Binance halted bitcoin withdrawals amid ordinals madness

Over the weekend, Binance temporarily closed bitcoin withdrawals as fees skyrocketed due to increased usage of the ordinals protocol, which has surged in popularity due to its ability to inscribe text and images into the blockchain.

Taproot transactions, the type used for ordinals, have grown to account for over 50% of Bitcoin transactions, compared to just 2% at the start of the year. Binance eventually attributed the problem to the system configuration not expecting transaction fees at this level.

Bitcoin fees approached $20, but stayed well below historical peaks, such as over $60 in April 2022 and $55 in December 2017, according to BitInfoCharts.

Binance indicated that it intends to begin working on enabling withdrawals from Bitcoin using the lightning network, in order to reduce the total number of on-chain transactions it needs to complete.

We've temporarily closed $BTC withdrawals as the #Bitcoin network is experiencing a congestion issue.

Our team is currently working on a fix until the network is stabilized and will reopen $BTC withdrawals as soon as possible.

Rest assured, funds are SAFU.
— Binance (@binance) May 7, 2023

One prominent research analyst has suggested that the actual problem was a misconfiguration of Binance’s system, that prevented funds from appropriately moving from Binance cold wallets through to Binance hot wallets. They pointed out that over the last several days, the balance in the hot wallets have plummeted while the balance in the bridge wallet has increased.

Some attributed Binance re-distributing the Bitcoin between wallets as an outflow. However, figures on DefiLlama suggests that total outflows were minimal.

As Hampus Sjöberg of Blixt Wallet highlighted, lightning is only a partial solution to these on-chain woes, since it still requires you to regularly be able to use the chain, and high fees increase the trust assumptions for small lightning transactions.

Got a tip? Send us an email or ProtonMail. For more informed news, follow us on Twitter, Instagram, Bluesky, and Google News, or subscribe to our YouTube channel.