Why does Bitcoin Core continue to discount witness data even when used in inscriptions?

Why does Bitcoin Core continue to discount witness data even when used in inscriptions?

This is because Bitcoin Core implements Bitcoin’s consensus rules, and those rules include witness discounting.

Of course, the consensus rules can be changed, but that is up to the entire Bitcoin ecosystem, not the Bitcoin Core implementation.

1. Why does witness discount still apply to inscription data even though it is an arbitrary payload rather than a signature?

Because in my opinion there is no reason to do so. Inscription data is certainly stupid, but I don’t think it’s harmful. Play by the same rules and compete fairly against other data according to an objective formula. In other words, block space is an auction, and the one with the higher price per weight wins.

I personally think the inscription is stupid and would like it to go away, but that’s not a good enough reason to (try) to outlaw it. Even so, it’s just a cat and mouse game until other storage schemes are developed.

2. Was the potential for data storage abuse considered when SegWit and Taproot were designed?

surely. The discount factor is a trade-off between increased bandwidth/storage and economic incentives for increased UTXO sets and verification costs. A larger discount rate allows for more bandwidth/storage, but also increases the incentive to spend over create.

I could have adopted a different rule that would give different discounts based on apparent intent of use, but I think this is misguided. Rules should be set up to allocate economic costs based on the objective impact on nodes in terms of disk space, bandwidth, computation, and I/O operations. The rules that segwit adopted were not perfect in this respect, but they were as close to the best that could be achieved through soft forks at the time.

Taproot did not change anything regarding the consensus rules as the same weighting rules apply. Its only impact was the associated standardity rules adopted in the Bitcoin Core implementation. Inscriptions such as those that exist today were possible even before Taproot, especially for those who ignore policy rules.

3. Is it technically possible to remove or adjust the discount for unsigned witness data? If so, why wasn’t it proposed or integrated?

Lowering the discount rate even if conditional is a soft fork. I can’t explain why it wasn’t suggested or supported by others. I myself believe that such undertakings are misguided for the reasons stated above.

4. How can the current core default prioritize block space for monetary transactions rather than subsidized storage?

They don’t and never have. I do not believe that node implementations are in a position to decide which transactions are good or bad, nor do I think they should be. It depends on the market, and it should.

At best, policy rules create an inconvenience for developing solutions that rely on non-standard transactions. Although it has been successfully used for this purpose in the past, this situation breaks down as soon as sufficient market demand triggers the development of approaches that bypass public P2P transaction relay mechanisms.

However, it does not increase costs or prioritize, it only temporarily inhibits development.