Meet BRC-20 tokens: the new Bitcoin token standard

BRC-20 has taken the Bitcoin community by storm since @Domodata created it on March 8, 2023. But what is the BRC-20 token standard? BRC-20 is a fungible token standard made explicitly for the Bitcoin blockchain.

BRC-20 uses ordinal inscriptions of JavaScript Object Notation (JSON) to deploy token contracts and mint and transfer tokens. Tokens can be attributed to satoshis and then traded or swapped with others, just like with other tokens.

Late 2023 saw the BRC-20 token standard grow in adoption on the Bitcoin network. This growth was largely due to its distinct capability of "engraving" information onto certain satoshis and storing the details on the Bitcoin blockchain. This has enabled BRC-20 to introduce non-fungible token (NFT) capabilities to the Bitcoin domain, similar to those of the Ethereum network. The BRC-20 economy is growing quickly, with its market cap reaching nearly $1.5 billion by the close of 2023.

Although it sounds similar to Ethereum's ERC-20 token standard, there are key differences you need to be aware of. BRC-20 uses a proof-of-work mechanism since it's on the Bitcoin blockchain, while ERC-20 uses proof-of-stake mechanism on the Ethereum blockchain.

The BRC-20 token standard also doesn't support smart contracts, a feature that's made ERC-20 tokens popular in the DeFi community. Smart contracts enable developers to produce programmable money, automating various financial processes and creating new types of financial products. However, BRC-20 tokens like ORDI, PEPE, PUNK, and MEME are taking the market cap to new heights.

TL;DR

• The BRC-20 token standard offers non-fungible token (NFT) capabilities and has driven the market cap to over $1.5 billion by the end of 2023.

• Compared to the ERC-20 standard employed by Ethereum, BRC-20 tokens use a proof-of-work system and don't offer smart contract capabilities.

• The rise of BRC-20 has been especially notable among meme coins, yet it's come under fire from Bitcoin maxis, and worries of excessive traffic on the network have been raised.

• BRC-20 tokens use Bitcoin's secure protocol, but aren't as versatile as ERC-20 tokens due to their lack of smart contract capabilities.

• There's much debate about whether BRC-20 will bring about a wider use of tokens on Bitcoin or remain an isolated trial. This is despite the standard's increasing market cap and the differences of opinion between its users.

BRC-20 vs ERC-20

The BRC-20 and ERC-20 are token protocols with various characteristics due to the different technologies behind Bitcoin and Ethereum. They both provide a framework for token creation on their individual blockchains, but are distinct in their operations.

BRC-20 token standard

• In March 2023, an experimental system known as the BRC-20 standard was established to allow the formation of interchangeable tokens on the Bitcoin blockchain.

• The Ordinals protocol assigns numerical rankings to SATS (the minuscule part of Bitcoin) when they're mined. This number is used to... allowing them to carry and be distributed with the information.

• Tokens that are part of the BRC-20 standard can be monitored across the Bitcoin network without modifying the Bitcoin protocol.

• The Ordinals protocol was initially designed to generate Bitcoin-based non-transferable tokens (NFTs), but the developers have enlarged its functions, resulting in the formation of BRC-20.

• By November 2023, more than 21 million BRC-20 tokens had been created, and meme coins mainly controlled the initial stages of these tokens.

ERC-20 token standard

• In 2015, the idea for ERC-20 was proposed, and two years later, it was put into action as a standard for developing interchangeable tokens on the Ethereum blockchain.

• These tokens are generated using smart contracts, requiring the use of Ethereum's native cryptocurrency, ETH, for their creation.

• ERC-20 outlines rules that cover data such as token names, symbols, and decimal places, as well as procedures for transferring tokens, monitoring balances, and calculating the total available supply.

• Interoperability is vital to the Ethereum ecosystem. The function lets tokens work with other tokens and contracts.

• Many tokens, like stablecoins and governance tokens for DeFi protocols, are based on the ERC-20 standard. The ERC-20 standard has enabled over 450,000 tokens. The standard is a fundamental part of many Ethereum-based projects today.

Token standard adoption

• Recently, BRC-20 tokens have become increasingly sought after, especially when meme coins are in the headlines, as they make up a large proportion of these tokens.

• ERC-20's diverse applications across stablecoins, governance, and utility tokens contribute to its widespread adoption. This is in contrast to the more nascent BRC-20 standard, which has yet to see such extensive utility or governance applications.

Fungibility

• A crucial technical distinction is that BRC-20 tokens are mutually interchangeable, similar to how one Bitcoin is the same as another.

• Compared to Bitcoin Ordinals, which use the same Ordinal Theory as BRC-20, the tokens are non-fungible, meaning each possesses an individual uniqueness and can't be directly substituted.

ERC-20 tokens are standard on Ethereum. BRC-20 tokens are newer and Bitcoin-based. They're used for things like meme coins and have a growing community. ERC-20 is based on smart contracts found in the Ethereum platform. At the same time, BRC-20 uses Ordinals on Bitcoin without modifying the Bitcoin code.

The benefits of BRC-20

BRC-20 is gaining momentum as people experiment with its capabilities.

• Fungibility: BRC-20 tokens are fungible, meaning they're interchangeable and easily traded on exchanges. Bitcoin can be intimidating to new traders, but the innovation of BRC-20 provides an opportunity to use the Bitcoin blockchain without trading BTC itself.

• Security: BRC-20 tokens are built on the Bitcoin protocol, known for its high level of security and resistance to hacking attempts. This is due to Bitcoin's use of a proof-of-work mechanism, which makes it difficult for attackers to manipulate the blockchain.

• Compatibility: BRC-20 tokens are designed to work seamlessly with the Bitcoin protocol, which means they can be easily integrated into the Bitcoin ecosystem. There are also relatively low barriers to entry for developers looking to build on top of the Bitcoin protocol.

Challenges and controversies surrounding BRC-20

It's no secret that the Bitcoin community's opinion is divided on Ordinals and BRC-20. Some have embraced the token standard, while others believe they go against Satoshi Nakamoto's original vision of Bitcoin. The main issues and controversies with BRC-20 are:

Network congestion and increased fees

There's debate over whether BRC-20 tokens contribute to a backlog of transactions on the Bitcoin network, leading to increased congestion and higher fees. This has prompted discussion as to whether this undermines the aims of Satoshi Nakamoto when he proposed Bitcoin, which emphasized efficient and affordable transactions.

Perception of spam

Bitcoin maximalists have been against BRC-20, seeing it as a form of "spam" on the blockchain. This could be a major obstacle to the acceptance and growth of the BRC-20 protocol among Bitcoin users. Some feel it could be a breeding ground for scams given the increased number of memecoins.

Technical uncertainty

Some feel the BRC-20 standard is still experimental, raising concerns about potential technical issues and bugs that could arise. This uncertainty could deter developers and users from adopting BRC-20 tokens until the standard is more established and reliable.

Absence of smart contract capabilities

BRC-20 tokens don't incorporate smart contracts, which sets them apart from the ERC-20 token standard running on the Ethereum network. As a result, the capabilities of BRC-20 tokens may be limited, making them less desirable for some applications when compared to those built on the Ethereum network.

The challenges outlined above suggest that while BRC-20 offers innovative possibilities for the Bitcoin blockchain, such as adding fungible use cases immediately after the Ordinals protocol, it also brings risks and problems. Many believe these issues will need to be addressed for BRC-20 to gain broader adoption and compete with established token standards like ERC-20.

The top 6 BRC-20 tokens

ORDI

ORDI was the first BRC-20 token released, with a limited supply of 21 million. These tokens were all created in 18 hours, but there were attempts to mint 1.5 million more than what was made. Since ORDI was established, several startups have created applications that enable people to generate BRC-20 tokens and store them in their wallets.

PEPE

PEPE gained popularity with the success of the Ethereum-based PEPE meme token. The token had a surge in value in the early stages of its launch, which provided an ROI of 38,900% for early adopters, stimulating enthusiasm for the BRC-20 standard it was built on. The fame around PEPE sparked a considerable rise in the amount of memecoins working with the BRC-20 standard.

VMPX Coin

VMPX Coin is a BRC-20 token that adheres to principles of fairness and equality in its distribution. Created by Jack Levin, the founder of XEN Crypto, VMPX Coin was launched on May 7, 2023. The coin wasn't pre-mined, nor were special allocations made to the founder, making sure its code is immutable.

PIZA

The PIZA token, which employs the BRC-20 token standard, is categorized as a memecoin. Despite its ranking, it's important to remember that PIZA has no intrinsic value and was only created for entertainment. The token doesn't have a dedicated formal team or a development roadmap.

SATS

SATS is based on the Ordinals BRC-20 token standard. It allows each satoshi within the Bitcoin network to carry a distinct identity or file — a process known as inscription. SATS derives its name from ‘satoshis,’ the smallest unit of Bitcoin.

MEME

The MEME token, as its name implies, isn't designed to serve any practical purpose. Instead, it's a memecoin created to embody the cultural phenomenon of memes. MEME tokens typically represent a playful and often satirical take on the digital asset space. Despite lacking traditional utility, the tokens' popularity and market activity suggest a vibrant and engaged community behind them.

Current trends in BRC-20 tokens

In late November 2023, there was a sharp increase and attention on BRC-20 tokens, with more community members participating and holding them in their wallets. The article from CoinDesk reports on the rise of Bitcoin-based tokens, specifically the BRC-20 category.

Some key takeaways are:

• Bitcoin blockchain tokens surged: people are increasingly using tokens on the Bitcoin blockchain.

• BRC-20 tokens on the rise: the BRC-20 token category experienced 21% growth over a 24-hour period in November 2023.

• Leading tokens: TRAC experienced a 93% increase, MEME rose 69%, and NALS saw a 36% rise.

• Ordinals Protocol: the Ordinals Protocol is used by BRC-20 tokens to store data in the Bitcoin blockchain.

• ORDI token influence: the ORDI token, linked to the Ordinals Protocol, rose sharply in value after being added to Binance.

• Applications adopting tokens: the use of Bitcoin for social applications is gaining traction with the introduction of in-game tokens, such as Alpha's token for fostering community engagement.

• Bitcoin in DeFi: Bitcoin holders can use their Bitcoin in decentralized apps, which have mainly tokenized Bitcoin on different blockchains until now.

What's next for BRC-20

Bitcoin's ecosystem is unique because it is intentionally limited to one token. Ethereum, on the other hand, took a different approach by introducing the Ethereum Virtual Machine (EVM), which allowed the creation of multiple tokens on the platform.

BRC-20 tokens are gaining traction within the DeFi ecosystem, underscored by the late 2023 memecoin rally led by PEPE, with most BRC-20 tokens being memecoins.

With the introduction of Ordinals and the BRC-20 token standard, the potential for new and exciting possibilities has been opened up even further. BRC-20 tokens offer a simple yet powerful way to create and manage tokens on the Bitcoin blockchain.

The success of BRC-20 tokens has spurred significant demand for DEX platforms that support their trading, like BitX or OKX Ordinals Market, where you can buy and sell BRC-20 tokens. It's important to note that this standard is still growing, so it's crucial to conduct your research and rely on trusted sources when working with it.

The final word

We've taken a deep dive into the BRC-20 token standard, considering its innovative features and the debates it has sparked. This new approach has us pondering its potential to shape the digital asset world, from its impact on fungibility and meme coin popularity to its effect on the core principles of Bitcoin.

Will BRC-20 tokens change our perception of value and digital ownership on the Bitcoin blockchain, or will they be limited to a specific experiment overshadowed by more established protocols?

As the market cap increases and the disagreement gets more heated, what will be the exact expense of this transformation on Bitcoin's performance and character? Could this be the start of a new period of tokenization or a warning lesson in blockchain background?

BRC-20 has had a lasting imprint on the Bitcoin environment. But what will be the final cost and the end result?