BRC-20 Standard

What is BRC-20?

BRC-20 represents a new token standard that introduces the creation and transfer of fungible tokens using the Ordinals protocol on the Bitcoin blockchain. Inspired by Ethereum's ERC-20 tokens, BRC-20 introduces unique mechanisms and functionalities. BRC-20 tokens benefit from the robust security features of the Bitcoin network, including protection against double-spending and 51% network attacks.

Origin of BRC-20 Tokens

The inception of BRC-20 tokens traces back to the launch of the Bitcoin Ordinals protocol in January 2023, which allowed for NFTs to be inscribed on satoshis. This sparked interest in the possibility of creating fungible tokens on the Bitcoin blockchain. In March 2023, an anonymous developer known as Domo introduced the BRC-20 token standard, enabling the minting of fungible tokens on Bitcoin. The first BRC-20 token, "ordi," was quickly followed by the development of wallet support and the launch of various other tokens, including meme-based ones. By May 2023, some BRC-20 tokens had seen significant price increases and market caps, leading to increased Bitcoin transaction fees and network congestion.

Functionality of BRC-20 Tokens

Understanding BRC-20 tokens requires familiarity with the Bitcoin Ordinals protocol, which numbers satoshis and allows for the attachment of additional data, known as "inscription."

BRC-20 tokens use Ordinals inscriptions of JSON data for deploying token contracts, minting, and transferring tokens. The BRC-20 standard includes functions for deploying a token, minting tokens, and transferring them. However, the deployment, minting, and transfer processes for BRC-20 tokens are not yet user-friendly, and the supporting infrastructure is limited.

Advantages of BRC-20 Tokens

Interchangeability

BRC-20 tokens streamline trading on exchanges with their simplicity and interchangeability. As fungible assets, they facilitate easy exchange for other assets, providing a user-friendly entry point into the blockchain ecosystem. This accessibility is particularly beneficial for those who may be hesitant to engage with traditional Bitcoin.

Security

Leveraging the robust security infrastructure of the Bitcoin system, BRC-20 tokens inherit the resilience against hacking attempts that the Bitcoin network is renowned for. The implementation of robust proof-of-work techniques adds an extra layer of security, likened to a specialized lock, ensuring the integrity and safety of the tokens.

Adaptability

BRC-20 tokens seamlessly integrate with the Bitcoin network, allowing for cohesive use without significant hurdles. Innovators seeking to explore and introduce new possibilities within the realm of Bitcoin encounter minimal obstacles when incorporating BRC-20 tokens, enhancing the adaptability and versatility of the overall ecosystem.

Potential BRC-20 Use Cases

BRC-20 tokens possess versatile utility, functioning similarly to other cryptocurrencies. While ongoing explorations are uncovering additional applications, the present use cases for BRC-20 tokens include:

Peer-to-Peer Transfers

BRC-20 tokens allow seamless value transfers between parties, operating on the decentralized Bitcoin network. Comparable to Bitcoin, these tokens serve as decentralized digital currency, facilitating efficient transactions between individuals. The Bitcoin network ensures swift and location-independent movements between wallets, with transaction fees denominated in Bitcoin. Future prospects may see BRC-20 tokens expanding into commercial payment platforms and as a preferred option for service providers seeking adaptable payment solutions.

Decentralized Finance (DeFi)

While DeFi on the Bitcoin blockchain is in its early stages compared to Ethereum, BRC-20 tokens present an avenue for the development of decentralized financial systems on Bitcoin. Unlike Bitcoin's limited flexibility, BRC-20 tokens can integrate with DeFi protocols, offering various potential applications within decentralized exchanges, lending platforms, and yield farming systems. Successful integration might also lead to the creation of a BRC-20 Bitcoin peg and bridge, enabling the incorporation of Bitcoin into DeFi ecosystems and establishing connections with other blockchains.

Tokenization

Similar to projects like Tether, BRC-20 tokens can serve as decentralized representations of fiat currencies and real-world assets such as gold and real estate. Their structural attributes position BRC-20 tokens as potential favorites for tokenizing tangible assets. Through JSON code, properties such as supply and minting limits can be defined, allowing for decentralized issuance. This method offers advantages in tokenization not easily achievable with smart contracts.

BRC-20 vs. ERC-20 Tokens

BRC-20 and ERC-20 tokens, while similarly named, have notable differences. BRC-20 tokens are based on the Bitcoin network, whereas ERC-20 tokens operate on the Ethereum network. BRC-20 tokens lack the smart contract functionality of ERC-20 tokens, limiting their interaction with other protocols and applications. ERC-20 tokens, established since 2015 and officially recognized in 2017, have a proven track record and a wide range of applications, unlike the newer and more uncertain BRC-20 tokens.