BRC-20 the origin story
In the mysterious world of digital currencies, one anonymous developer known as Domo introduced the world to BRC-20, or Bitcoin Request for Comment 20, in March 2023. Modeled after Ethereum’s popular ERC-20 protocol, BRC-20s are essentially the Bitcoin equivalent, with a few key differences (like a lack of smart contracts).
But here’s a fun fact: while Ethereum uses the “ERC” acronym for its token standards, Bitcoin prefers to stick with “BIP,” or Bitcoin Improvement Proposals, for its protocol changes. So, unfortunately, there haven’t been any other BRC numbers to explore.
Speaking of ERC-20, this nifty token standard enables developers to create all sorts of transferable assets or rights that are fully compatible with the Ethereum network. We’re talking about everything, from ownership interests to access rights to even other cryptocurrencies. That’s right – Tether, Shibu Inu coin and many other cryptos are actually hiding under the hood as ERC-20 tokens.
Meanwhile, thanks to Bitcoin’s recent Taproot upgrade, ordinals (read all about ordinals in our post here) have become the secret sauce behind the success of BRC-20 tokens. These tiny serial numbers are etched onto satoshis, the smallest units of Bitcoin, and injected into the transaction’s witness signature field to verify the rightful ownership of funds and prevent fraudulent double-spending.
But not all ordinals are created equal, and not all of them make the cut for the coveted BRC-20 token status. While there are millions of ordinals floating around, only a select 14,000 or so have made it into the exclusive BRC-20 club.
BRC-20 tokens use JSON ordinals inscriptions, which serve as the launchpad for token contracts and enable simple token creation and transfer. Although still in its infancy, the BRC-20 protocol shows immense potential for growth and development, although it currently pales in comparison to its ERC-20 counterpart.
Why was it created?
The BRC-20 token standard is a double-edged sword, boasting a plethora of benefits while also grappling with some limitations. Its fungibility, security, and compatibility make it a reliable asset in the digital realm, but its non-EVM compatibility deprives developers of some essential resources, thereby constraining the ecosystem’s growth and adoption rate.
Furthermore, the constant struggle for block space, accompanied by skyrocketing gas fees, adds another layer of complexity to the mix. Despite these shortcomings, Bitcoin’s robust security protocols remain unbeatable, providing users with seamless token transfer experiences.
Moreover, the Bitcoin blockchain’s uniqueness lies in its inability to produce other tokens, setting it apart from Ethereum’s network. However, the introduction of BRC-20 and Ordinals is paving the way for endless possibilities on the Layer-1 blockchain, ushering in a new era of innovation and creativity.
The world of BRC-20 tokens and ordinals has stirred up quite a commotion, with two main points of contention. Firstly, these tokens have been accused of clogging up the network and raising fees. Secondly, some believe they are “polluting” the blockchain with data that strays from Satoshi’s original vision of a peer-to-peer system of money transfer, making them an inappropriate use of the bitcoin blockchain for maximalists.
Despite the controversy, Bitcoin’s ordinal NFTs have a unique advantage over those on Ethereum. Unlike their counterparts, they contain the entire data file within the witness signature field of Bitcoin transactions, ensuring that all information resides on the blockchain. This makes them highly immutable and increases the integrity of the asset, but it also means they can be quite large.
Critics like Bitcoin Core developer, Luke Dashjr, have labeled ordinals an “attack” on Bitcoin due to the congestion caused by their large file sizes. However, the boom in BRC-20 tokens and ordinals has been a huge win for miners, who have been facing challenges on multiple fronts in the current bear market.
In fact, some Bitcoin miners are earning more from processing transactions on the blockchain than from mining new BTC for the first time since 2017, with the shift attributed in part to BRC-20 tokens and ordinals. This development has the potential to offset the decreasing profitability of Bitcoin mining due to the designed halving of mining rewards.
As the demand for blockspace that ordinals have unlocked continues to rise, many in the Bitcoin community see this as a positive step toward the future.
Much like the Ordinals protocol, the BRC-20 standard has sparked some heated debates. While thrill-seekers who revel in all things new and cutting-edge adore this protocol, concerns over the mounting gas fees and network congestion have also surfaced with its ever-increasing popularity.
Nonetheless, there is a silver lining to this. BRC-20 offers the perk of having no fees other than the gas fees for minting new tokens. As demand for these tokens continues to soar, this could spell an exciting prospect for their value.
But we cannot ignore the resistance to network congestion and its potential downsides. A possible solution for BRC-20 tokens could be shifting activity to a layer-2. This opens the doors for some wild off-chain memecoin trading.
Economics of it all
As of now, a whopping 14,000 BRC-20 tokens are hustling and bustling through the markets. Whenever one decides to release a BRC-20 token, the world is their oyster to choose the ticker, supply limit, and token limit per mint. Just take the example of Ordi tokens that are capping at 21 million and 1,000 token mints. Though Domo initially pronounced that BRC-20 tokens were as worthless as dirt, that did not dissuade opportunistic speculators. After Domo’s groundbreaking release, BRC-20 tokens have multiplied like rabbits, giving birth to several trending memecoins.
These memecoins have garnered a lot of attention lately and have made some speculators a pretty penny. If you want to know more about the memecoin trading frenzy, check out our article here.
The BRC-20 tokens are like young sprouts yet to bloom, requiring ample time to unveil their full potential on the Bitcoin blockchain. As the experimental phase persists, the window of opportunity for better design choices and optimization enhancements remains wide open.
The ORC-20 token standard is a prime example of how innovation and progress continue to shape the future of Bitcoin, serving as a beacon of hope for greater functionalities in BRC-20.
With its swift growth, BRC-20 tokens showcase how Bitcoin’s purpose has evolved beyond being a mere store of value and medium of exchange. These tokens are like the lifeblood of the blockchain, surging with immense potential to make a significant impact on its long-term future.