For a long time, the utility of Bitcoin, the premier cryptocurrency, was limited to just monetary purposes. Where Ethereum was housing thousands of decentralized applications and smart contracts, Bitcoin’s DeFi ecosystem was stunted, the only solution being the use of layer2 scalability solutions.

For a couple of years recently, Bitcoin has been playing catch up. The network has introduced various upgrades such as Schnoor signatures, taproot upgrades, and even token standards to improve the efficiency of the network. More recently, though, the network has sought to improve its NFT compatibility by the release of several token standards to that effect. The most recent of such efforts is the SRC-20 or Bitcoin stamps protocol.

This article is a brief explainer of Bitcoin stamps, how they work, and how they are different from their predecessor, BRC-20. In this article, we also break down how to mint an SRC-20 token and where to get one on sale.

Shortcomings of Bitcoin Ordinals

The release of the Bitcoin ordinal protocol in January 2023 stirred mixed responses from the Bitcoin community. One-half of the community was very excited about the possibility of NFTs on Bitcoin and responded by inscribing thousands of BRC-20 tokens to that effect. The second half, largely consisting of bitcoin maximalists, thought differently.

The second half of the community frowned at the new token standard for various reasons, like its UTXO proliferation and the non-immutable nature of the token standard. In a recent tweet, Luke Dashjr, a Bitcoin core developer, said the BRC-20 token standard inscriptions exploit a vulnerability in the network to spam the blockchain. The nature of the inscriptions protocol, which works by embedding metadata as program code, reduces the efficiency of the network and results in UTXO proliferation. Beyond that, inscriptions are not immutable, and according to Dashjr, they can be discarded with a simple blockchain update.

In response, Mike in Space came up with Bitcoin Stamps and the SRC-20 token standard as a permanent and immutable way of storing art on the Bitcoin network.

What is SRC-20?

Launched in March 2023, SRC-20 is a unique token standard that guides the creation and management of fungible tokens called Bitcoin Stamps. The SRC-20 token standard is built using the technology of the Counterparty Protocol, which first brought NFTs to the Bitcoin network in 2014.

Artist and blockchain developer Mike In Space created the SRC-20 token standard to work as part of an emerging protocol, Secure Tradeable Art Maintained Securely (STAMPS), which allows users to make NFTs by embedding data into Bitcoin transactions. SRC-20 builds on the weakness of BRC-20 by making use of the network’s UTXO set, making permanent and immutable tokens.

SRC-20 tokens are made by embedding image data formatted in a base64 string to the description key of a Bitcoin transaction. Since its launch in March 2023, the SRC-20 token standard has achieved mass adoption, with tokens like PEPE, STAMP, and KEVIN emerging as some of the higher-value SRC-20 tokens.

How Do Bitcoin Stamps Work?

The BRC-20 token standard worked by incribing data onto satoshis, the smallest unit of a Bitcoin. If you look behind the scenes of a BRC-20 minting transaction, all you’ll see is the metadata (usually less than 4MB) attached to an individual satoshi. What this means is that the data of a BRC-20 token is no more permanent than that of an ordinary transaction, and any node can prune it, thereby discarding it from the blockchain.

Bitcoin stamps take an almost opposite approach. Bitcoin stamps work by embedding the image directly into the network’s UTXO set. Each image that forms the stamp is converted into a special base64 format, which allows the image to show up as a string of characters. The image is then embedded into the description key of a Bitcoin transaction and sent to the chain via the counterparty protocol.

The SRC-20 token standard specifies some rules for the Bitcoin stamps as follows:

• Bitcoin Stamps exist as numerical assets
• Stamps are created from ordinary numerical assets by updating the description key to include a “stamp:base64” string.
• You cannot create a new stamp by changing the base64 string. Instead of making a new stamp, the transaction will not be indexed by the stamp project. This rule, in particular, serves to preserve the one-to-one relationship to the first created STAMP.
• Finally, each embedded image must be in PNG, gif, webP, or jpg format. The suggested format is a 24x24 pixel, 8-colour-depth PNG or GIF. Whatever the format, the image can be encoded into the base64 format string.

Take Action on SRC-20 Tokens

SRC-20 tokens are like any other tokens so that they can be minted, deployed, traded, and bought. To get an SRC-20 token for yourself, you can either mint or buy it from a marketplace.

How to Mint SRC-20 tokens

Stamp Wallet allows users to mint tokens right from the wallet interface. Start by either downloading the mobile wallet or adding the Chrome extension. To mint an SRC-20 token using the stamp wallet application, follow these steps:

1. On the home page, click on the SRC-20 button at the top left of the interface.
   

2. From the options in the drop-down menu, select Mint.
   

3. Fill in the details with the recipient’s address, name of the token, and desired amount.
   

4. Once you’ve filled in the details, click Mint.
   

You should receive the minted tokens at the specified address.

How to Trade SRC-20 Tokens

Because SRC-20 tokens are relatively new on the market, they are not listed on centralized exchanges. However, you can buy an SRC-20 token on the OpenStamp marketplace. To trade or buy an SRC-20 token on Openstamp, follow these steps.

1. Visit the Openstamp website.
   

2. Connect your Bitcoin-compatible wallet like Leather (Hiro).
   

3. Select from among the available listings, click buy, and confirm the transaction. You should receive the tokens in your connected wallet.

Conclusion

SRC-20 has transformed Bitcoin from a mere peer-to-peer digital currency to an environment for creativity by enabling the minting and transfer of immutable assets. The ability to encode Bitcoin transactions with data to create new tokens opens the network to a whole new ecosystem.

At this stage, it is still too early to tell whether the token standard will become a staple in the Bitcoin network ecosystem, even though the success of some SRC-20 tokens points to mass adoption of the token standard. Regardless, the nature of SRC-20 tokens remains the same as other crypto: volatile and vulnerable to massive shifts in price. Consequently, users should tread cautiously when trading or minting SRC-20 tokens.