In another innovative twist in the crypto space, BRC-20 tokens are currently the trend on the Bitcoin network. ERC-20 tokens inspired the concept, and it gives users the ability to inscribe data onto Satoshis.

This innovative development has also allowed programmers to create and trade tokens, or meme coins, on the Bitcoin blockchain, introducing another use case aside from non-fungible tokens (NFTs) on the blockchain. With the prices of these tokens on a steady rise, investors need to understand the ins and outs of this latest crypto craze.

So what are BRC-20 tokens? What are their effects on the Bitcoin network?

What are BRC-20 Tokens?

BRC-20 started as an experimental token standard on the Bitcoin blockchain modeled after Ethereum’s ERC-20. This has allowed programmers to create and send fungible tokens via the Ordinals protocol.

Inspired by Ethereum’s ERC-20 token standard, which has revolutionized the world of tokenization, BRC-20 tokens have made their mark by leveraging the capabilities of the Bitcoin blockchain. Unlike ERC-20 tokens, BRC-20 tokens operate independently of smart contracts and offer a simplified feature set. They offer users the ability to mint and trade tokens by inscribing data, like a string of words or pictures, onto satoshis, the smallest unit of Bitcoin.

It’s important to note that BRC-20 tokens coexist alongside Bitcoin on the blockchain, similar to how altcoins operate on the Ethereum blockchain. To create BRC-20 tokens, a Bitcoin ordinal wallet is necessary, and there are specific limitations associated with each minting process.

How does it Work?

Taproot and Ordinals

BRC-20 tokens are a form of fungible assets that exploit a loophole in Bitcoin’s 2021 Taproot upgrade. The Taproot upgrade was created to solve two problems on Bitcoin’s blockchain, which are privacy and speed, by increasing transaction capacity and reducing transaction size.

One important aspect of the Taproot upgrade was the ability to write transactions up to 4MB in size, as opposed to the original 1MB size limit. This block size increase opened up new possibilities for the integration of non-fungible tokens (NFTs) and other Ordinal-based assets on Bitcoin’s blockchain.

The upgrade also allowed users to reduce the size of each transaction, leading to fewer fees and faster execution. This also allowed users to break down complex transactions into simpler forms, making layer two scalability solutions like lightning more efficient.

Due to the fact that all transactions on the blockchain are scripts available to the public, it is easy to analyze and follow the signature of each Bitcoin transaction. The Taproot upgrade also allowed every transaction to appear basically the same on the blockchain which made it difficult to track one transaction separate from the other.

The Taproot upgrade allowed Casey Rodarmor to launch the Ordinals project in January 2023. This was built on the ability to inscribe digital content such as text, art, or videos on satoshis, with each satoshi receiving a unique ordinal number. The numbers are set to range from 0 to around 2.1 quadrillion. Each ordinal works as an NFT on the Bitcoin blockchain.

The inscribing process involves attaching a short piece of JSON code to satoshis and which would define the various attributes such as the token name, symbol, supply, minting conditions, and transfer conditions from one address to the other.

BRC-20 vs. ERC-20

Although ERC-20 tokens inspired the creation of BRC-20 tokens, there are differences in their design. The first is that BRC-20 tokens are executed on Bitcoin’s blockchain, while ERC-20 tokens operate on Ethereum. Unlike ERC-20 token protocols that work in resonance with Ethereum’s mainnet, BRC-20 token protocols operate parallel to Bitcoin on the blockchain. This means that a transaction can be accepted and charged on Bitcoin’s network, while the same transaction is rejected for not fulfilling the inscribed conditions.

ERC-20 tokens are written as smart contracts using EVM-compatible programming languages, while BRC-20 tokens are written as JSON files inscribed on satoshis and executed on the network.

Potential Use Cases for BRC-20 Tokens

BRC-20 tokens are a relatively new concept, and it’s still labeled as an experimental innovation on the Bitcoin blockchain. Yet, the potential use cases for the technology are numerous.

Peer To Peer (P2P) Transfers

One of the fundamental uses of BRC-20 tokens is their transferability between addresses as a representation of value.

Similar to Bitcoin, BRC-20 tokens can be spent between wallets on the Bitcoin network, irrespective of their physical location. These tokens inherit the efficiency of the Bitcoin network, and transaction fees are charged, which would positively affect Bitcoin miners.

In the future, BRC-20 tokens might lead to the creation of decentralized applications (dApps) for making payments on commercial platforms with flexible payment solutions.

Decentralized Finance (DeFi)

DeFi on the Bitcoin blockchain is still a long way from being actualized, with only one project, RSK Finance, that is making major strides to introduce DeFi to the blockchain. Yet, RSK Finance is designed as a sidechain that is Ethereum compatible.

BRC-20 tokens can help create an exclusively BTC finance protocol. Their flexibility makes them suitable for decentralized exchanges, lending protocols, and yield farming systems. Platforms like Ordinalswallet.com have already emerged, enabling the decentralized minting and trading of BRC-20 tokens and ordinals NFTs.

Developing a BRC-20/BTC peg could further integrate Bitcoin into DeFi systems and bridge other blockchains to the Bitcoin network.

Tokenization

Like stablecoins representing fiat currencies, BRC-20 tokens can be utilized to tokenize real assets like gold, logistics, or real estate.

By defining the token properties through JSON code, one can tokenize various assets, including their supply and minting limits. The decentralized issuance process used by BRC-20 tokens provides an advantage over smart contracts, making them a potential tool for tokenization.

Continuous Experiments

The innovation that brought about BRC-20 tokens is still in its early stages, leaving much room for development.

BRC-20 tokens and the underlying experimental standard offer a glimpse into the future potential of the Bitcoin blockchain. By involving these tokens and technology in future developments, the Bitcoin network and its ecosystem can continue to evolve.

As BRC-20 tokens progress, more significant use cases will likely emerge, expanding their role within the crypto space.

The Growth of BRC-20

The drive for BRC-20 tokens is evident, with a market capitalization of around $550 million at the time of writing. According to data from BRC-20.io, thousands of tokens have already been minted, with notable meme examples like PEPE and MEME, as well as the Ordinal token (ORDI).

The market for BRC-20 tokens has grown substantially, generating more than $200 million in daily trading volume across more than 24,000 tokens. Since the BRC-20 standard can only be deployed on a native Bitcon browser, the Unisat wallet browser extension was created, making it the first BRC-20-supported wallet.

The birth of BRC-20 tokens is only possible due to two important factors, the recent meme coin craze surrounding PEPE, TURBO, LADY, and other meme coins, and the opportunities presented by Bitcoin’s Taproot upgrade. The integration of Unisat with BRC-20 and Bitcoin’s taproot made it easier for users to create, manage and trade these tokens with ease.

Cryptocurrency exchanges such as Gate.io are already adapting and listing BRC-20 tokens. The supported BRC-20 tokens include VMPX, MEME, BANKBRC, and PEPEBRC. Yet, with more tokens and functionalities comes certain challenges, such as network congestion, increased fees, and limited functioning capacities compared to smart contracts.

How To Purchase BRC-20 Tokens

Similar to other tokens, there are two means of purchasing BRC-20 tokens. The first is through a centralized exchange like Gate.io. Another option includes UniSat Marketplace, Ordinalswallet.com, and BRC-20.io/market.

The user would need a taproot-enabled BTC wallet. Afterward, the user can determine where to purchase the tokens, either through a centralized exchange or a decentralized platform like Ordswap.

Like ERC-20 tokens, users who intend to sell their acquired BRC-20 assets can either send them to a crypto exchange and conduct a P2P transaction or auction the assets in a decentralized pool.

Available BRC-20-supported crypto exchanges remain limited at this time. However, the largest BRC-20 token by market cap, ORDI, is now supported for trading on Gate.io.

Conclusion

As much as Ethereum’s ERC-20 tokens inspired the creation of BRC-20 tokens, they operate differently from smart contracts. They leverage the capabilities of the Bitcoin blockchain and coexist alongside Bitcoin, opening up new possibilities beyond NFTs.

As BRC-20 tokens evolve, their significance within the crypto space is expected to grow. With the ongoing drive for global adoption, the development and experimentation of BRC-20 tokens offer a glimpse into the future potential of the Bitcoin blockchain.

By embracing these tokens and technologies, the Bitcoin network and its ecosystem can continue to advance and explore even more diverse decentralized applications.

BRC-20 tokens have the potential to revolutionize peer-to-peer transfers, DeFi, tokenization, and more. Investors and enthusiasts should keep a close eye on the progress of BRC-20 tokens as they continue to shape the crypto landscape.