Counterparty Data Encoding Methods

There are four different methods for storing data on the Bitcoin blockchain: OP_RETURN, MULTISIG, P2TR, and P2SH (deprecated). For small data (≤64 bytes), OP_RETURN is most efficient, while for larger data sizes, P2TR offers superior efficiency thanks to the witness discount. MULTISIG is impractical for large data storage due to its linear scaling with data size.

TLDR;

1. For data ≤80 bytes, we use OP_RETURN, for simplicity.
2. For data >64 bytes, P2TR is the most cost-effective.
3. P2TR is strictly superior to MULTISIG and P2SH at all transaction sizes.

Transaction Types and Data Storage Methods

1. LEGACY, OP_RETURN

   • One legacy input
   • One OP_RETURN output (containing data up to 80 bytes)
   • One legacy change output
   • Data storage method: Direct insertion in OP_RETURN output

2. LEGACY, MULTISIG

   • One legacy input
   • N multisig outputs (1-of-3, storing 64 bytes per output)
   • One legacy change output
   • Data storage method: Data embedded in multisig redeem scripts

3. BECH32, P2SH (two transactions)

   • Transaction 1:
     • One bech32 input
     • One P2SH output
     • One bech32 change output
   • Transaction 2:
     • One P2SH input
     • One OP_RETURN output
   • Data storage method: Data embedded in P2SH scriptsig using OP_FALSE OP_IF <data> OP_ENDIF

4. BECH32, P2TR (two transactions; deprecated)

   • Transaction 1:
     • One bech32 input
     • One P2TR output
     • One bech32 change output
   • Transaction 2:
     • One P2TR input
     • One OP_RETURN output
   • Data storage method: Ordinal-style inscription in witness data using OP_FALSE OP_IF <data> OP_ENDIF

Transaction Size Comparison

Size	OP_RETURN	MULTISIG	P2TR	P2SH
	Bytes vBytes	Bytes vBytes	Bytes vBytes	Bytes vBytes
10	212 212	303 303	353 239	295 241
16	218 218	303 303	359 240	301 247
32	234 234	303 303	375 244	317 263
64	266 266	303 303	407 252	349 295
80	282 282	415 415	423 256	365 311
128	N/A N/A	415 415	471 268	413 359
256	N/A N/A	639 639	599 300	541 487
1KB	N/A N/A	1983 1983	1367 492	1309 1255
2KB	N/A N/A	3775 3775	2391 748	2333 2279

Efficiency Ratio (vBytes per byte of data)

Size	OP_RETURN	MULTISIG	P2TR	P2SH
10	21.20	30.30	23.90	24.10
16	13.63	18.94	15.00	15.44
32	7.31	9.47	7.63	8.22
64	4.16	4.73	3.94	4.61
80	3.52	5.19	3.20	3.89
128	N/A	3.24	2.09	2.80
256	N/A	2.50	1.17	1.90
1KB	N/A	1.94	0.48	1.23
2KB	N/A	1.84	0.37	1.11

Most Efficient Method by Data Size

Size	Optimal Method	Efficiency (vBytes/byte)
10	OP_RETURN	21.20
16	OP_RETURN	13.63
32	OP_RETURN	7.31
64	P2TR	3.94
80	P2TR	3.20
128	P2TR	2.09
256	P2TR	1.17
1KB	P2TR	0.48
2KB	P2TR	0.37