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What is the BRC-20? Bitcoin s Standard Explained Simply

Explore the BRC-20 token standard on the Bitcoin blockchain. Learn about its origin, how it works, its potential in DeFi, and how it differs from the ERC-20 standard.

The resilient and rarely changing Bitcoin blockchain has witnessed a new development - the introduction of BRC-20 tokens. A unique and experimental token standard, built on the Ordinals protocol, which enables the creation of custom fungible tokens on the Bitcoin blockchain. This article dives deep into the origin, workings, future utility, and differences between the BRC-20 and ERC-20 standards.

TL;DR:

  • The BRC-20 is an experimental token standard used for the creation of fungible assets on the Bitcoin mainnet.
  • The standard works by utilizing the Ordinals protocol to inscribe code into individual satoshis, marking them as standalone assets.
  • So far the main use case has been the creation of memecoins. The future utility is limited by the absence of smart contracts on the Bitcoin blockchain.
  • BRC-20 is fundamentally different from the Ethereum ERC-20 token standard, which uses smart contracts to mint and manage different tokens.

What is the BRC-20?

BRC-20 is an experimental token standard that enables the minting and transfer of fungible tokens via the Ordinals protocol on the Bitcoin blockchain. While it takes inspiration from Ethereum's ERC-20 tokens, it uses different mechanisms and functions, marking a departure from the original design of the Bitcoin blockchain.

The Origin Story

The BRC-20 token standard was created in March 2023 by a pseudonymous programmer named Domo. This creation was spurred by the launch of the Bitcoin Ordinals protocol in January 2023 by Casey Rodarmor, which allowed for the creation of non-fungible tokens (NFTs) on the Bitcoin blockchain. 

With the Ordinals protocol, satoshis (the fraction unit of BTC) could be given individual identities and imbued with meaning, leading to a demand for a method to create fungible tokens on Bitcoin.

How does the BRC-20 token standard work?

BRC-20 tokens are created by attaching a JSON to satoshis through Bitcoin ordinals. The JSON code defines every characteristic of the BRC-20 token, including minting and distribution. These characteristics are decoded by the Bitcoin network once the tokens are deployed. To mint BRC-20 tokens, a Bitcoin ordinal wallet is required, and there's a limit to each minting process.

The Role of Ordinals Protocol

The Ordinals protocol plays a crucial role in the operation of BRC-20 tokens. It allows for the creation of immutable digital collectibles that can be transacted on the Bitcoin network using Bitcoin wallets. BRC-20 tokens, created by inscribing JSON data on satoshis through the Ordinals protocol, can serve a range of applications extending beyond just NFTs.

Future and Utility for BRC-20 Tokens

The Bitcoin token standard is a new improvement and for such the utility is still being searched. The majority of tokens issued in the last weeks were just experimenting with the inscription process and can be marked as memecoins.

We can, however, speculate about the potential utility in the future - for example, the BRC-20 token standard could emerge as a preferred candidate for the tokenization of real assets, given its flexible structure and decentralized issuance process. 

The Bitcoin blockchain does not possess smart contracts, which could be a major limiting factor for building a decentralized ecosystem. More advanced applications, like decentralized exchanges, are pretty much off-limits, as Bitcoin does not offer enough technological complexity.

Differences between BRC-20 and ERC-20 standards

While BRC-20 and ERC-20 are both token standards, their similarity basically ends with the name. In the functioning, the Bitcoin and Ethereum token standards utilize a completely different approach. 

Ethereum uses smart contracts deployed on the Ethereum mainnet to act as different tokens. Each token contract is able to track balances on individual wallets, transfer funds, and manage the maximum supply.

BRC-20 standard on the other hand works by inscribing the individual satoshis with Ordinals protocol to differentiate them from others. This inscription contains code defining the properties and behavior of the token.

FAQs

Where can I buy BRC-20 tokens?

You can see the listings of BRC-20 tokens on the Ordinals wallet website. To buy or sell BRC-20 tokens you will need to create your own Ordinals or UniSat wallet.

Will BRC-20 tokens increase in price?

That depends on the demand and potential use cases. So far, shortly after release, the first few BRC-20 tokens have caused quite a hype. At this time investing in BRC-20 tokens can be called pure speculation.

Which wallet should I use to store my BRC-20 tokens?

To store BRC-20 tokens and NFTs on Bitcoin there is a few options for a wallet you can use. The Ordinals wallet would be a go-to solution. Alternatively, you can use a Chrome extension wallet UniSat.

Will there be a DeFi ecosystem on Bitcoin?

It is unlikely that there will ever be a DeFi ecosystem on Bitcoin similar to that of Ethereum. Bitcoin does not support smart contracts, which are necessary for building more advanced financial and other applications.

Disclaimer: The content of this piece reflects the writer's opinion. This article is not intended to provide financial advice and is meant solely for entertainment and educational purposes. Investing in cryptocurrency involves significant risk. Capital is at risk, and returns are not guaranteed. Always conduct your own research.

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