Contents:

What are BRC-20 tokens?

Written by
Pavel Sazanov
Updated on
November 6, 2023
5 min read

BRC-20 tokens are the tokens of a new, experimental standard BRC-20 that is compatible with the Bitcoin blockchain.

BRC-20 is a fungible token standard that allows developers to create and exchange fungible tokens on the Bitcoin blockchain using the Ordinals protocol. Introduced as an experimental token standard, BRC-20 tokens provide a way to move digital assets seamlessly within the Bitcoin network.

Drawing inspiration from Ethereum's ERC-20 tokens, the BRC-20 token standard incorporates various differences such as offering unique features and mechanisms.

Origins of BRC-20 tokens

Limitations of the Bitcoin blockchain

Before 2023, Bitcoin was the sole asset on the Bitcoin blockchain, which many people appreciate, but it is also considered restrictive due to the constantly expanding variety of tokens and projects on other blockchains.

Bitcoin's rival has always been Ethereum, which, despite being less valuable, offers more than just price. Ethereum supports numerous tokens on its blockchain and features smart contracts, DeFi projects, and decentralized exchanges such as UniSwap, among other functions.

Because Ethereum boasts greater capabilities, it has become the preferred choice of many over Bitcoin. However, with the development of the BRC-20 token standard, Bitcoin may now be able to compete on the same level as Ethereum.

Ordinals protocol

Bitcoin uses the Ordinals protocol to deploy token contracts to mint and transfer tokens.

Ordinals is a Bitcoin protocol that provides each satoshi with a unique serial number and tracks them across transactions. This is achieved by inscribing JSON (JavaScript Object Notation) data onto individual satoshis, thus making them distinct from one another. This process is known as Ordinals inscriptions.

Satoshis are the smallest unit of Bitcoin, and each one is worth 0.00000001 BTC. They are numbered based on the order in which they are mined and transferred, resulting in the "ordinals" naming convention.

Ordinals are different from traditional NFTs, which are typically created using smart contracts on blockchains like Ethereum and Solana. Ordinals, on the other hand, are inscribed directly onto individual satoshis, making them fully embedded and secure in the Bitcoin blockchain.

In January 2023, following the launch of the Bitcoin Ordinals protocol, the possibility of inscribing non-fungible tokens on satoshis captured the attention of the crypto community. Since then, there has been considerable speculation about whether fungible tokens could be created on the Bitcoin blockchain.

As a solution to this, in March 2023, a programmer named Domo created a standard that would allow developers to create tokens on the Bitcoin blockchain. The tokens created through this token standard are known as BRC-20 tokens, where BRC stands for "Bitcoin request for comment".  

Fungible tokens sprawl on the Bitcoin network

The first BRC-20 token that was deployed was called "ordi", followed by a vast number of other BRC-20 tokens, including meme tokens, such as PEPE. As a result, many Bitcoin wallets swiftly deployed support BRC-20 tokens, which have proved to be immensely popular.

As of May 2023, some BRC-20 tokens have experienced astronomical price increases and achieved significant market capitalization. However, the overwhelming demand for BRC-20 tokens has also caused Bitcoin transaction fees to soar, leading to considerable network congestion.

The launch of the BRC-20 token standards has transformed the face of the crypto industry, with the creation of fungible tokens on Bitcoin becoming increasingly popular.

BRC-20 and ERC-20 tokens. What's the difference?

The first thing to note is that BRC-20 tokens are based on the ERC-20 standard, so there's that. But besides that and the names being similar, there are notable distinctions between the two token standards.

Novelty vs. Credibility

The ERC-20 tokens are currently the preferred choice among crypto traders due to their status and versatility, well-established over the years. Meanwhile, the BRC-20 standard is relatively new and carries some level of uncertainty. BRC-20 token standard's potential is significant potential, for sure, but the newly introduced products in the crypto industry are always regarded with skepticism until they have proven that they can weather the storm that is the crypto world.

Security vs. functionality

The ERC-20 tokens have widespread acceptance in different crypto wallets compared to the BRC-20 standard. And considering that the BRC-20 does not support smart contracts and uses Ordinals inscriptions instead, it may not be the most popular option for smart contracts enthusiasts. Minting, deploying, and transferring tokens is about everything users can do with a BRC-20 token as of right now.

Nevertheless, the BRC-20 token standard has garnered massive support from the passionate Bitcoin community, fostering hopes of it rising to compete with ERC-20. While BRC-20's popularity grows, fraudulent activities such as scam tokens and rug pulls continue to plague the market.

Furthermore, the Bitcoin network faces scalability challenges which result in high transaction fees due to its proof of work consensus mechanism. Conversely, the Ethereum network leverages a proof of stake mechanism that demonstrates higher efficiency.

Why are BRC-20 tokens controversial?

BRC-20 tokens and ordinals are controversial due to concerns about clogging up the network and not aligning with Satoshi's original vision for the blockchain. Bitcoin NFTs are more immutable than those on Ethereum, but their large size is seen as an attack on the network by some and a benefit to miners by others.

In fact, some Bitcoin miners are earning more from processing transactions than mining new BTC due to the BRC-20 tokens boom, which could offset the decreasing profitability of mining rewards. This new demand for block space created by ordinals is seen by some as a positive development for compensating miners as the mining popularity continues to drop.

Final Thoughts

The BRC-20 token standard opens up a new world of possibilities for Bitcoin.

It allows developers to create fungible tokens that can seamlessly move within the Bitcoin network, competing with Ethereum's ERC-20 tokens.

Although the BRC-20 standard is relatively new, it has already gained immense popularity and caused a surge in Bitcoin transaction fees due to high demand. While BRC-20 tokens offer more security, ERC-20 tokens are more flexible and established.

Ultimately, it's up to the users to decide which standard to use in their projects and investments. However, it's clear that the BRC-20 token standard is a significant development in the crypto industry and is worth keeping an eye on in the future.

Subscribe to our newsletter
Sign up to receive the latest news and updates about your wallet.
Related Posts