Pick Your Poisson

Table of Contents

This article is featured in Bitcoin Magazine’s “The Halving Issue”. Click here to get your Annual Bitcoin Magazine Subscription.

Calculated probabilities were calculated by Greg @ learnmeabitcoin.com

Block 840,000 is not just another block in the blockchain; it triggers the Bitcoin halving where the block reward is reduced from 6.25 BTC to 3.125 BTC, cutting the amount of BTC mined each day in half. You don’t have to be a Princeton economist to understand the impact this will have on the supply and demand dynamics for bitcoin. Beyond the obvious halving of the block reward, a new market has developed around Ordinals which could have a significant impact on what happens to the first block of the halving. Contained within the first block of the halving is an extremely rare “epic sat”. While Ordinals have divided some Bitcoiners on their merit, there is no arguing the impact they have had on Bitcoin.and it raises an important question, could Ordinals cause a blockchain reorg? Through this article we will dig into the basics of a reorg, Ordinals demand, how mining probabilities work, and finally who could pull off a successful reorg.

Before we dig into this “epic sat”, let’s build an understanding of what a reorg is. The Bitcoin blockchain is a slow and dumb database that creates blocks of data every 10 minutes or so. It continues working as intended, but occasionally, things get tense. When two miners find blocks nearly simultaneously, it creates a temporary fork in the blockchain. This moment of overlap leads to a brief period of uncertainty. These forks are resolved by the network through the longest chain rule, which is when the fork tip of the blockchain with more proof-of-work (the longest chain or aka more blocks) will be adopted as the valid chain. Orphaned blocks from the shorter chain are not included in the longer one, and the transactions they contain are returned to the mempool to be included in future blocks. This process of one chain becoming longer than the other and becoming the accepted version is known as a reorganization, or reorg.

Due to the incentive structures built into Bitcoin mining, reorgs are usually resolved as soon as the next block is found and added to the tip of one of the forked chains. This is because finding a block is extremely difficult, and miners are incentivized to work on the longest chain in order to build the next block, and get paid. If they are mining on the short fork, the rest of the network will leave them behind and they will have invalid blocks. The last thing you would want is to build a block that is rejected by the network because you’ve built a block on a chain and are rejected by the network due to the longest chain rule. During the reorg period of a fork, miners build on whichever chain fork hits their node first and try to build a block to get the longest chain.

Now don’t get worried about reorgs. They happen every couple of months (on average) and typically involve one or two blocks. These short reorgs are part of the network’s regular operation and quickly resolve without any significant impact on the network and its users. It’s worth noting that deep reorgs that consist of many blocks are rare and, correspondingly, more disruptive. They can be triggered by a network split such as what happened in the Blocksize wars, or a new large miner coming to the network, or an attempt to double-spend transactions (this is very rare).

Most Recent Reorgs

The Bitcoin protocol and its incentives are designed so that there’s a low likelihood of deep reorgs occurring. Consensus rules and incentives are meant to keep the network stable and secure. For example, most exchanges and payment processors require that a transaction be confirmed by a set number of times—usually six or more—before a transaction can be considered final, thus greatly reducing the chances of it being unwound by a reorg. Small reorgs happen and are mundane and frequent operations within the Bitcoin blockchain, but large reorgs are notable and very irregular.

About That Epic Sat

You’ve probably heard the buzz about Ordinals, that is “a numbering scheme for satoshis that allows tracking and transferring individual sats”. Some argue that Ordinals are a scam and they have no place in Bitcoin, but here’s the thing, an emerging market is rapidly growing around Ordinals. For now, they are here, and they are getting attention from miners, devs, VC, collectors, scammers, and haters alike.

When it comes to Ordinals, they are classified by their “rarity” and markets determine value.

Ordinals rarity levels:

+ common: Any sat that is not the first sat of its block

+ uncommon: The first sat of each block

+ rare: The first sat of each difficulty adjustment period

+ epic: The first sat of each halving epoch

+ legendary: The first sat of each cycle

+ mythic: The first sat of the genesis block

If we consider the scenario where all Bitcoin has been mined, which implies that all 21 million bitcoins (or 2.1 quadrillion satoshis) are in circulation, we can calculate the total quantity of each level of Ordinals:

• Uncommon: There would be a total of 6,929,999 uncommon satoshis, corresponding to the first satoshi of each block.
• Rare: There would be a total of approximately 3,437 rare satoshis, corresponding to the first satoshi of each difficulty adjustment period.
• Epic: There would be a total of 32 epic satoshis, corresponding to the first satoshi of each halving epoch.
• Legendary: There would be approximately 5 legendary satoshis, corresponding to the first satoshi of each cycle (noting a slight approximation due to division).
• Mythic: There is 1 mythic satoshi, which is the first sat of the genesis block.

These figures give an overview of how the rarity classifications would distribute across the total supply of satoshis once all Bitcoin is mined, showcasing the unique and scarce nature of certain satoshis within the Bitcoin network.

The Ordinals Market and Beyond

Over the past 12 months we’ve seen rapid development in Ordinals technology and markets. Ordinals markets first emerged in Discord back channels where OTC deals were being made, but as demand has grown, digital marketplaces have developed for buying and selling Ordinals. US Based Magisat.io lists various types of Ordinals and has Rare sats listed for a staggering 3.49 BTC. This valuation has led to the creation of additional inventory of Ordinals beyond the category that was first described in the Ordinals documentation.

Current Market on Magisat.io for standard Ordinals

This data shows that there is a small but growing demand for Ordinals. You can see the volume for Rare amd Uncommon Ordinals are greater than 26 BTC at the time of writing this. Keep in mind that this is only one marketplace and there are a growing number of OTC deals that are happening between buyers and sellers not to mention demand and business happening in other parts of the world.

Looking beyond Ordinals marketplaces we are now seeing Ordinals make their way to legendary auction house Sotheby’s further propelling the phenomenon towards the mainstream. If you look across the Pacific Ocean there is also significant demand for Ordinals and BRC-20 tokens, which would not be possible without Ordinals. So the demand for Ordinals is real and it is growing, not waning.

The last significant item of note that could impact demand for this first block of the halving is the activation of Runes. Runes is another protocol released by the same creator of Ordinals, but the aim of Runes is to make a more efficient token protocol. The kicker on this is that with it going live in the first block of the halving, this alone will cause a significant demand to issue these new tokens as quickly as possible, presumably the first Runes issued will be more valuable than later issued Runes. “Yes there will be reorg…