BRC-20: Quick Bites
BRC-20 is a new type of token standard that is built on the Bitcoin network using ordinals and inscriptions. You may have heard about the OnChain Monkey and Bitcoin Punks NFT collections on the Bitcoin network, which caused a stir in the crypto world in early 2023, but the hype around these projects quickly faded as they became easy to reproduce and suffered from dwindling demand.
However, the BRC-20 token is different. It is a new way of creating tokens on the Bitcoin network that is sure to catch the attention of the crypto community and are primarily designed to work in a similar way to ERC-20 tokens, which are used on the Ethereum network.
Some may argue that inscriptions and Ordinals were not designed for this purpose, and that BRC-20 tokens are a speculative use of the technology. However, the fact remains that BRC-20 tokens have the potential to change the face of cryptocurrency as we know it, and it will be interesting to see how they are used in the future.
What are BRC-20 Tokens?
The BRC-20 token standard is a novel form of fungible token that employs Ordinals and Inscriptions to create and manage token contracts, token minting, and token transfers, which are stored on the Bitcoin base chain. Developed by @domodata, a Twitter user, on March 8th, 2023, the token’s name is a play on the ERC-20 token standard used on Ethereum. However, unlike the ERC-20 standard, the BRC-20 token standard does not interact with smart contracts on EVM chains.
Unlike traditional token standards that are typically managed by smart contracts on EVM chains, the BRC-20 token standard is essentially a script file stored on the Bitcoin network.
What this means is that they can be considered as metadata attached to Bitcoin transactions through the ordinals protocol, which allows for the creation of fungible tokens on top of Bitcoin. Despite their association with Bitcoin, however, BRC-20 tokens are distinct from the Bitcoin asset itself. Instead, they are a representation of a different type of asset, which is stored as a JSON script file on the Bitcoin blockchain. As a result, the tokens exist in a secondary market that is separate from Bitcoin, and require specialized software to be sourced, categorized, and displayed from the blockchain.
While there are numerous ways to create tokens on other chains, each with its own market and exchange with liquidity for trading, the token market is notorious for attracting speculators and scammers. The ERC-20 term is well-known in the token market, and its use in connection with Bitcoin could attract this type of behavior to the Bitcoin network.
Although this may theoretically increase demand for Bitcoin to pay for fees and take up block space, it could also lure unwitting investors into buying useless metadata that only select wallets can translate into a human-readable format. Even the creator of the BRC-20 token standard has emphasized that it is just an experiment and that the tokens have no intended value, though some speculative investors may view them differently.
How does BRC-20 Work?
BRC-20 tokens offer a streamlined process for the creation, deployment, and transfer of digital assets on the Bitcoin blockchain. As opposed to Ethereum’s ERC-20 tokens, which have a complex set of functions, BRC-20 only has three: deploy, mint, and transfer.
The deploy function allows anyone to create a token by setting the ticker, max supply, and mint amount. Once deployed, the token can be minted by anyone as long as the transactions are ordered inside a mined block and stay within the threshold of the max supply.
The “first is first” principle, which is adopted from the Sats Names protocol and deeply ingrained in BTC’s culture, establishes the validity of tokens. For instance, the first 21,000 mint transactions of 1,000 ordi each in the BTC blockchain are valid, while any subsequent mint transaction is invalid. Therefore, it is imperative to ensure that the transactions are valid, as any invalid transactions can result in a waste of satoshis.
Despite this potential for a poor user experience, the adoption of BRC-20 tokens continues to grow, with over 7,500 tokens deployed as of May 1, 2023, and showing no signs of slowing down. As the use cases for BRC-20 tokens expand, the simplicity of the protocol may prove to be a significant advantage over more complex token standards, enabling more users to participate in the creation and transfer of digital assets on the Bitcoin blockchain.
Advantages of BRC-20 Tokens
The BRC-20 token standard is gaining traction as enthusiasts explore its potential, although it is still in its nascent stages. Fungibility is a key feature of BRC-20 tokens, as they are easily exchanged and interchanged on various cryptocurrency exchanges. The innovation of BRC-20 provides traders with an alternative to trading Bitcoin directly, which may be daunting for novice users.
Security is another notable advantage of BRC-20 tokens, as they are built on the highly secure Bitcoin protocol. The security of the Bitcoin protocol is well-known, as it employs a proof-of-work consensus mechanism that thwarts most hacking attempts. This feature enhances the security of BRC-20 tokens and their underlying transactions, ensuring that they remain secure and tamper-resistant.
Being built on the Bitcoin network, BRC-20 tokens are also natrually designed to work seamlessly with the Bitcoin protocol, allowing them to be easily integrated into the Bitcoin ecosystem. Developers can also leverage the Bitcoin protocol’s relatively low entry barriers to create innovative applications that run on top of it. This attribute has the potential to drive further adoption and use cases for BRC-20 tokens.
Drawbacks of BRC-20 Tokens
The BRC-20 token standard, although gaining momentum, is still in its early stages and suffers from certain limitations compared to other well-established token standards like ERC-20. These limitations include a smaller ecosystem with fewer available resources and tools for building and managing BRC-20 tokens.
Association with Bitcoin
Its association with Bitcoin can be seen as a primary drawback, as Bitcoin is typically regarded as a store of value rather than a platform for managing tokens, which may limit the adoption of BRC-20 tokens. This is in contrast to the ERC-20 token standard, which has the added advantage of smart contract capabilities that BRC-20 lacks.
Additionally, there is some concern among long-time members of the Bitcoin community (or maxis) that BRC-20 tokens may lead to an increase in gas fees due to the token standard’s use of valuable block space. While it is too early to say for certain, this could potentially impact the feasibility of using BRC-20 tokens for certain types of transactions.
The underlying promise of Bitcoin is its straightforwardness and user-friendliness in managing digital assets. However, BRC-20 tokens add a layer of complexity to the process. Managing these tokens necessitates separate wallet software, protocol, and coin control, as well as additional steps for storage and transaction.
This heightened complexity not only leads to user confusion but also raises the likelihood of human error, which in turn may lead to the permanent loss of the file. Consequently, this impedes user adoption of the technology and drives users towards the usage of third-party custodians rather than trying to navigate the complexities themselves.
Difficulty in Validating Transactions
Due to the absence of Bitcoin script and the protocol’s limited set of functions, the indexing of valid transactions can also prove to be an obstacle for BRC-20.
UniSat, one of the builders that have embraced the BRC-20 standard, has reportedly experienced “double-spend attacks” that arose from a “vulnerability” in their codebase, which was likely the result of the complexity involved in evaluating valid BRC-20 transactions:
The security concerns raised by such incidents are a significant challenge for the adoption of BRC-20 tokens, especially given the increasing interest in deploying them. As the use cases of BRC-20 tokens continue to expand, it is crucial to identify and address vulnerabilities to prevent such attacks and protect users’ assets.
BRC-20 vs ERC-20
Although BRC-20 tokens have gained popularity recently, they still have a long way to go to match the number of ERC-20 tokens in circulation on Ethereum. While there are only 3,400 BRC-20 tokens currently in circulation on Bitcoin, there could be as many as 400 million ERC-20 tokens on Ethereum, making the latter token standard far more widely adopted.
The difference in adoption is also reflected in the market capitalization of ERC-20 and BRC-20 tokens. ERC-20 tokens have a market capitalization in the hundreds of billions of dollars, compared to a mere $17.5 million for BRC-20 tokens. This is not surprising given that the ERC-20 standard has been around since 2015, while the BRC-20 standard was only proposed recently.
While BRC-20 is gaining traction now, it is not the first attempt to issue fungible tokens on the Bitcoin protocol. In fact, the Colored Coins protocol was introduced as early as 2012, but it failed to gain traction due to Bitcoin’s high transaction fees and programmability restrictions at the time Ethereum’s smart contract capabilities, on the other hand, made it a more attractive platform for users interested in issuing fungible tokens.
Nonetheless, BRC-20 tokens represent a new era of experimentation with fungible tokens on Bitcoin. They are similar to Ordinal NFTs in that they are pushing the boundaries of what is possible on the Bitcoin protocol. As such, they are attracting the attention of developers and users interested in exploring new possibilities in the world of blockchain technology.
The Future of BRC-20
It is interesting to note that BRC-20’s creator has openly stated that the standard is “worthless” and that users should “not waste money mass minting” this “fun experiment”:
Despite this, builders such as Unisat are enthusiastically embracing BRC-20. Some centralized exchanges such as Bitget are also taking on the onus of initiating in-depth research surrounding the token standard. However, the ongoing hype surrounding BRC-20 belies the unfortunate reality that token issuance operations are primarily aimed at enriching the operators and manipulating naive investors, rather than advancing the underlying technology. Although efforts can be made to simplify the standard and its tools, these token standards are not inherently safer than those on other chains, nor can they entirely be equated with Bitcoin.
Token standards like BRC-20 have been likened to “rug-pull technology” and may also inevitably lead to the emergence of an overpriced market for Bitcoin-saved metadata – a concern held particularly by Bitcoin maxis. Regardless, caution must be exercised by potential investors, especially in light of domodata’s views that BRC-20 was conceived purely as an experimental token standard, and should not be seen as an instrument for investment.
The BRC-20 token standard is gaining momentum as an experimental option for issuing fungible tokens on the Bitcoin blockchain. While it is still in its early stages, some developers are already embracing it despite warnings from the creator that it’s just an experiment and may not be worth anything. However, BRC-20 tokens face challenges due to the limited ecosystem and adoption compared to other token standards like ERC-20 on Ethereum, and the potential increase in gas fees.
Only time will tell whether BRC-20 tokens will take off and attract more speculation about Bitcoin or fall flat on their face like previous attempts to add non-native assets to the Bitcoin base chain.
BitKeep to Support BRC-20
From May 2023, BitKeep will be fully integrating asset displays, transfers over the Bitcoin network, as well as the trading of BTC NFTs based on the Ordinals protocol. The BitKeep wallet will also be compatible with the Taproot address format, and will also support the BRC-20 protocol.
BitKeep users will be able to conveniently use the BTC Taproot address format, BRC-20 tokens, and interact with BTC NFTs on both BitKeep’s mobile and chrome extension platforms. Users will also be able to perform deposits and withdrawals, as well as transfer transactions, thus reducing the barriers for users to participate in the Bitcoin ecosystem.
BitKeep will continue to monitor new protocols such as BRC-21, and provide more diverse support and services based on market trends and user demands.
BitKeep is a decentralized multi-chain digital wallet that provides an all-in-one solution for a comprehensive portfolio of services, including an integrated NFT Marketplace, wallet function, swap services, DApp Browser, and Launchpad. It offers reliable and secure asset management and trading services to more than 10 million users worldwide, covering 168 countries in North America, Europe, and Asia, and is the top-rated wallet on Google Play globally, surpassing even Metamask.
BitKeep currently supports over 255,400 types of cryptocurrencies across over 90 blockchains, including major ones such as Bitcoin, Ethereum, Polygon, BNB Chain, Fantom, and Solana, and has now set its sights on expanding further onto Bitcoin’s network.
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