Bitcoin Stamps, What Are They? - Bitfinex blog
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Bitcoin Stamps, What Are They?

Bitcoin Stamps introduce a novel method for embedding art within the Bitcoin blockchain, leveraging the Counterparty protocol to integrate base64-encoded image data directly into Bitcoin’s blockchain. This method contrasts sharply with traditional NFTs that often link to external images, which may be altered or lost. By encoding art directly on the blockchain, Bitcoin Stamps ensure that the artwork is permanently recorded and immutable, establishing a fixed presence within the blockchain’s historical record.

The process of creating a Bitcoin Stamp involves converting an image into a base64 string and attaching it to a transaction with a “STAMP:” prefix in its description key. The Counterparty protocol is used to disseminate this data, which, due to its volume, is divided across multiple outputs via bare multisignature (multisig) transactions instead of the more restricted OP_RETURN method. This approach secures the artwork’s permanent inclusion in the blockchain. The format advised for these images, particularly suited to pixel art like the well-known CryptoPunks, is 24×24 pixels with an 8-colour depth, in either PNG or GIF format.

Each Bitcoin Stamp is assigned a unique number based on the timestamp of its transaction, ensuring the Bitcoin Stamps directory is organised in a sequential manner. For a Stamp to be recognized, it must adhere to specific criteria, such as being associated with a numerical asset and being part of the initial transaction to incorporate a valid “STAMP:base64” string within the description key. These Stamps can be decoded from the blockchain transaction itself, utilising tools like the Counterparty API and various base64 decoders, facilitating broad verification and access to the encoded artwork.

The Bitcoin Stamps ecosystem is growing, featuring a primary directory at Stampchain.io and supplemented by third-party directories and marketplaces that facilitate the trading and showcasing of these distinctive digital collectibles. Anticipated collaborations and integrations with entities such as Emblem, Hiro Wallet, and Token.Art aim to broaden the utility and appeal of Bitcoin Stamps. This initiative is poised to deepen the integration of NFT technology within the Bitcoin framework, offering a new avenue for artists and collectors to engage with digital art securely and permanently.

Why Do Bitcoiners Either Love or Hate Stamps?

Bitcoin Stamps, akin to Ordinals, offer a method for embedding data directly into Bitcoin’s blockchain. Stamps, however, unlike Ordinals, use a method which ensures permanence by making the data immune to pruning from a node. This concept, however, has sparked controversy among many more ideological Bitcoiners, largely due to its divergence from Bitcoin’s original financial utility focus. 

The inception of Ordinals, leveraging Bitcoin’s SegWit and Taproot upgrades for on-chain storage of NFT data, and Stamps, which take advantage of multisig, reignited debates on Bitcoin’s intended applications. Satoshi Nakamoto, Bitcoin’s pseudonymous creator, historically opposed non-financial uses of Bitcoin, as demonstrated by the rejection of the BitDNS project, which sought to incorporate a domain name system into Bitcoin and was advised against by Nakamoto for scalability concerns.

The recent introduction of NFTs like Ordinals and subsequently Bitcoin Stamps has been perceived by some as an “attack” on Bitcoin, diluting its primary function as a digital currency by potentially overcrowding block space and elevating transaction fees. Proponents of Ordinals argue that the fee market mechanism of Bitcoin adequately addresses this issue, allowing users to prioritise transactions based on their willingness to pay higher fees. This perspective maintains that both financial and non-financial transactions coexist within Bitcoin’s economic model, aligning with its security and incentive structures.

Detractors, including prominent figures within the Bitcoin community, express concerns that such practices could compromise Bitcoin’s core purpose and efficiency. They advocate for non-financial transactions, if any, to occupy a prunable and space-efficient domain within the blockchain to preserve its functionality for their view of its primary use case. Meanwhile, supporters of incorporating NFTs into Bitcoin highlight potential benefits, such as providing an alternative revenue stream for miners through increased transaction fees as block subsidies continue to halve, potentially bolstering the network’s security.

This debate underscores a tension due to the philosophical divide within the Bitcoin community regarding its direction and the balance between preserving its foundational freedom-centric principles and exploring new technological capabilities. While some view the incorporation of NFTs into Bitcoin as an innovative use case that could drive further adoption and utility, others remain focused on Bitcoin’s original intent and the potential risks of straying from its financial freedom roots. The ongoing dialogue reflects the community’s focus on scrutinising developments that could impact Bitcoin’s future, ensuring any advancements align with its long-term vision and security.

Filtering or Censorship?

The unpopularity of Stamps and Ordinals among a subset of Bitcoiners has led to the development of transaction filters designed to exclude transactions with excessive non-economic data. This controversy centres around Ocean Mining’s implementation of a 46-byte limit on the OP_RETURN function, a reduction from the previous 80 bytes, which Samourai Wallet claims disproportionately affects privacy-enhancing transactions. Samourai Wallet recently alleged that Ocean has been censoring Whirlpool CoinJoin transactions and BIP47 notification transactions since December 6th, 2023. Samourai Wallet also implicated investor Jack Dorsey and Ocean founder Luke Dash Jr. in these actions, accusing them of a broader agenda of transaction censorship.

Ocean’s Luke Dash Jr, in response, refuted these claims, suggesting the issue lies with Samourai Wallet’s software rather than any deliberate policy by Ocean. He expressed confusion over the purpose of the data in question and encouraged Samourai Wallet to resolve the issue on their end. This exchange has sparked a idealistic divide within the Bitcoin community, with some rallying behind Samourai Wallet’s call for miners to shift their hash power away from Ocean, while others, including community influencers, suggesting that the alleged censorship might be an unintentional consequence of the new policy rather than a targeted effort.

The debate surrounding the filtering of Bitcoin transactions, particularly those containing stamps and ordinals, versus accusations of outright censorship represents a significant point of contention within the Bitcoin community. On one side, proponents of transaction filtering argue that it is a necessary measure to prioritise the blockchain’s efficiency and maintain the integrity of financial transactions over non-financial uses, such as NFT-like data storage that could potentially congest the network, and negatively impact the fee environment, making ordinary economic transactions prohibitively expensive. They view the inclusion of large chunks of non-financial data as a deviation from Bitcoin’s primary purpose as a digital currency. 

On the other side, critics of filtering see it as a form of censorship that undermines the principles of decentralisation and permissionless innovation that are foundational to Bitcoin. They argue that the ability to embed various types of data within transactions is a feature that enhances Bitcoin’s utility and fosters creative use cases beyond mere currency. Embedding arbitrary data in Bitcoin transactions is also almost impossible to prevent. Another objection is the slippery slope in regards to who can determine what constitutes an “economic transaction”, and what kinds of transactions will be excluded, especially considering that Stamps and Ordinals are valid transactions, paying for blockspace, and abiding by the network’s current consensus rules. 

This ongoing debate underscores the broader challenges of balancing network scalability, security, and the open-ended nature of blockchain technology, reflecting deeper philosophical divisions about the future direction and governance of the Bitcoin network.

On February 15th, 2024, the debate surrounding filtering/censorship ratcheted up and was put front and centre, as former FinCEN official and former director for cybersecurity and secure digital innovation for the White House National Security Council (NSC), Carole House suggested to Congress that the US government pursue a policy of using regulation to force Bitcoin Miners to censor transactions for OFAC flagged wallets by implementing so-called compliance features at the protocol level.

This move comes just several months after members of the US Congress drafted a letter to the US Environmental Protection Agency (EPA) expressing concerns about Bitcoin mining and energy use, spearheaded by Senator Elizabeth Warren, and just days after Bitcoin Mining companies began receiving a mandatory survey this month, from the US Department of Energy’s (DOE) Energy Information Association (EIA), requesting information about energy usage in the mining industry. Many see the interest of congress regarding these “environmental concerns” surrounding Bitcoin mining as a “fishing expedition” and a precursor to the forthcoming effort to impose a Bitcoin censorship strategy under the guise of “compliance”.

The topic of Bitcoin transactional censorship, for those on both sides of the debate, has now kicked into overdrive on popular social media frequented by the Bitcoin community. In 2016, Bitcoin Core developer Peter Todd, sounded the alarm regarding MIT’s Chain Anchor, a proposed plan to enforce censorship on the Bitcoin network through imposing a new regulatory compliance model on the Bitcoin mining industry. 

House’s testimony in the recent hearing may be the first documented official declaration by authorities in pursuit of a Chain Anchor-like strategy to control what sort of transactions are allowed on the Bitcoin network via regulation of the Bitcoin mining industry. An industry in which many of the largest players are publicly traded companies who want to remain compliant and do not wish to damage relationships with regulators, and who also have a fiduciary duty to maximise profits for shareholders. Was Marathon’s 2021 attempt to only mine OFAC compliant blocks, a foreshadowing of what’s to come?

Which Way Forward For Stamps?

The extent to which the broader Bitcoin and crypto community embraces Bitcoin Stamps will significantly influence their future. This includes acceptance by artists, collectors, and investors within the space, as well as by platforms and wallets that support their creation, sale, and display.

The demand for NFTs and digital collectibles, influenced by trends in digital art, gaming, and virtual worlds, can be expected to affect the popularity and value of Bitcoin Stamps. Their future will also be intertwined with the overall market dynamics of the crypto space, including the fluctuation of Bitcoin prices and the emergence of new platforms for digital art.

The expansion of use cases for Bitcoin Stamps, beyond digital collectibles to areas such as digital identity, asset tokenization, and proof of ownership, could open new avenues for growth. Innovations that leverage the unique properties of Bitcoin Stamps, such as their immutability and integration with the Bitcoin blockchain, will be crucial.

While Bitcoin Stamps present a unique approach to digital collectibles, their future will be determined by a complex interplay of technological advancements, community engagement, regulatory decisions, and market trends. As Bitcoin’s ecosystem continues to evolve, Bitcoin Stamps may find new niches and applications, potentially leading to wider adoption and recognition in the digital art world and beyond. They may also simply become too expensive to create to be worth the novelty they provide, and fizzle out as fees rise, adoption increases, and blockspace real estate becomes more and more valuable.