How SpongeBob and Pepe Cause Big Trouble for Bitcoin
Photo-Illustration: Intelligences; Photo: Nickelodeon
It’s been a while since the world of digital currencies has had a real explosion. After the collapse of FTX and the arrest of its founder, Sam Bankman-Fried, rocked both the economic and political systems of the United States, the scandal du jour is a nice return to familiar territory: one involving stupid memes.
The immediate crisis is that if you want to buy or sell bitcoin right now, it is very difficult to do so. The network that processes bitcoin transactions is completely jammed – at its peak there have been more than 400,000 orders essentially stuck in a queue. These are all transactions that have built up over days, causing the price to complete one to increase to around $20. (Last month it was as low as 87 cents.) It’s not a perfect analogy (there are workarounds for bitcoin), but imagine paying for your groceries with a Visa card, only to be told you have to wait hours or days until all the transitions ahead of you go through – and yes, there will also be a $20 fee.
But the funny thing here is that all the other people in the bitcoin queue are not buying groceries. They send memes to each other. These aren’t elevated or important memes — we’re literally talking about Pepe the Frog and SpongeBob. While the core bitcoin blockchain has long been dominated by data about transactions (account A sends account B a given amount of bitcoin currency), recent innovations have made it cheaper and faster for people to enter all kinds of data into the transaction, including pictures and jokes – a process called “enrollment.” So now bitcoin is a platform for not only bitcoin transactions, but for NFTs – remember the blockchain-based images like Bored Apes that everyone was (very) briefly excited about – and joke coins that are all basically hopeful dogecoins. Two meme coin projects, one based on Pepe the amphibian and the other on SpongeBob, are currently enjoying a huge speculative boom, both seeming like it’s 2021 again. Demand is so wild that meme coins like these did $2.3 billion in volume last week. The resulting network congestion was so bad that Binance, the world’s largest crypto exchange, was forced to temporarily suspend bitcoin withdrawal.
So the big questions today — at least among the people who spend a lot of time thinking about bitcoin — are whether this kind of innovation is a good thing or a bad thing. Was the underlying system really built to handle this type of transaction? Was the bitcoin blockchain meant to be inscribed with millions of stupid, ephemeral jokes and memes? Or is everything fine and the queues are just an instant growing pain as bitcoin expands to new use cases (ridiculous as they may be)? “The Bitcoin network has been gradually supporting several different types of tokens such as NFTs. This adoption should be a positive sign in the longer term, but it appears to have slowed down the network,” wrote an analyst at Oppenheimer, according to CNBC, taking for now a position in the optimists’ camp.
This whole mess came out of an upgrade to the bitcoin system last year, which was supposed to make transactions faster and cheaper. When bitcoins are traded, the transactions are recorded on the blockchain, the immutable ledger of who owns what that is the fundamental innovation for the entire crypto-economy. “It has always been possible to enter data in a transaction on bitcoin. It’s nothing new,” said Cory Klippsten, CEO of financial firm Swan Bitcoin. After last year’s upgrade made it easier to transfer data, “it didn’t take long time before someone could come up with a more easy way to do it,” he said. The new ways to do this are bitcoin-adjacent systems called Ordinals and Stamps.
Bitcoin is of course the original cryptocurrency, and until now anyway its proponents have seen it as more clean, less rogue and corrupt than the rest of the crypto world. It doesn’t work as a backdoor equity offering to fund another venture—a model that has led to all sorts of scam tokens, as well as a crackdown by the Securities and Exchange Commission on companies that violate securities laws. Because profits from bitcoin trading cannot be traced back to a corporate source (the network was created by Satoshi Nakamoto, who mysteriously disappeared afterwards, and now no one owns or controls it), it is regulated as a commodity – like a barrel oil, or a bushel of wheat.
Bitcoin’s biggest cheerleaders are called Bitcoin Maxis (or maximalists). For years they have derided other crypto projects (aka altcoins) as being rogue and scams. Now, after the spectacular run of Pepe coins, they face the unpleasant reality that shitcoiners (as they call their enemies) have, at least temporarily, taken over their precious network.
Klippsten, himself something of a bitcoin purist, sees the rest of the crypto universe trying to borrow bitcoin’s cred. “It’s exciting for altcoiners whose whole goal is to get some shine from bitcoin, do the bitcoin affinity thing, and then do a little pump and dump with their shitcoin projects,” he said. From the outside, these latest meme coins seem to show that the line between bitcoin and the rest of crypto was never that hard to begin with. However, Bitcoin Maxis like Klippsten does not see it that way. “For bitcoin, this changes nothing,” he said.
