All You Need To Know About ARC-20 Tokens

The Bitcoin ecosystem has been going through an experimental period since 2023 that has led to the creation of new token standards and protocols. One such protocol is the ARC-20 protocol, which supports creating various colored tokens on the Bitcoin blockchain.

The ARC-20 protocol is an Atomicals Protocol standard for creating fungible tokens supported by Satoshi. It is another way for developers to imbibe more use cases into the Bitcoin network, providing a way for flexible and efficient creation and management of assets.

The ARC-20 infrastructure relies on Bitwork mining and permanent file storage to deploy and mint tokens directly or in a decentralized manner.

What is ARC-20?

One limitation that has been bugging developers on Bitcoin is the ability to represent arbitrary fungible tokens on the blockchain. The ARC-20 protocol was the Atomicals Protocol’s response to this problem. It allowed the project to introduce colored coins to Bitcoin, with each colored coin being backed by the value of 1 satoshi for as long as it exists.

Colored coins on Bitcoin are tokens used to represent and track real-world tangible or intangible assets. They are used to represent different things like shares of a company, money, and others that can be easily traded with other members of the community. When a colored token is created, it is linked to a Satoshi, representing its value. This underlying satoshi has the same worth as any other in the market, with the added benefit of the utility that the colored token represents.

In the same design, ARC-20 tokens are backed by Satoshis, similar to how Gold backs the currencies of countries, and they can be split, minted, and transferred to any Bitcoin address on wallets that support UTXO selection, just like colored coins, the metadata in an ARC-20 token grants holders special utilities and privileges.

The Origin of the ARC-20 Token Standard

The ARC-20 token standard is designed based on the BRC-20 token standard combined with colored coins, adopting the existing functionalities in Bitcoin.

There is little information on the team responsible for creating the ARC-20 token besides that it came from the Atomicals project. The timeline of its existence is from late 2022 to date.

The Atomicals Protocol

The Atomicals Protocol is a set of functionalities built on blockchains, such as Bitcoin, that allows digital asset creation, minting, organizing, and management. The protocol allows users to create fungible tokens and non-fungible tokens, decentralized minting, and data storage features and to rank content based on the engagement and capacity of the content.

The flexibility of the Atomicals protocol has led to the creation of assets like ARC-20 tokens that unlocked a new set of possibilities on Bitcoin. The digital assets created through the Atomicals protocol carry a complete history of their transactions and exchanges from inception (minting) to date, making each asset a self-evident asset that doesn’t need an indexer or external party to verify its authenticity.

Thus, the motto behind the creation of the protocol is, “No transaction history, not your digital object.” While the Atomicals protocol is similar to the Ordinals protocol, it doesn’t require a Taproot asset address during transacting, making it possible to transact in a wider range of assets and simpler to execute transactions.

ARC-20 vs. BRC-20

The ARC-20 and BRC-20 protocols allow the creation of tokens in Bitcoin’s ecosystem. Thus, developers building these tokens rely on Bitcoin’s security and infrastructure. While both protocols are within the Bitcoin ecosystem, they approach scalability on Bitcoin differently.

The BRC-20 protocol is focused on inscribing data on satoshis, while ARC-20 is focused on minting fungible colored tokens that are backed by satoshis. ARC-20 is a versatile, flexible token standard that creates tokens, creates content ranking algorithms based on engagement, and allows data storage.

The BRC-20 protocol, on the other hand, is a more established protocol with a larger community that integrates with existing tools to create utility tokens and meme coins.

Unlike the BRC-20 protocol, which doesn’t have an in-built mining mechanism but focuses on token deployment and minting, the ARC-20 protocol allows for customizable Bitwork mining, which aligns with Bitcoin’s Proof-of-work mechanism.

Although the BRC-20 standard is an experiment aimed at bringing ERC-20 functionalities to Bitcoin, ARC-20 is focused on simplifying asset management without relying on external entities.

How Does the ARC-20 Work? ARC-20 Protocol, Bitwork Mining and Permanent File Storage

Source: Atomicals Guidebook

The ARC-20 Protocol

The ARC-20 protocol allows anyone to mint and transfer colored tokens to a designated address on the blockchain. The protocol uses the Javascript library and the JSON file type to determine functions and events for minting and transferring. The minting function involves two types: the Decentralized mint and the Direct mint.

While both methods use Atomicals Protocol and command-line interface (CLI) for minting, the Decentralized mint is executed by community-driven projects. The decentralized mint allows multiple users to mint tokens gradually over time, ensuring the developer doesn’t have control over the distribution and supply.

The mint is set up with specific parameters like the mint amount, ticker, max mint amount, block height, and metadata, allowing the individual to decide whether to get involved. This makes the parameters flexible and configurable, with the ability to override the default satoshis per byte for the transaction and set a figure that isn’t below the value of 1 Satoshi.

This allows the project to incorporate a minting style similar to the proof-of-work mechanism.

The Direct mint function enables the project to mint the entire token supply of the project in a single transaction, giving them control over the initial distribution, supply, and spending of the tokens. The function is usually maintained by the team creating the token, and they are required to commit an equal equivalent of the intended supply in Satoshi.

Suppose the project team aims to mint a supply of 1 million tokens with the direct minting function. They are expected to provide 1 million satoshis upfront, or more, based on the “satoshis per byte” parameters set at deployment.

The ARC-20 protocol has a ticker symbol service built into the protocol that provides a globally available ticker naming system, which ensures ticker names are unique. Thus, once a ticker name is used, it becomes permanent and unusable by any other project.

Bitwork Mining

The ARC-20 infrastructure uses Bitwork mining to define an optional mining prefix for the mint transaction. The Bitwork mining feature is similar to Bitcoin’s proof of work (PoW) consensus, which requires a lot of computational power to solve equations for each block.

The difference between the PoW consensus and the Bitwork mining infrastructure is the computational power required. Bitwork’s optional mining prefix is a feature that allows users to customize the difficulty of the proof-of-work process during token mining by choosing a prefix that needs fewer hashes and is computable by GPUs and standard devices like desktops and smartphones.

The concept introduces GPU mineable tokens that allow the user to encode arbitrary strings into the transaction ID of the token using hexadecimal representation. This creates provably rare tokens that are hard to find.

The mining system goes beyond creating tokens to establish a content ranking system or algorithm. The algorithms use indexes and upvoted digital objects, posts, and content to provide a ranking method for content discovery.

The aim is to address problems relating to manipulation, spamming content, and top rankings bought by the highest bidder in the crypto space.

Permanent File Storage

The permanent file storage feature allows users to store files and data in an immutable manner, especially when storing static Atomical digital objects. Static Atomical digital objects are digital objects that do not need to be changed or updated over time, which allows users to store files permanently on a blockchain.

To store an immutable file on the chain, the developer uses the command line utility to designate the file path to store the file and the parameters that indicate the level of commitment for the immutability of the file.

Upon successful execution, a transaction is initiated, and a transaction ID is created. The ID consists of the commit transaction ID, reveal transaction ID and a unique data ID associated with the stored file. When the file is successfully stored on the chain, developers can use recursive syntax to refer to the file.

Use Cases for ARC-20 Tokens

Realm Names

Source: Realm Name

The Realm Name System (RNS) is the first domain name alternative powered by Bitcoin’s Atomical Protocol. It is a unique naming service similar to Ethereum’s ENS that allows users to enjoy permissionless name systems to identify wallets on Bitcoin.

The features of an RNS name include a “+” sign that begins each name with at least one alphabetic character, such as +ab or +somethinglong. Another feature is permanence. Once a name has been minted by a user associated with a particular wallet, the RNS name will belong to that wallet indefinitely until the user chooses to transfer or trade the name with another user or wallet.

The Realm Name is a decentralized, self-owned, and self-managed project on Bitcoin that uses the Atomical digital object format.

SuperEx ARC-20 Launchpad

Source: SuperEX Website

The SuperEX ARC-20 Launchpad is an exchange platform designed to launch new ARC-20 tokens and provide services to users interested in investing in the ARC-20 ecosystem.

The exchange promotes the development and prosperity of the Bitcoin ecosystem by launching tokens under the ARC-20 protocol and releasing airdrops from ARC-20 projects. Users of the platform can participate in futures trading on ARC-20 tokens launched on SuperEX.

DMINT

DMINT is a decentralized platform designed to trade and provide liquidity for ARC-20 tokens. In the Anatomical protocols, the process of creating digital object collections is divided into four major activities.

The first is for the deployer to prepare the data needed to create the digital object asset. Next, the developer configures the digital object container using the command-line tool. The developer then validates and mints the digital object item for use or trade.

The process of collecting data for the project includes collecting the metadata for the collection, the DMINT data, and other relevant data needed to complete the project. Using the gathered data, the developer goes on to modify or configure the metadata of the digital object. Then, it is sealed and confirmed.

The data in the containers are then validated to ensure the items match the container. This is minted with the project informing on the mint status of individual items and the list of items already minted.

The Growth of the ARC-20 Standard

The need for more use cases on Bitcoin has led to the creation and acceptance of ARC-20 tokens. Several applications and projects have utilized the ARC-20 token standard to develop platforms like Atomical Platform, BitVM, and REALM.

This shows a growing developer interest in a technology that emerged recently. The project aims to improve interoperability and develop the Bitcoin ecosystem by introducing development features like Atomic NFTs.

Conclusion

The ARC-20 protocol is a new and promising protocol on Bitcoin that allows developers to leverage the security of the blockchain to create colored coins, increasing the potential utility of Bitcoin’s ecosystem.

The protocol has shown early traction by allowing users to create a domain name, mint NFTs, and participate in ARC-20 airdrops. The protocol uses the Bitwork permanent storage feature to execute its functions of creating and storing immutable tokens.

Reference

@superexnigeria/the-concept-of-brc-20-and-arc-20-tokens-f718b44d5455"">https://medium.com/@superexnigeria/the-concept-of-brc-20-and-arc-20-tokens-f718b44d5455
https://worldcoin.org/articles/colored-coin
https://docs.atomicals.xyz/arc20-tokens
https://docs.atomicals.xyz/bitwork-mining
https://trustmachines.co/blog/unpacking-the-atomicals-protocol-on-bitcoin/
https://coinbay.io/en/what-is-arc-20-token-a-detailed-overview-of-the-arc-20-token-standard-28347
https://docs.atomicals.xyz/collection-containers/dmint-guide