Bitcoin was originally conceived as a peer-to-peer medium of exchange, designed to serve as an alternative to traditional fiat money, with a primary focus on security and decentralisation.
However, since 2009, the use and application of blockchain technology have evolved significantly. Today, blockchains not only host native coins but also support a wide array of tokens—both fungible and non-fungible—through various network standards like ERC-20 on the Ethereum blockchain, while enabling the execution of smart contracts.
Although BTC remains the most valuable cryptocurrency by market cap, many within the Bitcoin community recognise the need for the Bitcoin network to evolve. This has led to several innovative efforts, culminating in the development of BRC-20, an experimental token standard that allows the creation of fungible tokens (altcoins, meme coins, etc.) on the Bitcoin network.
In this article, we will take an in-depth look at BRC-20 tokens, the journey to the BRC-20 standard, how these tokens work, and how they compare to other established token standards like Ethereum’s ERC-20.
What is the BRC-20 token standard?
A token standard is a set of rules that defines how tokens—whether fungible or non-fungible—are created and developed on a specific blockchain network. It acts as a blueprint, governing the issuance, deployment, operation, transfer, and other key attributes of tokens within a blockchain ecosystem.
BRC-20, which stands for Bitcoin Request for Comment, is an experimental token standard that enables the minting and transfer of fungible tokens on the Bitcoin blockchain using ordinal inscriptions. It was created by an anonymous developer named Domo in March 2023.
So, What are BRC-20 Tokens?
source: Bitget
BRC-20 tokens are tokens created on the Bitcoin network using the BRC-20 token standard. Unlike other token standards, BRC-20 does not rely on smart contracts. Instead, these tokens are generated by storing immutable script files, which are JSON data inscriptions, onto satoshis through the Bitcoin Ordinals protocol.
To fully understand how BRC-20 tokens are created and how they work, it’s essential to take a brief look at the journey that led to the development of this experimental token standard.
How BRC-20 Tokens Work on the Bitcoin Network
To fully understand how BRC-20 tokens are created and how they work, it’s essential to take a brief look at the journey that led to the development of this experimental token standard.
The Road to BRC-20
The journey to BRC-20 highlights how evolution in Bitcoin’s ecosystem begets further innovation. It began with the divisive Segregated Witness (SegWit) upgrade in 2017, which restructured Bitcoin transactions and effectively increased the block size limit from 1MB to up to 4MB, improving scalability.
Building on this, the 2021 Taproot upgrade enhanced privacy and introduced a new scripting language called Tapscript, which allowed for more complex transactions and expanded Bitcoin’s use cases, potentially enabling smart contracts.
The momentum continued into 2023 with the introduction of Bitcoin Ordinals, a protocol that enabled the creation of non-fungible tokens (NFTs) directly on the Bitcoin blockchain by inscribing arbitrary data—such as images, text, and videos—onto individual satoshis.
Which brings us to BRC20;
Let’s quickly highlight some terminologies
- Satoshis: or “sats,” are the smallest possible unit of a Bitcoin, with 100 million satoshis making up one Bitcoin. In other words, 1 satoshi equals 0.00000001 BTC. Satoshis are numbered sequentially based on their issuance on the Bitcoin network and are transferred in this specific order.
- Ordinals: is a system for numbering satoshis (sats), allowing users to assign individual identities to them by attaching arbitrary data.
- Inscriptions: these are the arbitrary data such as images, text, and videos, or, in the case of BRC-20 tokens, JSON (JavaScript Object Notation) data that are attached to satoshis.
How BRC-20 Tokens are Created
BRC20 tokens, though often described as fungible, have a unique creation process that involves elements of non-fungibility due to their attachment to individual satoshis through the Ordinals protocol. While Ordinal NFTs inscribe digital assets like images or text onto satoshis, BRC-20 tokens use a different approach by attaching JSON (JavaScript Object Notation) data. This JSON contains code that defines the token’s properties, including supply, minting limits, and identity.
The process begins by creating a JSON file that outlines the token’s parameters, such as how many tokens can be minted and other critical details.
This JSON file is then inscribed onto a satoshi via the Ordinals protocol, giving the satoshi extra functionality and effectively turning it into a BRC-20 token.
This inscription process is much easier thanks to the Taproot upgrade and Ordinals, which make it simple to attach additional data to Bitcoin transactions.
Once the token is deployed users with Bitcoin wallets that support Ordinals can mint the tokens which they can subsequently trade or hold.
BRC20 Vs ERC20
The name BRC-20 references ERC-20, the token standard on the Ethereum network. Below are some key differences between these two standards:
Underlying Networks
BRC20 tokens are built on the Bitcoin blockchain, while ERC-20 tokens operate primarily on the Ethereum blockchain and are also compatible with other EVM networks. This fundamental difference influences their functionalities and use cases.
Creation Process
BRC20 tokens are created through ordinal inscriptions on satoshis using JSON data. In contrast, ERC-20 tokens rely on smart contracts written in Solidity, which are deployed on the Ethereum network to define token attributes and behaviours.
Fungibility and Programmability
BRC20 tokens are semi-fungible and simpler in design due to the limited programmability of the Bitcoin blockchain. ERC-20 tokens, on the other hand, are fully fungible and allow for extensive programmability through smart contracts.
Closing Thoughts
Source: coingecko
The emergence of BRC-20 tokens marks a significant milestone in the Bitcoin network. With over 14,000 BRC-20 tokens minted and a total market cap of approximately $1.67 billion, this new token standard has gained substantial traction, largely led by ORDI, the first and most valuable BRC-20 token, boasting a market cap of $740 million.
However, it is essential to recognise that the BRC-20 standard remains experimental. As support from wallets and exchanges expands, protocols and investors should not throw caution to the wind.
[Author’s Note: This article does not represent financial advice, everything written here is strictly for educational and informational purposes. Please do your own research before investing.]
Author: Godwin Okhaifo
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