A new Bitcoin Improvement Proposal (BIP), informally referred to as “The Cat,” has sparked intense discussions among developers regarding the future of the Bitcoin network. This proposed change aims to address the issue of UTXO (unspent transaction outputs) bloat by introducing a mechanism to classify certain non-monetary UTXOs as unspendable, thereby potentially reshaping how data-utilizing applications operate on Bitcoin.
At the core of the proposal is the growing concern about UTXO bloat, which stems from Bitcoin’s unique architecture. Unlike traditional banking systems that maintain account balances, Bitcoin requires each transaction to create outputs. These outputs remain in the global UTXO set as long as they are unspent. Full nodes, responsible for validating transactions and maintaining network integrity, must store and manage the entire UTXO set, which can lead to increased demands on disk space, memory, and processing power as it expands.
Historically, the UTXO set has primarily consisted of outputs that hold monetary value and are anticipated to be spent in future transactions. However, the rise of innovative projects such as Ordinals, Bitcoin Stamps, and various token protocols has introduced a significant number of small, non-monetary UTXOs specifically created for data anchoring on-chain. These UTXOs often lack significant economic value and are not intended for future spending, yet they still require node operators to monitor them indefinitely.
The Cat aims to mitigate this issue by proposing a one-time snapshot of the Bitcoin blockchain to identify and categorize outputs associated with known data-embedding applications as non-monetary. Once classified, these UTXOs would become unspendable at a consensus level, meaning they would no longer be recognized as coins that could be traded or spent. The goal of this measure is to eliminate the incentive for creating large volumes of insignificant outputs, thereby preserving the network’s efficiency.
The proposal has positioned itself amid an enduring philosophical debate within the Bitcoin community. On one side are node operators and conservative protocol developers who advocate for a monetary-focused perspective on Bitcoin. They consider the allowance of non-monetary applications that contribute to UTXO bloat as a form of technical debt that may hinder the network’s performance. Conversely, proponents of the Ordinals and broader inscription ecosystem view Bitcoin as a universal settlement platform where all valid transactions deserve equal treatment.
If “The Cat” is adopted, its implications for existing Ordinals could be substantial. Many of the current inscriptions rely on UTXOs that would likely be classified as non-monetary under this proposal. Should these outputs be rendered unspendable, it could fundamentally alter their economic and transferable characteristics. While the data from these inscriptions would remain part of Bitcoin’s historical ledger, their ability to be traded as a valuable or programmable asset would be severely impacted. In response, creators of future inscription systems may need to adjust by increasing the value of outputs or reconsidering their output creation strategies, leaving existing projects to navigate potential disruptions in an uncertain landscape.
