What is BRC-20? Understanding the Token Standard on Bitcoin

Table of Contents

What is BRC-20?

BRC-20 is an experimental token standard stored on the Bitcoin blockchain, based on the Ordinals and inscriptions protocol. These two mechanisms ensure the safety and reliability of NFTs created on the Bitcoin network. The BRC-20 standard provides a JSON file deployed as a contract token, allowing developers to mint and trade tokens through the Ordinals protocol.

The BRC-20 standard was created by a Twitter user named @domodata on March 8th and quickly became a trend in the cryptocurrency ecosystem. As of May 21st, 2024, according to CoinmarketCap, there are 72 BRC-20 tokens, with a market capitalization exceeding 2 billion USD, led by tokens such as ORDI, SATS, PUPS, and LEVER.

History of BRC-20

November 2021: The Taproot update was deployed on the Bitcoin network, increasing the amount of data that can be stored in blocks, paving the way for new developments.
January 2023: Casey Rodarmor released the Ordinals protocol to create NFTs on the Bitcoin network. Major projects like Yuga Labs and DeGods launched NFTs on Bitcoin Ordinals, attracting a significant number of new users, especially NFT collectors.
March 2023: Based on Ordinals, developer Domo (@domodata) introduced the BRC-20 token standard. The first BRC-20 token was “ORDI,” and many support tools for BRC-20, such as Ordinals Wallet and Unisat Wallet, were quickly deployed. Numerous “copycat” tokens were issued and rapidly increased in value.

What are the characteristics of BRC-20?

Difference from ERC-20: Although BRC-20 is modeled after the ERC-20 standard, it has many distinct features. BRC-20 does not use smart contracts like ERC-20 but integrates with Bitcoin wallets to mint and trade tokens. BRC-20 is deployed on the Bitcoin blockchain using the Proof-of-Work consensus mechanism, so users have to pay higher gas fees compared to ERC-20.
No use of smart contracts: Tokens adhering to the BRC-20 standard do not use smart contracts, affecting how tokens are deployed and managed on the Bitcoin blockchain.
Anonymous creator: The BRC-20 token standard was created by an anonymous on-chain analyst known as Domo. The primary goal is to create fungible tokens that can be issued and traded on Bitcoin.
Rapid growth: BRC-20 quickly became a prominent trend, with a market capitalization currently at 469,862,581 USD, indicating significant community interest and strong potential for future development.

How do BRC-20 tokens work?

BRC-20 tokens are created using the Ordinals and Inscriptions protocol. The Ordinals protocol allows users to attach data to satoshis, the smallest unit of Bitcoin, to create Ordinal NFTs or BRC-20 tokens. This data can be text, code, images, audio, or video. This process of attachment is called inscribing.

Not all tokens created through inscribing are BRC-20 tokens. BRC-20 tokens are created only when using JavaScript Object Notation (JSON) code. While Ordinal NFTs attach digital assets to satoshis, BRC-20 attaches JSON code, a data format that defines all aspects of the token, including supply, mint limits, and token identity.

What are BRC-20 tokens used for?

Crowdfunding: BRC-20 tokens provide a practical solution for raising funds for new projects on the Bitcoin network through IDO events.
Decentralized Finance (DeFi): With high security and compatibility with the Bitcoin network, BRC-20 tokens have the potential to revolutionize the DeFi space on the Bitcoin network.
Utility tokens: BRC-20 tokens can be integrated into various applications, such as NFT marketplaces and blockchain games.
Community tokens: BRC-20 tokens play a crucial role in supporting communities within the Bitcoin ecosystem.

What are the pros and cons of BRC-20?

Pros

Compatibility with the Bitcoin network: BRC-20 is built on the Bitcoin blockchain, so BRC-20 tokens can be stored and used on all Bitcoin wallets.
Ease of use: The standard employs a simplified mechanism, allowing users to mint and transfer tokens without requiring advanced technical knowledge.
Security: Utilizing Bitcoin’s security technology, including the SHA-256 hash algorithm and digital signatures, BRC-20 ensures the safety and integrity of tokens, preventing external interference.

Cons

Experimental stage: The standard is in an experimental phase, posing various risks, network congestion, and limited features.
High costs: Due to the Proof-of-Work consensus mechanism, gas fees are higher than those of token standards from other blockchains.

The future of BRC-20 tokens

BRC-20 tokens attract attention due to new improvements, but many believe that they are just a fleeting trend without intrinsic value. However, BRC-20 continues to persist in the crypto industry, not just as profitable assets but also as demonstrations of Bitcoin blockchain’s power. The community of users and developers continues to research and apply BRC-20 in various fields, driving the robust growth of the cryptocurrency world.

How to store BRC-20 tokens

Storage on Ordinals Wallet: Launched on February 16, 2023, Ordinals Wallet allows storage of Bitcoin and BRC-20 tokens, as well as buying and selling NFTs and tracking transactions of Ordinals NFTs.
Storage on Unisat: UniSat Wallet is a self-custody wallet in the form of a Chrome extension, enabling users to store and transact Ordinals NFTs and BRC-20 tokens.
Storage on Xverse: Xverse is a wallet supporting BRC-20 tokens, allowing the exchange of BRC-20 tokens, access to Ordinal marketplaces, DeFi applications, and safe offline storage of assets.

Conclusion

The advent of the Ordinals protocol and Bitcoin NFTs has brought fresh air to the crypto market. BRC-20 is a continuation of Bitcoin NFTs, but due to the limitations of the Bitcoin network, this token type has yet to find many applications. BRC-20 tokens are still very new to most investors in the crypto market, so this standard will need more time to reach the level of popularity that ERC-20 currently enjoys.

Through the article “What is BRC-20? Understanding the Token Standard on Bitcoin,” we hope you have gained an overview of BRC-20 tokens and their limitations.

(2 votes)