What Are BRC-20 Tokens? An Introduction

Introduction

BRC-20 tokens are an experimental and inefficient token standard designed for creating fungible tokens on the Bitcoin blockchain. Inspired by Ethereum’s ERC-20 tokens, BRC-20 tokens leverage the Bitcoin Ordinals protocol to inscribe data onto individual satoshis, making them transferable and tradable.

Origins of BRC-20 Tokens

The BRC-20 token standard was introduced by a pseudonymous developer named Domo in March 2023. This development came shortly after the launch of the Bitcoin Ordinals protocol in January 2023 by Casey Rodarmor, which allowed users to inscribe data onto individual satoshis, enabling the creation of NFTs on the Bitcoin blockchain. The first BRC-20 token deployed was “ordi,” which quickly gained popularity and led to the creation of numerous other BRC-20 tokens.

The introduction of BRC-20 tokens aimed to bring the flexibility of fungible tokens to the Bitcoin network, similar to how ERC-20 tokens expanded the Ethereum ecosystem. However, BRC-20 tokens differ significantly from their Ethereum counterparts in terms of functionality and implementation.

How BRC-20 Tokens Work

BRC-20 tokens use the Ordinals protocol to inscribe JSON data onto satoshis. This data defines the token’s properties and functions, such as deployment, minting, and transfer. Unlike ERC-20 tokens on Ethereum, BRC-20 tokens do not use smart contracts, making their functionality more limited. However, their simplicity allows for easier asset tokenization on the Bitcoin network.

Deployment and Minting: The process begins with deploying a token by inscribing its properties onto a satoshi. Once deployed, tokens can be minted in specified quantities and transferred between users through Bitcoin transactions. The JSON data includes details such as the token’s name, maximum supply, and minting conditions.

Token Transfer: Transferring BRC-20 tokens involves creating a new inscription that specifies the transfer details. This inscription is then included in a Bitcoin transaction, making the transfer immutable and verifiable on the blockchain.

Pros and Cons

Pros:

1. Simplicity: The absence of smart contracts simplifies the creation and transfer of tokens, making it accessible to a broader range of users.
2. Security: Leveraging Bitcoin’s robust security features ensures a high level of trust and immutability.

Cons:

1. Lack of Smart Contracts: The inability to use smart contracts restricts the functionality and potential use cases of BRC-20 tokens.
2. Network Dependency: BRC-20 tokens are subject to Bitcoin’s prioritization of security and decentralization over transaction speed, which can result in higher fees during periods of high demand.
3. Network Congestion: The popularity and poor design of these tokens led to increased transaction fees and network congestion, particularly at the time of launch as promotion and popularity are at peak levels. As popularity decreased, so did the…