Key Takeaways:
- BRC-20 tokens are an experimental token standard for the Bitcoin blockchain. Inspired by Ethereum’s ERC-20, BRC-20 enables developers to create and transfer fungible tokens using the Ordinals protocol.
- Unlike the ERC-20 token standard, BRC-20 doesn’t make use of smart contracts. It utilises Ordinals inscriptions of JSON data to deploy, mint, and transfer tokens.
- With recent momentum, a total of 14,200 different tokens (and counting) have been minted using the BRC-20 standard (at the time of writing) — such as the ORDI, the first BRC-20 token.
Brief Introduction to BRC-20
The BRC-20 token standard is an experimental fungible token standard for the Bitcoin blockchain. It was created by an anonymous on-chain analyst named Domo in March 2023. Inspired by Ethereum’s ERC-20, BRC-20 tokens enable developers to create and transfer fungible tokens using the Ordinals protocol. However, unlike ERC-20, BRC-20 tokens do not make use of smart contracts.
The BRC-20 token standard utilises Ordinals inscriptions of JSON data to deploy, mint, and transfer tokens. As of 8 May 2023, 14,200 different tokens have been minted using the BRC-20 standard — like ORDI, the first BRC-20 token.
Introduction to Bitcoin’s Ordinals Protocol
Developed by Casey Rodarmor, the Ordinals protocol enables the creation of Bitcoin Ordinals NFTs. The aim of Ordinal theory is to give each Satoshi a unique identity, allowing them to be tracked, transferred, and imbued with individual meanings through inscriptions. This allows one Satoshi to be different from another, hence becoming non-fungible.
The Ordinals protocol assigns each Satoshi a sequential number. To be precise, each Satoshi is numbered in the order they are mined and can be inscribed with data — such as pictures, text, or videos — through a Bitcoin transaction. Inscriptions can be up to 4 MB in size.
The main advantage of inscriptions engraved via the Ordinals protocol is that the essential data (such as text and images) is contained on the Bitcoin blockchain. This is viewed by many as having an increased level of immutability.
On the front end, Ordinals quickly gained popularity and Bitcoin NFTs minted as BRC-20 tokens have been auctioned by Sotheby’s.
Pros of BRC-20
Although BRC-20 is still in its infancy, it is gaining traction as more people explore the potential benefits of this token standard:
Security: BRC-20 tokens exist on the Bitcoin blockchain, thus inheriting the high level of security provided by the Bitcoin protocol. Bitcoin uses the Proof of Work (PoW) consensus mechanism and has a large number of miners helping to secure the network, making it one of the most secure blockchains.
Compatibility: BRC-20 tokens are natively compatible with the Bitcoin blockchain, which makes it easier to integrate into the Bitcoin ecosystem. In addition, existing Bitcoin developers can conveniently build and incorporate BRC-20 tokens.
Fungibility: BRC-20 tokens are considered fungible, which means they can be easily traded on venues, offering a simple alternative to those new to Bitcoin trading.
Cons of BRC-20
The opinion within the Bitcoin community is not united when it comes to the merits of Ordinals and BRC-20. While some see them as an innovative experiment, others view them as a departure from Satoshi Nakamoto’s initial vision for Bitcoin. Some drawbacks of BRC-20 are:
Limited ecosystem: Although BRC-20 is gaining popularity, it is a relatively new token standard with a smaller ecosystem than that of ERC-20. This means there are fewer resources, developers, and tools available for building and managing BRC-20 tokens.
Potential high transaction fees: Due to the surge in BRC-20 token activity, transaction fees on Bitcoin have increased along with the growth in BRC-20 transactions.
Final Words on BRC-20 Tokens
BRC-20 tokens are still in the nascent stage, and more time is needed to reveal their impact on the Bitcoin blockchain. This experimental stage leaves room for better design choices and optimisation improvements in the future. For instance, to circumvent the limitations of BRC-20, a new Bitcoin token standard — ORC-20 — has been developed to enhance BRC-20’s functionalities.
BRC-20 tokens show that Bitcoin is continuing to innovate and evolve beyond its original purpose as a store of value and medium of exchange. They are growing at a rapid pace and have the potential to play a larger role in the long-term future of the Bitcoin blockchain.
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