Various 'X'RC-20 Standards Emerging: The Future of Bitcoin?

In January 2023, Bitcoin introduced Ordinals (ordinal numbers), creating Bitcoin NFTs by “engraving” information onto individual satoshis. This protocol allows the incorporation of text, images, and videos into the Bitcoin blockchain, previously only possible on blockchains with smart contracts. Now, it’s achievable within the Bitcoin network. Following this, Domo created the BRC-20 token standard based on the Ordinals protocol, a new experiment in creating and transferring tokens by publishing text on satoshis. This standard gained momentum in April, and with the increasing number of BRC-20 tokens, transaction fees on the Bitcoin chain rose. At its peak, the Bitcoin network experienced over 500,000 pending transactions.

As BRC-20 tokens grew in popularity, their value increased. ORDI, the first token under the BRC-20 standard, started at $0.1 and surged 310 times to $31, with a market valuation of about $650 million. The establishment of the BRC-20 standard reignited interest in Bitcoin. With the explosion of the BRC20 concept, various token standards emerged, notably ORC-20 and SRC-20. During Token2049 in Singapore 2023, the Birthday Research hosted an Ordinals summit, specifically discussing these experiments.

Why these innovative experiments appear on the Bitcoin network and the potential impact of these token standards on the future development of the Bitcoin network were discussed in detail in “Aiming for the Next Bull Market: The Ordinals Ecosystem.” We have already discussed the concepts related to the Ordinals protocol and the development history of the BRC-20 token standard, as well as introduced related projects, tokens, and token platforms. This article will discuss the development of token standards after BRC-20 and the impact of these ‘X’RC-20 token standards on the future development of the Bitcoin blockchain.

ORC-20:

ORC-20, like BRC-20, is a token standard operating on the Bitcoin blockchain. It is encoded as a JSON (JavaScript Object Notation) file and recorded on Satoshi in a serialized form. ORC-20 is an upgraded version of the BRC-20 standard, addressing some of its drawbacks.

Although BRC-20 allows the creation of tokens on the Bitcoin network using the Ordinals protocol, as an early project, it has several limitations: Firstly, the BRC20 standard set an unchangeable token supply and maximum minting volume, limiting the token’s development with its inflexible model. Secondly, token naming is restricted to four digits. Lastly, the transfer and accounting of BRC-20 tokens rely entirely on external centralized indexers. Since the engraving process itself only writes random data into Sat, the consensus-level Bitcoin network cannot prevent inscriptions that violate the BRC-20 standard. This means that additional non-BRC-20 standard mintings will also be recorded, leading to potential double-spending attacks on BRC-20 tokens, causing economic losses.

To address these issues, the ORC20 standard was introduced. ORC-20, an open standard launched by OrcDAO, aims to enhance the functionality of Ordinals tokens on the Bitcoin network, improving upon the existing BRC-20. ORC20 removes token naming restrictions, adds upgradable features to tokens, and allows project owners to empower their tokens further. It also introduces advanced features like setting royalties and whitelists. ORC-20 is backward compatible with BRC-20 and enhances adaptability, scalability, and security, eliminating the possibility of double-spending.

1. The ORC-20’s UTXO model ensures no double-spending occurs during transactions, addressing the double-spend problem of BRC-20 (where sending a transaction also sends the balance as a transaction to the change address).

2. It allows changes to the initial supply and maximum coinage, offering more flexibility in issuing tokens.

3. ORC-20 resolves the four-letter naming limitation of BRC-20, allowing the use of names of any length.

4. It offers customization options such as transaction taxes, royalties, special minting addresses, token images, token IDs, and URLs for token information.

5. It permits deployers to upgrade the ORC-20 subsequently.

6. Transactions can be canceled using the command "op": "cancel", which cancels the transaction of the specified nonce.

7. Allows tokens already deployed on BRC-20 to be transferred to ORC-20. Only the deployers of BRC-20 can operate the transfer command.

However, due to the underdeveloped infrastructure of ORC-20 and the wealth effect still concentrated on BRC-20, the attention towards ORC-20 is currently quite limited. Since its launch in May, the total number of transactions involving ORC-20 is around 370,000, with costs amounting to approximately 24.17 BTC. Additionally, it is important to note that, as per the official description, ORC-20, like BRC-20, is an experimental project. There is no guarantee that tokens created using this standard will have any value or utility. Currently, only the first deployed project, ORC, is worthy of attention.

Summary of ORC-20 Common Tools:

• ORC-20 Token List: https://loveords.com/orc20

• Minting Tool: http://unisat.io/inscribe

• Statistical Data: http://https://dune.com/ordinalstats/orc-20

ORC-20, while addressing some of the shortcomings of BRC-20, still uses JSON files and does not resolve the centralization issue inherent in BRC-20. Additionally, it complicates the token issuance process of BRC-20, making it less conducive to widespread adoption. The emergence of ORC-20 seems more like an emotional reaction to BRC-20, lacking significant technical innovation, which led to the simultaneous emergence of similar alternatives like SRC-20.

SRC20

Unlike BRC-20 and ORC-20, which are based on the Ordinals theory, SRC-20 utilizes Bitcoin Stamps for inscribing text. Bitcoin Stamps, akin to ERC-1155 semi-fungible tokens or digital collectibles, are stored directly on Bitcoin’s Unspent Transaction Outputs (UTXO) — the record of unused bitcoins in transactions between two addresses, instead of being stored in witness data like Ordinals. This difference gives Stamps a notable feature: they can permanently exist on the Bitcoin blockchain, and full nodes must sync this data, enhancing its immutability. Similar to BRC-20, the texts used for deploying, minting, and transferring SRC-20 tokens are also in JSON format.

Bitcoin Stamps are minted based on the Counterparty protocol, an open-source P2P protocol established in 2014 atop the Bitcoin blockchain. Users burn BTC to acquire Counterparty (XCP) native tokens, used for paying during the execution of smart contracts.

The protocol employs the “OP_Return” function to store up to 80 bytes of data. If a file exceeds 80 bytes, the data is stored across multiple outputs in a multi-signature setup.

For minting Bitcoin tokens, Counterparty converts images into text and encodes them as Base64 files, appending “Stamp:” before the text. The protocol then broadcasts the encoded file to the Bitcoin network, where it is isolated, validated, and recompiled, restoring the original image.

The current market controversy surrounding Bitcoin Stamps mainly includes discussions on immutability and the bloated UTXO set. When compared to Ordinals, Bitcoin Stamps have poorer prunability because image data is stored in Bitcoin’s UTXO rather than its witness data. Discussions about the UTXO set’s expansion primarily revolve around the uncertainty of increasing hardware requirements for users running Bitcoin nodes.

Furthermore, there are overarching disagreements within the Bitcoin community regarding the use of block space for digital art. Debates persist about how the increase in block size on the Bitcoin blockchain and the rise in on-chain settlement transactions could trouble the network, leading to higher transaction fees. Some community members suggest increasing block sizes, but many believe this would make the network more susceptible to attacks and increase miners’ costs due to the growing data storage requirements.

For investors, the most crucial factor is whether a project has investment value. As cryptocurrency increasingly integrates with traditional finance, the profitability of a project depends on two key elements: hot money and cash flow. Hot money determines whether a project has sufficient funds for development, and cash flow determines its profitability. Hot money is the primary factor because it generates FOMO (Fear of Missing Out) and attracts a large number of retail investors to over-invest in the project, leading to increased book value and token prices.

Currently, the largest token on the BRC-20 platform is Ordi, with a market value of 65 million USD as of September 13, 2023. The BRC-20 trading platform Unisat is valued at 1 billion USD. The primary source of hot money is OKX’s acquisition of Unisat, with a clear first-mover advantage. Since there are no markets supporting SRC20 at the moment, the only way to trade is through over-the-counter transactions, so SRC-20 still requires considerable support. Therefore, this project mainly attracts retail investors who missed the opportunity with Ordi tokens on BRC-20. However, with limited inflow of hot money, cautious observation is still needed. Although Binance has investigated SRC-20, it has not taken substantial financial measures like OKX did with BRC-20. Therefore, the market still tends to favor BRC-20.

Summary of Common Tools for SRC-20:

BitcoinStamps related information: https://stampchain.io/

Information on SRC-20 tokens: https://stampsrc.github.io/

Minting, deploying, and transferring SRC-20 tokens: https://stampchain.io/src20/

Note: Due to the high latency of SRC-20 and the prevalence of non-digital assets in the Counterparty protocol, the Stampchain team has temporarily ceased new minting.

The Impact of ‘X’RC-20 Experiment on the Bitcoin Network

As we have seen before, the development of BRC-20 tokens has had a considerable impact on the Bitcoin network. While these tokens have attracted the majority of the Bitcoin community, they have also led to several instances of stagnation in the Bitcoin blockchain. For a long time, there were over 500,000 transactions waiting to be processed on the network, with transaction fees exceeding $30. Although the miner and validator communities profited immensely, such events have raised concerns among members of the Bitcoin community, who generally believe that BRC-20 tokens have a negative impact on Bitcoin:

1. BRC-20 Tokens Clog the Bitcoin Network: With the addition of BRC-20 tokens, the transaction data of these tokens must now be stored on all Bitcoin blocks.

2. BRC-20 Tokens Compromise Bitcoin’s Credibility: Many other cryptocurrencies have lost credibility due to a large number of scams on their blockchains. Bitcoin has been spared from negative news about scams on its blockchain. Although Bitcoin is currently not associated with any BRC-20 projects, it may be impacted by this in the future.

3. Lack of Utility in BRC-20 Tokens: The biggest issue with BRC-20 tokens is their lack of utility. ERC-20 and ERC-721 tokens have at least some functionality, as they are compatible with smart contracts. BRC-20 tokens lack this smart contract compatibility, and therefore, have little use beyond creating tokens on the Bitcoin network.

BRC-20-like tokens have become very popular in a short time. This growth is largely due to the high gas fees on Ethereum, which have driven many investors to the Bitcoin chain as they cannot afford meme coins on Ethereum. It’s hard to say whether BRC-20-like tokens are just a fad or a true game-changer in the world of cryptocurrency. The biggest hurdle they must overcome is the lack of smart contract functionality. Currently, BRC-20-like tokens have something more important than smart contracts – memes. In other words, BRC-20 tokens enjoy widespread support because they are based on a blockchain with broad recognition. Considering this, BRC-20 tokens are likely to become a part of Bitcoin.

In the long run, the surge in BRC-20 tokens could attract a large number of investors who previously had no interaction with cryptocurrencies to turn to Bitcoin, potentially having a positive impact on Bitcoin. We have seen the progress of BRC-20 token development in the months following its launch. The token standard has functionalities necessary to foster an emerging ecosystem (deployment, minting, and transfer), and its interoperability with other blockchain systems and digital assets opens up more possibilities. Future developments might also allow these experimental tokens to interact with Ethereum smart contracts, be used as collateral on DeFi platforms, or be integrated into dApps.

Perhaps we just need some time to enter the next phase. For crypto enthusiasts with faith, this is an opportunity to explore the emerging field of Web3, which could become an important part of the future decentralized economy.”

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