BIP-110's signaling rate peaked at 1.2% across the last eight difficulty epochs. That is not a margin of error. It is a verdict. The proposal to temporarily limit block data size – aimed at suppressing Ordinals, BRC-20, and Runes – was dead on arrival. Yet its mere existence exposed a fracture in Bitcoin's governance that smart money has already priced in. Let me walk you through the code, the economics, and the play you are not seeing.
Precision in audit prevents chaos in execution. I spent four months in 2017 auditing Bancor's conversion logic. I found three integer overflow vulnerabilities. The same rigor applies here: BIP-110 was not just a technical failure; it was a failure of coordination disguised as a consensus change.
Context: The Proposal That Never Should Have Reached the Mailing List
Bitcoin Improvement Proposal 110 (BIP-110), authored by a pseudonymous developer, proposed a temporary soft fork that would reduce the maximum block data size from 4MB (SegWit effective limit) to roughly 1.5MB. The stated goal: curb the explosion of 'non-monetary' transactions – inscriptions, token deployments, and other data bloat that had pushed average block occupancy above 90% for weeks. The activation threshold was slashed from the de facto 95% miner signaling to 55%, a move the authors argued would allow a quicker response to network spam.
The proposal targeted assets built on top of Bitcoin: Ordinals (NFTs), BRC-20 (meme tokens), and the newer Runes protocol. Since early 2023, these had contributed over 40% of all transaction fees on some days, but they also clogged mempools for low-value transfers. Community sentiment was polarized: some saw them as a renaissance of Bitcoin experimentation; others as a DDoS attack on the network's primary use case – value transfer.
Key players: - Michael Saylor (Strategy, 84k+ BTC holder) – publicly opposed, warned of chain split. - Adam Back, Jameson Lopp – called the proposal reckless. - Mining pools – combined support never exceeded 1.2%.
The outcome was binary: the market rejected the fork before it could fork. But the lessons are not as simple.
Core: Why This Failed – A Technical and Economic Autopsy
From a protocol engineering perspective, BIP-110 was a restrictive intervention, not an upgrade. It did not add functionality; it removed optionality. The mechanism was straightforward: full nodes running the new rules would reject blocks containing more than a threshold of data per byte. Miners unable to produce valid smaller blocks would orphan their own work. In a normal soft fork, this enforces rule compliance. But the 55% threshold created a unique risk – a minority soft fork.
The 55% trap: Bitcoin's historical activation rule (95% miner signal) ensures near-unity consensus. Dropping to 55% means a minority group could activate the fork, creating two chains: one following the new rules (supported by 55% of hash), one rejecting them (45%). Without a clear economic majority, the market would decide which chain is 'Bitcoin'. This is the nightmare scenario Saylor flagged. Based on my audit experience, any consensus change that introduces a material risk of chain divergence without a clear economic majority is a design flaw. BIP-110 had that flaw.
Economic analysis: The proposal would have directly reduced miner revenue from transaction fees. In the weeks before the debate, Ordinals-related fees accounted for roughly 35% of total fee income. By cutting the data limit, fees for those transactions would have skyrocketed, pricing out all but the highest-value inscriptions. But miners would lose volume. Fixed costs (electricity, hardware) remain; variable revenue shrinks. The result: a weaker security budget for the network. Saylor's company holds billions in BTC; any reduction in security margin is a direct liability to his balance sheet. His opposition was not ideology – it was asset protection.
Data point from the trenches: During the 2022 Terra collapse, I watched protocols cut and run. I had a post-mortem rule: no position exceeds 5% of capital. Bitcoin's governance faces a similar constraint. The cost of a failed fork is not just the fork itself; it is the erosion of certainty. Precise sequence of events for BIP-110: 1. Proposal released, debated on mailing list. 2. Saylor posts on X: 'Permissionless does not mean garbage.' 3. Adam Back comments: 'Reduce thresholds – increase risk. No.' 4. Miner signaling: never exceeds 1.2%. 5. Proposal effectively withdrawn.
The hidden signal: The rejection was not a vote on Ordinals. It was a vote on process. Bitcoin's governance is not a democracy; it is a constitutional order. Changing the constitution requires supermajorities. BIP-110 attempted to lower the bar, and the community – from coders to whales to miners – said no.
Contrarian: The Narrative You Are Not Hearing
Retail sentiment during the debate was surprisingly supportive of the proposal. On crypto Twitter, polls showed 60% in favor of 'cleaning up Bitcoin'. The argument feels intuitive: less spam means lower fees, faster confirmations, and a healthier network for real use cases. But this is exactly where smart money diverges.
The contrarian view: BIP-110 was a regulatory backdoor in disguise. Saylor himself hinted at it: 'If we set a precedent that the protocol can choose which transactions are legitimate, we invite future demands to block privacy tools, sanctioned addresses, or even specific token protocols.' In an ETF-era world, where custodians and institutional flows dominate, a permissionless network that can be coerced into censorship is worth less than a clearly neutral one.
Second contrarian point: The failure of BIP-110 does not solve the spam problem. It only delays it. Ordinals and Runes are not going away. The market will continue to bid up block space, and fees will remain volatile. The real risk is that the next attempt will be more subtle – a change to fee market rules, a new opcode restriction, or an 'upgrade' that introduces dynamic block limits controlled by miners. The community won a battle but lost the war on adaptability.
Third contrarian insight: The absence of a consensus fix is actually bullish for Bitcoin as a store of value, but bearish for its utility as a settlement layer. If Bitcoin cannot clean its own house, it will never support mainstream DeFi or high-frequency trading. That responsibility falls to Layer-2s. Lightning, RGB, Stacks – they all just received a green light. The message from this governance showdown is: do not touch the base layer. Build on top.
Takeaway: Where the Real Action Is
BIP-110 is dead. Do not spend another minute wondering about its activation. The market has already priced in a continuation of the status quo: high fee volatility, periodic congestion, and an ordinals-driven fee market. The next 12 months will test Bitcoin's ability to sustain that without eroding user base.
Actionable levels for positioning: - BTC price: No direct impact, but if fee revenue drops below 5% of miner income (currently 12%), watch for miner capitulation. That level is roughly $45,000 in current hash rate conditions. - L2 tokens: Prepare for a rotation. Lightning Network-related projects (e.g., Tari, RGB, Stacks) will gain traction. The narrative of 'clean Bitcoin, smart contracts on L2' will resonate. - On-chain signal: Monitor the percentage of taproot use. If it drops below 20%, Ordinals activity is declining, reducing the urgency for another proposal.
Personal note: I executed a strategy in mid-2022 that mirrored this logic – when Terra's governance failed, I moved capital to L1s with clear upgrade paths. Bitcoin is not Ethereum. It does not need to be. But if you are long-only and ignoring the L2 ecosystem, you are leaving alpha on the table.
Precision in audit prevents chaos in execution. The audit of BIP-110 is complete. The verdict: Bitcoin remains unchanged. The opportunity now lies in building on the unchanging foundation.
Will you wait for the next near-fork, or will you position for the layer above?
