such as images, in their blocks if they generate higher fees.

If the OP_Return limit remains in place, BitMEX warns that miners may effectively bypass the mempool and develop proprietary solutions to accept non-standard transactions directly. This may result in greater centralization because small miners can’t compete with big pools and mining businesses. Removing the OP_Return limit, in turn, would make the mempool competitive and what the actual miners will be willing to mine, therefore helping maintain faster block propagation and reducing incentives for miners to adopt private, centralizing alternatives.

Node Runners and the Future of Bitcoin’s Transaction System

Node runners, those operating the decentralized nodes that validate Bitcoin transactions, would also benefit from removing the OP_Return limit. By eliminating the restriction, Bitcoin’s blockchain would be better equipped to deal with non-financial data without increasing pressure on nodes. OP_Return outputs fail to inflate the UTXO set, and the blocks with such outputs would still be manageable.

BitMEX Research states that the economic success of Bitcoin depends on a functional mempool and a transaction selection algorithm that benefits the miner. Eliminating the OP_Return limit would help ensure this mempool is effective and competitive. As the need for blockspace by Bitcoin increases and as non-financial transactions gain popularity, it may be time for the Bitcoin Core to adjust and accommodate for a better management of transaction fees and block propagation.