Bitcoin was incepted in 2009 as a decentralized alternative to banks, which had fallen out of favour with the public following the Global Financial Crisis. The Bitcoin blockchain was initially designed to facilitate the worldwide transaction of its native token, BTC. However, the crypto ecosystem has evolved far beyond a simple global payments system. To adapt, Bitcoin has taken a leaf from Ethereum’s book and introduced the BRC-20 token standard. This experimental standard allows developers to mint and transfer fungible tokens via Bitcoin’s Ordinals protocol. This article will cover what BRC-20 tokens are, how they are created and any controversy investors should be wary of.
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- The BRC-20 token standard allows developers to attach data to newly-minted tokens. This has essentially created the Bitcoin version of NFTs.
- BRC-20 tokens are broken down into satoshis – the smallest possible unit of BTC. There are 1000 million satoshis per whole BTC.
- BRC-20s embed JSON data into satoshis to attach code, images, text, sound and other files to tokens. This contrasts with ERC-20 tokens, which use “smart contract” technology.
- BRC-20 tokens have encountered controversy since their release, being flagged for “clogging” the Bitcoin network and causing high transaction fees and slow transaction speeds.
What Are BRC-20 tokens?
Bitcoin Request for Comment 20 (BRC-20) is a token standard that operates on the Bitcoin blockchain. It is based on the success of Ethereum’s ERC-20 token standard and lets developers mint new tokens with various functions on the Bitcoin network. A key goal of the technology is to support minting and transferring Bitcoin-based NFTs.
BRC-20s were introduced in March 2023 following the code’s implementation by an anonymous community member known as “Domo”. Several BRC-20 tokens – particularly meme coins – have risen to prominence despite only being available for a couple of months. The surge in popularity hasn’t been all roses, though, with the Bitcoin blockchain experiencing significant congestion and high fees since the BRC-20 update.
Ordinal (ORDI) is perhaps the best-known BRC-20 token as it allows information such as text, video, images and sounds to be inscribed onto the smallest denominator of Bitcoin – satoshis.
How Are BRC-20 Tokens Created?
BRC-20 tokens can only exist thanks to Bitcoin’s November 2021 Taproot update. The upgrade implemented functionality for ordinal inscriptions, which was fleshed out in January 2023 when engineer Casey Rodarmor pushed the Ordinal protocol live. This process forms the crux of how BRC-20 tokens are minted.
Satoshis are the smallest possible unit of Bitcoin – every BTC is divided into 100 million satoshis. The Ordinal protocol allows users to inscribe a unique serial number onto each satoshi. In that sense, serialised satoshis are quite similar to NFTs. Despite this, BRC-20 tokens are designed to be fungible, meaning they are interchangeable and share the same value.
At this stage of the Bitcoin Ordinal protocol’s lifespan, creating new BRC-20 tokens has limited support and can incur sky-high gas fees. As the ecosystem continues expanding, this process will likely become more user-friendly. Inscriptions and deployment can be done via the non-custodial UniSat Wallet.
Differences Between BRC-20 and ERC-20 Tokens
ERC-20 tokens form the inspiration for BRC-20 tokens. However, their current levels of functionality are worlds apart.
- ERC-20 tokens are part of the Ethereum network and integrate with a sprawling ecosystem of decentralized applications. BRC-20 tokens can only interact with the Bitcoin blockchain and at present have little use in the Web3 sphere.
- ERC-20 tokens support smart contracts, which are automatically executing lines of code. This gives the token standard impressive versatility – ERC-20 tokens can be pushed across different blockchain protocols and utilised for various decentralized purposes. Conversely, BRC-20 tokens use JSON to launch token contracts, which limits the token standard’s use cases to minting, deploying and transferring.
- ERC-20 tokens have been live on the Ethereum network since 2017. Although smart contract bugs still pop up, the token standard has firmly entrenched itself as a core framework for the future of cryptocurrency. BRC-20 tokens are novel and have minimal exposure to hacks, exploits and new, disruptive technology. Only time will tell if BRC-20s have a future in the sector.
Controversy Surrounding BRC-20s
BRC-20 tokens bring a world of potential to the blockchain industry. Ordinal inscriptions may lift the Bitcoin network’s functionality into the modern NFTs and decentralized finance era. However, the release of the token standard has been a little rocky.
For starters, Bitcoin’s blockchain isn’t designed to handle the extreme weight of transactions that dApps facilitate. Scalability has long been an issue and has only worsened since the introduction of BRC-20 tokens. Congestion results in slower transaction times and soaring gas fees, significantly hurting adoption.
This is made worse due to how BRC-20 tokens are created. ERC-20 and ERC-721 tokens generally store unique metadata on a server parallel to the Ethereum network. This helps prevent the main chain from clogging up. However, Bitcoin’s ordinal inscriptions push both the token and the data file directly onto the blockchain, further slowing down the network.
Some have decried the BRC-20 token’s lack of functionality. ERC-20 tokens use smart contracts, so they support an extensive list of purposes. On the other hand, BRC-20s can only be transferred from one wallet to another, which is why they are mostly used for meme coins.
Bitcoin is a legacy blockchain that kick-started the industry as we know it. It has many supporters who share Satoshi Nakamoto’s original vision of a peer-to-peer payments system operating outside of a central authority. Some have argued that stuffing JPGs onto the network goes against Bitcoin’s fundamental philosophy.
Either way, BRC-20s are still in their infancy. This token standard has a lot to play out – will it become Bitcoin’s equivalent to ERC-20? Or will it fade into the night, proving to be nothing more than a passing fad?