All You Need To Know About LRC-20 Tokens

LRC-20 tokens were introduced to the blockchain ecosystem in 2023. Thanks to the discovery of ordinals, blockchain networks like the Bitcoin chain, the BSV chain, the Avalanche chain, and so forth have unlocked new possibilities for tokenization.

More specifically, LRC-20 tokens are inscription tokens that run on the BSV chain (Bitcoin Satoshi Version). The first LRC-20 token was launched in November 2023. While the project is experimental, it has caused a minting storm in the crypto space.

Understanding LRC-20 Tokens

The LRC-20 token is a recently released inscription standard in the Bitcoin SV ecosystem. An inscription is metadata added to individual satoshis, which can be used to store any type of data like text, images, and computer codes. Since they are stored on the blockchain, they are immutable and permanent.

While LRC-20 is a recent and experimental token, its creation was inspired by the BRC-20 and BSV-20 token standards that enable using Ordinals and inscriptions while uniquely requiring users to lock up tokens when minting.

The LRC-20 standard uses a numbering scheme that assigns a unique, permanent identifier to each satoshi while inscribing the data into the blockchain.

The standard was modeled after BRC-20 tokens aside from the added feature of locking assets to mint inscription tokens instead of the conventional means of paying BTC as transaction fees. The first LRC-20 token is HODL, which was deployed with a 21 million supply and a one-year asset lock period.

The Origin of LRC-20 Tokens

Source: Hodlocker Website

The LRC-20 token was proposed by a pseudonymous developer known as Shrdlu2. Shrdlu2 created and launched Hodlnet.sh, a search engine designed to crawl and index content locked in satoshi commitments on the BSV blockchain.

Due to his experience in data storage on BSV’s blockchain using inscriptions and Ordinals, Shrdlu2 launched LRC-20 tokens on GitHub alongside the proposal and specifications for minting and holding.

The first LRC-20 token, HODL, was launched on the Bitcoin SV chain shortly after. It required 21,000 mints of 0.021 BSV to fully mint out the supply, locking a total of 441 BSV in the process.

Currently, the LRC-20 project lacks a standard user interface (UI) and token wallet support, as it has only been implemented on the BSV chain. While BRC-20 wallets can hold LRC-20 tokens, they appear as JSON files until adequate infrastructure is developed for LRC-20 tokens to appear and function similarly to other token standards.

Shrdlu2 stated that LRC-20 tokens are an experiment. It’s best to assume all LRC-20s will have no monetary value.

Technical Features of LRC-20 Tokens

Source: 1satordinals Website

The LRC-20 Protocol

The LRC-20 protocol is the underlying function that defines how LRC-20 tokens are deployed, minted, and transferred. A valid LRC-20 mint or deployment transaction consists of a JSON object and an application/JSON content type.

The protocol requires the user to state the operation type: that is, deploying, minting, or transferring. It also requires at least one Satoshi lockup script for minting operations to ensure that the lock-up amount stipulated at deployment is available in the minter’s wallet.

Each protocol function has a ticker, a four-letter identifier, and a maximum supply, which is the total tokens mintable, the lockup amount, and the mint limit, the limit of tokens available to each user’s mint operation.

The information has to be positive numbers or integers, not strings, and the maximum possible supply cannot exceed the unsigned 64-bit integer data type or the unit64_max.

The protocol also allows developers to carry out transactions that combine deploying and transferring, and one invalid operation doesn’t automatically invalidate other operations in the transaction. The mint operation has to be run independently of any other transaction.

Minting Through Locking

To mint LRC-20 tokens, users typically need to send tokens to an address controlled by the LRC-20 deployment transaction. The locked assets act as collateral for the minted token and are held for a stipulated period.

The deployment transaction for minting LRC-20 tokens is customizable, allowing developers to choose the number of tokens to be locked and the duration. This would introduce the concept of scarcity, as more assets are needed for each inscription token minted, and the longer the lock period, the fewer tokens exist, potentially increasing their value due to demand.

Three transaction types include deployment of new LRC-20, minting, and transfer (re-assign) to other users.

Ordinals and Inscriptions

Ordinals can be used to provide a unique ID for each satoshi. A satoshi is the smallest unit of Bitcoin, which acts as a serial number that enables tracking of individual tokens and their origins. The inscriptions allow the attachment of notes to these satoshis to store information like token supply, lock period, and even links to specific tokens.

The Ordinal ID and inscriptions, in collaboration with the security of BSV’s ecosystem, provide the transparency users need to track the minting process and LRC-20 token activity. Like a glass box on a display shelf, the Ordinals is the unique label, and the inscriptions are the data or information of the LRC-20, which can be viewed and verified at will.

Benefits of LRC-20 Tokens

While the LRC-20 standard is a new addition to the blockchain ecosystem, it has some benefits, like locking supply to increase the price of assets. It can also be used for DeFi, identity, and storage.

Decentralized Finance (DeFi)

To promote the development of decentralized finance on the Bitcoin SV protocol, LRC-20 tokens can be used to provide collateralized loans, where users lock up their native assets to mint LRC-20 tokens for conducting transactions or financing decentralized lending pools.

Similar to the fractionalized ownership functionality of physical goods on the Ethereum blockchain, LRC-20 tokens can represent users’ intellectual property on the blockchain. The tokens can also be a passive income source for users participating in yield farming and liquidity pools.

Identity and Reputation

LRC-20 tokens use the Ordinal functionality for generating IDs on Satoshi. This can represent non-transferrable digital identities in the native blockchain. This allows developers to promote self-sovereign data ownership while being transparent and trustworthy.

It can also be used to track user reputation and participation in specific events or decentralized communities on the blockchain using the customizable rules and lock periods of the LRC-20 token standard.

This identity feature can be used to develop voting and governance projects that allow participation and voting rights to users based on the project’s mechanics and protocols. It’s also valuable in games and collectibles for in-game currencies, collectibles attributed to specific users or events, and gated experiences for elite gamers within the network.

Aside from users, the ID system can be used to track supply chain projects to monitor physical goods and the supply of products. The decentralized supply chain management system can allow users to monitor the package in real time until it arrives at its destination.

Data Storage

The Ordinal and inscription features of the LRC-20 standard allow developers and users to lock assets with attached messages or documents for a period of time to mint LRC-20 tokens. These messages or documents would be locked on an impenetrable blockchain to be accessed when the assets are unlocked.

It also allows projects to act like storage vaults for sensitive information that needs to be secured for some time. These projects can serve as data marketplaces for decentralized data trading on the network.

The Future of LRC-20 Tokens

The LRC-20 token is new and experimental, making it difficult to gauge the adoption rate of the standard. Its infancy means limited data on LRC-20 token activity, such as trading volume, market capitalization, or user base, essential indicators for evaluating growth.

Since its launch, the LRC-20 proposal has sparked interest and raised discussions among Bitcoin and BSV enthusiasts, showing a high potential for adoption.

The technological potential of LRC-20 tokens allows for more innovative applications within the larger crypto community. Utilizing Ordinals and inscriptions places the project in the proper position to grow and evolve in the near future.

Conclusion

As an experimental token standard, the launch of LRC-20 tokens allows the creation of fungible tokens using Ordinals and inscriptions. The proposal by Shrdlu2 uses Ordinals to assign identifiers to satoshis, which gave rise to the launch of the Hodl project. The minting process involves locking assets as collateral for a specified period.

LRC-20 tokens find inspiration from the BRC-20 standard, presenting a range of potential use cases in decentralized finance, identity and reputation systems, and data storage. Although the project is in its early stages, it has gathered the attention of Bitcoin enthusiasts, showing a high potential for future growth.