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7 Dec 2023|RESEARCH

Issuing Tokens on the Bitcoin Network

Explore the latest innovations in token issuance on the Bitcoin Network. We look at BRC-20, Atomicals, Taproot Assets and Nostr Assets.

Bitcoin Developments

Research Disclaimer

Crypto.com Research and Insights disclaimer for research reports

Key Takeaways

  • Bitcoin has several technical limitations that make it less suitable for issuing new tokens, as compared to Ethereum. These limitations are primarily rooted in the design choices and priorities of the Bitcoin network, including scripting language, lack of a native token standard, transaction throughput, and development focus.
  • Additionally, Bitcoin uses unspent transaction outputs (UTXOs) to keep track of user balances rather than maintaining global account balances like Ethereum. This makes tracking and distributing token balances to addresses difficult. A UTXO represents the amount of Bitcoin remaining after a transaction has been executed. 
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  • However, the latest innovations in the Bitcoin ecosystem aims to build upon its base layer by introducing increased programmability to expand functionality and use cases. A key area of focus is the issuance and transfer of tokenised assets on the Bitcoin network. Current notable protocols include BRC-20,  Atomicals Protocol (ARC-20), Taproot Assets, and the Nostr Assets Protocol.
ProtocolsProsCons
BRC-20– Simple and easy for deployment
– Multiple wallets support		– UTXO “junk” proliferation, leading to network congestion and high transaction fees
– No smart contract functionality
– Not a real fungible token but a piece of text instruction
– Rely on 3rd-party centralised indexer to querying and interpret the transactions
– Need a ledger to record token balance
Atomicals(ARC-20)– The tokens are backed by the same number of Satoshis, 1 token = 1 Satoshi
– Supports PoW token minting (Bitwork)
– No need for the off-chain ledger as it bonds to UXTO
– No creation of “junk” transactions		– Rely on 3rd-party centralised indexer for querying and interpreting the transactions
– Due to its early stage, currently the infrastructure (e.g. markets, wallets) for Atomicals is not well-developed yet
Taproot Assets– Metadata is stored off-chain
– Compatibility with Lightning Network
– Uses Sparse Merkle Trees, which enable efficient verification processes		– Technical complexity could hinder user understanding, thus potentially limiting use of this protocol to issue assets
– It requires storing large volumes of data (2^256 leaves in the Merkle tree) off-chain
– High privacy as it can combine multiple transactions into one, making it challenging for anyone to track your transactions
Nostr Assets– Designed to make use of Taproot Assets and Lightning Network, thus taking advantage of the benefits of those protocols
– Settlement and security of assets handled by the Lightning Network, helping to alleviate concerns around congestion and fees on the Bitcoin network		– Due to the technical complexity of Taproot Assets, it could similarly hinder user understanding and trust, potentially leading to slow adoption
– Technology is not mature
  • For example, BRC-20 tokens have surpassed a cumulative market capitalisation of over US$600 million. The cumulative number of BRC-20 transactions has also reached over 35 million. Daily transactions now make up a significant portion of total transactions on the Bitcoin network (44.6% at the time of writing).
  • Other new developments include the RGB and BitVM protocols. RGB is a set of open-source protocols that enable the execution of smart contracts on a network. BitVM is a computing paradigm to express Turing-complete (a computing term for a system that can compute any possible calculation or program) Bitcoin contracts. 

Check out our report Bitcoin: Beyond Store of Value, exclusive to our private members, to explore more about RGB and BitVM.

  • Overall, advancements in the Bitcoin ecosystem illustrate the increasingly dynamic landscape emerging as base layer constraints inspire novel workarounds. However, adding complexity could have adverse effects on Bitcoin’s original design philosophy of emphasising security and decentralisation.

Read the full report: Issuing Tokens on the Bitcoin Network

Authors

Crypto.com Research and Insights team

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