Bitcoin Fee Markets Without New Users

Fee markets are supply-constrained. The primary driver for Bitcoin's rising fee revenue is not new users, but a structural reduction in block space supply from protocols like Ordinals and Runes. These protocols create permanent data inscriptions that compete for the same limited block space as financial transactions.

Ordinals changed the unit of demand. The market no longer bids purely on transaction priority. It now bids on block space as digital real estate for storing images, text, and tokens. This shifts fee pressure from transient network congestion to permanent, inelastic demand for data storage.

Runes amplified the mechanism. Following the Ordinals blueprint, the Runes protocol created a more efficient fungible token standard, triggering massive issuance events that consume entire blocks. This demonstrates that protocol-level innovation, not organic adoption, now dictates fee market cycles.

Evidence: Post-April 2024 halving, Bitcoin's hash price (revenue per exahash) recovered to pre-halving levels within weeks, sustained not by payment volume but by Runes-driven fee spikes exceeding 1,000 sats/vByte. Miners now rely on these new inscription protocols for economic security.

Post-halving fee surge is supply-driven. The 50% block reward cut forced a fee market repricing, but daily active addresses and transaction counts remain flat. This decouples revenue from user growth.

Ordinals and Runes are the new fee sink. These protocols create inscription-based demand that competes with payments, crowding out regular users and creating a two-tiered market for block space.

Fee pressure is structural, not cyclical. Unlike past cycles driven by exchange inflows, today's protocol-driven demand from Ordinals/BRC-20 is a permanent new baseline. Miners now rely on it.

Evidence: Post-halving, Bitcoin's average transaction fee spiked over 1,000% while daily active addresses hovered near 600k, a level unchanged since late 2023. Fee revenue from non-payment use cases now exceeds 30%.

Ordinals and Runes are permanent fee sinks. They create inelastic demand for block space by competing with financial transactions, decoupling fees from simple P2P payments.

L2s like Stacks and Merlin create recurring fee pressure. Their security models require periodic Bitcoin settlement, generating a predictable, compounding base layer demand.

This new fee stack enables Bitcoin DeFi. Protocols like Sovryn and ALEX require reliable, high-throughput settlement, turning Bitcoin into a viable base layer for complex state.

Evidence: Post-Ordinals, Bitcoin's average fee per block increased 10x, with Runes accounting for over 70% of transactions at launch, demonstrating protocol-driven demand.

Miners face revenue volatility. Block subsidy halvings permanently shift the security budget to transaction fees, creating unpredictable income streams dependent on protocol-driven demand rather than user growth.

Builders must monetize blockspace directly. Projects like Ordinals and Runes demonstrate that creating new, fee-generating asset primitives is the only viable path for protocol-level sustainability without relying on external user acquisition.

Capital allocates to fee capture. Investment shifts from speculative token bets to infrastructure that extracts value from transaction flow, such as sophisticated MEV strategies and specialized mining operations optimized for high-fee environments.

Evidence: The 2024 halving saw fees constitute over 75% of miner revenue for multiple days, a structural shift that Luxor and Foundry now build entire business models around.