BRC-20 Token: Overview

BRC-20 Tokens are the latest innovation of the ordinal protocol, which has recently attracted widespread attention in the cryptocurrency community. This is an experimental token standard that supports the deployment, minting, and transfer of fungible tokens on the Bitcoin blockchain. Although the total market capitalization of these tokens once reached $1 billion, they are relatively simple and do not have smart contract functionality, unlike ERC-20 or BEP-20 Tokens.

Due to the coin minting frenzy in early May, the Bitcoin mempool has become severely congested, and network transaction fees have skyrocketed. Considering the importance of supplementing miner income as block rewards gradually decrease, many welcome the higher fees. However, there are also concerns that this could affect users in price-sensitive areas.

At this early stage, BRC-20 tokens carry significant risks and require more infrastructure support. As the founder said, this is an experiment and potential risks should be viewed with strict caution.

Ordinal, inscriptions, and BRC-20 tokens help demonstrate a clear organic demand for Bitcoin block space beyond traditional currency use cases. This may be a key factor in the long-term sustainability of Bitcoin's security model.

The development of Bitcoin's second-layer network, the infrastructure support for BRC-20, and further innovations in token design may be the next direction for growth in this field.

Background

What are ordinals and inscriptions?

Ordinal is an open-source software that can run on any Bitcoin full node. It tracks individual satoshis according to the "Ordinal Theory" as stated by its founder Casey Rodarmor. A satoshi is the smallest unit of the Bitcoin network, where 1 Bitcoin = 100,000,000 satoshis. The Ordinal Theory assigns a unique identifier to each satoshi on Bitcoin. In addition, these individual satoshis can be "inscribed" with arbitrary content ( such as text, images, or videos ) to create "inscriptions" (, which are native digital artifacts of Bitcoin ), also known as NFTs.

BRC-20 Token适用于哪些领域?

Due to inscriptions allowing the use of non-fungible tokens on Bitcoin (NFT), people naturally ask, "What about fungible tokens?" This is where BRC-20 comes into play.

On March 9, an anonymous Crypto Twitter user named domo tweeted about a method called BRC-20 that can create fungible token standards on top of the ordinal protocol. The idea is to inscribe JSON data on a single Satoshi through ordinals to deploy, mint, and transfer fungible BRC-20 tokens. JSON is essentially a text-based data format, so the approach is fundamentally about writing text onto Satoshi to create fungible tokens. The initial design only allowed for three different operations: deploying tokens, minting tokens, and transferring tokens.

The first deployed token contract is the $ORDI token, with each minting factory limited to 1K tokens and a maximum supply of 21 million ( to pay homage to Bitcoin's maximum supply ). This release caused a stir in a subdomain of the Bitcoin community, and within less than a day, all $21 million worth of ORDI tokens were minted. Soon after, other tokens emerged, such as $MEME, $PEPE, and $PUNK.

What is the market for BRC-20 like? ###

BRC-20 was conceptualized just a few months ago, and it can be said that this market is still in its infancy. Nevertheless, developers and enthusiasts have been experimenting day and night. As of May 16, 2023, there are over 18,000 BRC-20 Tokens with a total market capitalization of $500 million. This market cap was close to $1 billion in the early days of May, but as is expected with any such frenzy, the market is self-correcting to find a more stable balance.

The ordinal ($ORDI) Token is the first BRC-20 token and remains the market leader to this day. This is evident in both market capitalization and trading volume, and its recent listings on several different exchanges may contribute to this.

How does using BRC-20 Token compare to using tokens of other standards?

Although the name "BRC-20" is an imitation of Ethereum's "ERC-20" Token standard, there are significant differences between them:

• BRC-20 Tokens exist on the Bitcoin blockchain, while ERC-20 exists on the Ethereum blockchain, and BEP-20 exists on the BNB Smart Chain, etc. Therefore, BRC-20 Tokens rely on various characteristics of the Bitcoin chain, which are quite different from ERC-20 or BEP-20, such as transaction speed and fees.

• ERC-20 Tokens and BEP-20 Tokens are created using smart contracts on the Ethereum and BNB Smart Chain blockchains, respectively, thus possessing a high degree of programmability and the ability to execute various operations and rules. This is significantly different from the relatively simple BRC-20 Tokens, which are not based on smart contracts and have quite limited functionalities.

• ERC-20 tokens and BEP-20 tokens are much more mature than BRC-20 tokens. While the former have existed for many years and have led to the establishment of various types of infrastructure, this is not the case for BRC-20 tokens.

![Binance Research Institute's lengthy article: Bitcoin BRC-20 principles, current status, and future]###https://img-cdn.gateio.im/webp-social/moments-7545bdcd8581886e2e3e17e7913f5b03.webp(

The Impact of BRC-20 on the Bitcoin Market

) Homogeneous and Non-Homogeneous

Since the emergence of BRC-20 tokens, the entire inscription market has undergone significant changes. In February, images were the main type of inscriptions used in the market. This was the time when the ordinal craze began, and Bitcoin NFT collections started to emerge. Even from February to early April, although text inscriptions became more common, there were still some days when images were the most widely used type of inscription.

In the second half of April to May, the text-based inscriptions ### are mainly related to BRC-20 Tokens, which have dominated the landscape, effectively pushing out any other media types. Furthermore, the daily number of inscriptions is several times the amount we observed from January to early April. This demonstrates that BRC-20 Tokens have generated immense popularity and momentum since their conceptual inception.

( Memory Pool

The total number of unconfirmed Bitcoin transactions ), which is the number of transactions in the mempool ###, has been on the rise throughout 2023. Recently, the interest generated by inscriptions and BRC-20 has caused the number of mempool transactions ( to surge significantly compared to last year ). This, in turn, affects the cost of executing transactions on the Bitcoin blockchain.

( transaction fee

The Bitcoin model incentivizes miners to protect the network through two economic incentives: block rewards and transaction fees. The block reward is halved approximately every four years, which will ultimately reduce to zero in the long run. Therefore, eventually, transaction fees will be the only compensation for miners, i.e., the security budget for the chain.

By closely observing last year's latest data, we can see that transaction fees increased from 1-2% of the total miner rewards to 2-3% at the beginning of the year, and soared to over 20% in May. While we cannot conclude that this is solely due to inscriptions and BRC-20, we have relatively sufficient reason to believe that a significant part of this initiative is attributable to these innovations within Bitcoin.

Bitcoin transaction fees previously soared, especially in December 2017 and April 2021. However, both times were during strong bull markets for Bitcoin and the crypto space. This is the first time fees have significantly surged in what many consider to be the mid-stage of a bear market.

Ultimately, ordinal inscriptions and BRC-20 tokens have helped unleash significant demand for the Bitcoin blockchain. They have created a demand for block space that has not been seen for quite some time for Bitcoin. Many believe that Bitcoin has lost its focus in the attention game against Ethereum and similar projects, but the creation of inscriptions and BRC-20 seems to be changing that narrative.

![Binance Research Institute Long Article: Principles, Current Status, and Future of Bitcoin BRC-20])https://img-cdn.gateio.im/webp-social/moments-808aee17a52767f6f957b0fd5106ecf1.webp###

Community Response

The initial innovation of using ordinal theory to track individual Satoshis and further inscribing them with data sparked a heated debate within the Bitcoin community. BRC-20 Tokens have taken this debate to a new level.

( "Qin Fei" group

The sustainability of Bitcoin's security model has been a major concern for many in the community. As block rewards continue to decrease, how will miners be compensated in the future? What does it mean for Bitcoin's long-term viability if miners do not receive enough compensation to secure the chain? It is unavoidable that miners need to be rewarded for providing security, and for this reason, Bitcoin transaction fees need to be higher. For this reason, many in the community are surprised by the level of attention that ordinal and BRC-20 have received and the impact this has on the relatively sluggish Bitcoin fee market.

) "Low Fee" Camp

While many people are excited about the increased activity and buzz surrounding the Bitcoin ecosystem, and are encouraged by the rising fees from a sustainability perspective, others are more critical. This camp is more interested in the "true purpose" of Bitcoin as a hard currency, a non-fiat currency, and that the chain should be exclusively used to facilitate peer-to-peer transactions. This organization believes that data-intensive transactions related to ordinals, namely inscriptions and BRC-20, primarily cause congestion on the Bitcoin network and drive up fees, ultimately hindering peer-to-peer transactions.

BUIDLer

Perhaps the most important group is those who are building the tools and infrastructure to take these innovations to new heights. Key builders include Casey Rodarmor, the founder of the Ordinals protocol, and domo, the creator of the BRC-20 Token standard.

In key projects, the UniSat wallet has been an early participant in the Ordinals/BRC-20 story. ALEX is a project built on the Bitcoin Layer 2 network Stack, aiming to develop DeFi on Bitcoin. The Rare Nakamoto Association's business is to find the rarest Bitcoins in the market and connect them with collectors.

![Binance Research Institute Long Article: Bitcoin BRC-20 Principles, Current Status, and Future]###https://img-cdn.gateio.im/webp-social/moments-864d52b7b549a067d93ec44914cee494.webp###

Risks and Challenges

BRC-20 Token is just an idea generated by an experimental token standard created by an anonymous Twitter user. At this early stage, the infrastructure surrounding BRC-20 Tokens is very limited. Most of the BRC-20 Tokens currently exchanged are Meme tokens, lacking practicality. At the same time, due to the fact that this is a very new field, there is a high risk of scams.

Future Outlook

( Bitcoin Layer 2 Network

If Bitcoin is to become a technology that millions of people can use regularly, scalability solutions will be the next key step that Bitcoin needs to take. The upcoming sBTC from Stack looks particularly interesting.