The Bitcoin Ecosystem is Rising: What You Should Know About BRC-20 Standard

Introduction

The Bitcoin ecosystem has recently witnessed explosive growth with the launch of BRC-20 tokens as the market cap of these tokens built on top of the oldest blockchain reached a milestone of $1 billion. Some popular BRC-20 tokens such as ORDI, Pepe, Meme, Piza, and VMPX have been listed on Gate.io, the first centralized cryptocurrency exchange supporting BRC-20 trading and suggesting that experimental digital assets are gaining mainstream adoption within the crypto industry.

The evolution of the Bitcoin ecosystem was pioneered by the launch of Bitcoin Ordinals, a unique protocol that allows for the numbering and “inscription” of data on a satoshi, the lowest denomination of Bitcoin. The ordinals protocol allows for the launch of unique “digital artifacts” or simply put non-fungible tokens (NFTs) on the Bitcoin blockchain; possibly creating a rival to Ethereum’s highly popular ERC-721 standard which is used in the launch of NFTs on the Ethereum blockchain.

In essence, the launch of Bitcoin Ordinals facilitated the creation of the Bitcoin Request for Comment Standard (BRC-20), an experimental fungible token standard that has made the minting of fungible tokens on the Bitcoin blockchain possible for the first time in its history. BRC-20 tokens have increased transactions on the Bitcoin blockchain, creating a whole new ecosystem for the leading cryptocurrency, originally designed to facilitate online payments from one party to another without the need for an intermediary such as a financial institution.

This article explores the booming Bitcoin ecosystem taking a look at Ordinals protocol and delving into the emerging BRC-20 standard. We will also examine the current impact of this development on the Bitcoin network.

The Rising Bitcoin Ecosystem

Before the launch of Bitcoin Ordinals in January 2023, the Bitcoin blockchain has been known to only verify transactions through the Proof of Work (PoW) consensus mechanism, where miners must solve complex computational problems using a significant amount of computing power.

Bitcoin has always been used as a store of value and a hedge against inflation. However, some Bitcoin developers and users believed that the blockchain can execute other functions other than being a medium of exchange and value store. This led to the launch of Segregated Witness (SegWit) in 2017 which allowed for more transactions per block, paving the way for layer two (L-2) payment channels, like the Lightning Network.

Further, the launch of SegWit was met with harsh criticism from some Bitcoin users, however, it propelled research into the Bitcoin network and how to maximize the network potential. The outcome of almost a decade of research that started in 2014 is the Taproot upgrade launched on the Bitcoin blockchain on November 14, 2021. Consequently, the Bitcoin Taproot upgrade increased Bitcoin block size to 4MB and stimulated the idea of Bitcoin Ordinals which further resulted in the advent of the BRC-20 standard, thus, introducing more use cases to the once-known transaction-based blockchain.

Bitcoin Ordinals

Before we delve into the novel Bitcoin standard, let’s learn about the Bitcoin Ordinals, the innovation that enabled the creation of the BRC-20 token standard.

Bitcoin Ordinals is a new protocol on the Bitcoin blockchain, which allows users to embed data in the form of text, audio, images, and pictures among other formats on individual satoshi. The Ordinal theory allows for the creation of Ordinal NFTs and facilitates the deployment, minting, transfer, and storage of fungible tokens (BRC-20) on the Bitcoin blockchain.

Launched in January 2023, Bitcoin Ordinals is a breakthrough research by Casey Rodarmor who wanted to create an immutable on-chain presence of a piece of art, text, or video on the pioneer blockchain. The process of writing or attaching arbitrary content to each satoshi is referred to as “inscription.” Interestingly, Bitcoin Ordinals can be created without affecting the normal Bitcoin transactions between users.

Additionally, Bitcoin Ordinals allows for the numbering and tracking of each satoshi minted on the blockchain by assigning them a unique serial number. In essence, this process enables each satoshi that has an inscription on it to be unique. Each inscribed satoshi (sats) can be identified via the serial number and can be tracked in the Bitcoin coin supply, from the initial mint through their entire lifespan of transactions.

As of June 5, 2023, over 1,647.9677 BTC equivalent to $44,411,591 million has been paid in Ordinals Total Fees to the Bitcoin network by inscription creators since their inception according to data from Dune Analytics Show. The above statistics aren’t static and will change over time as there is a growing desire to embed data onto the smallest unit of Bitcoin by inscribing data into small Bitcoin-based transactions and to own these digital artifacts.

Source: Dune Analytics — Bitcoin Ordinals Inscription Analysis

https://s3.ap-northeast-1.amazonaws.com/gimg.gateimg.com/learn/5a91511c2f5ec809501e6a974097f67fbf7980fb.jpg

Source: Dune Analytics — Bitcoin Ordinals Inscription Analysis (Graphical representation)

Also, within this period the total number of non-fungible tokens (NFTs) tied to the blockchain surged above 10.9 million which mainly consisted of images and text-based assets with a limited number of audios as noted by Dune Analytics in its report. The recent activity might affect the Bitcoin blockchain network designed to facilitate peer-to-peer transactions as suggested in this tweet.

Source: Twitter.com — @CryptoKoryo

BRC-20 Token Standard: Fungible Tokens on the Bitcoin Blockchain

Source: Twitter.com — @domodata

Bitcoin Request for Comments (BRC-20) standard uses Ordinals (a numbering mechanism for satoshi) and Inscription (to inscribe satoshi with arbitrary content), to create and manage unique fungible tokens on the Bitcoin blockchain. BRC-20 tokens reached a market cap of $1 billion, with a trading volume of $207.7 million as of May 2023. Some notable tokens launched using this unique standard include ORDI, NALS, PEPE, MEME, PIZA, VMPX, etc.

The BRC-20 token standard was inspired by Ethereum’s popular ERC-20 standard — a layer on Ethereum that allows developers to create and launch smart contract tokens onto the Ethereum blockchain. There are several well-known ERC-20 tokens such as; Tether USD (USDT), USD Coin (USDC), Shiba Inu (SHIB), Binance USD (BUSD), DAI Stablecoin (DAI), MAKER (MKR), etc.

Who Created the BRC-20 Standard?

In early March 2023, a pseudonymous developer and on-chain analyst named Domo, launched the BRC-20 token standard, an experimental fungible token standard created to facilitate the minting and transfer of fungible tokens. Built on the Bitcoin blockchain the BRC-20 token standard is highly secure, immutable, and compatible with the Bitcoin network.

With over 24,677 BRC-20 tokens launched on the Bitcoin blockchain according to brc-20.io, BRC-20 tokens have great potential to drive demand for Bitcoin and users to the blockchain. However, this innovation comes with a huge cost on the blockchain which wasn’t designed from the onset to support the deployment, minting, or storage of tokens.

BRC-20 vs. ERC-20: What’s the Difference?

BRC-20 may share a similar name to Ethereum ERC-20 standards and enable the creation of fungible tokens but they have a different mode of operation. First, they operate on entirely different blockchains and employ different consensus mechanisms. Bitcoin uses a proof of work (PoW) mechanism, requiring miners to confirm transactions by competing to solve complex computational problems. Ethereum uses a proof of stake (PoS) model, where validators are chosen based on the amount of ETH staked to verify transactions.

Furthermore, BRC-20 standards cannot interact with smart contracts and instead use inscriptions within the Ordinals protocol to create fungible tokens. However, Ethereum is famous for using smart contracts — a set of programs stored on a blockchain that automatically execute transactions when determined conditions are met.

Another major difference is “immutability.” BRC-20 tokens can’t be changed or modified after it has been deployed on the blockchain. Users can’t deploy more tokens using the same ticker or token name. On one hand, this could be an advantage for BRC-20 standards over ERC-20, that once a new BRC-20 token has been created on the Bitcoin blockchain, its supply, minting limit per mint, and ticker are immutable after the initial deployment limiting the risk of rug pulls, frequently seen with smart contract enabled blockchains.

On the other hand, this could be a disadvantage, as tokens with limitations can’t be updated or modified, which is not the case with ERC-20 tokens where developers can change smart contracts, inflate/deflate amounts, or whitelist/blacklist addresses. However, the BRC-20 standard is still in its early stages and will evolve over time. Let’s examine how it works.

How Does BRC-20 Standard Work?

BRC-20 standard is an experimental fungible token standard that allows users to create off-chain balance states with inscriptions. Domo believes that there are other better solutions such as Taro for issuing digital assets on the Bitcoin blockchain and calls on the Bitcoin community “to tinker with standard designs and optimization until a general consensus on best practices is met.”

To create a BRC-20 token, you need to understand these basic functions: deploy, mint, transfer, and several other variables such as:

“p” = protocol

“op” = operation

“tick” = token name, a four-char ticker (for example, GATE or gate, case insensitive)

“max” = maximum supply

“lim” = limit of tokens that can be minted in a particular transaction

“amt” = amount

Note: “amt” shouldn’t exceed “lim” specified during token deployment.

BRC-20 token can be deployed, minted, and transferred by aggregating all of these function activities together. For instance, to create a new BRC-20 token with the ticker, GATE. You need to inscribe a specific JavaScript Object Notation (JSON) on the Bitcoin blockchain using the Ordinals protocol.

Therefore, to create the token “GATE” with the “deploy” function:

{

“p”: “brc-20”,

“op”: “deploy”,

“tick”: “gate”,

“max”: “21000000”,

“lim”: “2100”

}

Upon a successful token deployment, you can mint any amount of the GATE token let’s say 2100 units using the mint function that’s the following JSON:

{

“p”: “brc-20”,

“op”: “mint”,

“tick”: “gate”,

“amt”: “2100”

}

To transfer 2100 GATE tokens to a friend using the transfer function:

{

“p”: “brc-20”,

“op”: “transfer”,

“tick”: “gate”,

“amt”: “2100”

}

Source: Cointelegraph

Note that transfers undergo two transactions. First, you must initiate a transfer to your address by inscribing a ‘transfer function’, then, send the tokens to your friend’s address by simply sending the ‘transfer function.’

Some Notable BRC-20 Tokens

Under this section, we will take a closer look at some famous BRC-20 tokens already listed and are being traded on major centralized cryptocurrency exchanges, notably; Gate.io. It is important to note that the naming of the BRC-20 token only supports four (4) letters, case insensitive consisting of English alphabets such as ORDI or ordi.

Additionally, users can buy digital assets from BRC-20-enabled wallet addresses, such as Unisat is a platform that enables users to easily generate, manage, and trade these fungible tokens. Also, it is a popular web-based wallet that accepts BRC-20 tokens. Xverse Wallet, which stands as the most advanced user-friendly Bitcoin wallet and is similar to the Metamask wallet for trading ERC-20 tokens. Ordinals Wallet is another great wallet that can generate, manage and store BRC-20 tokens. You need to create a suitable wallet before you can begin minting tokens.

ORDI

The first BRC-20 token ever deployed on the Bitcoin network contains information such as text, images, and audio presented as NFTs and tokens created using inscriptions written on individual Satoshi on the Bitcoin base chain.

The original token contract for the “ORDI” token has a hard cap of 1,000 tokens each mint and a maximum supply of 21 million tokens and has the largest market capitalization among BRC-20 tokens. ORDl has been listed on the Gate.io crypto exchange with the following trading pairs: ORDI/BTC, ORDI/USDT, and ORDI/TRY.

VMPX

VMPX token was created by a well-known Bitcoin maximalist, Mr. Jack Levin, founder of XEN crypto. VMPX was launched on May 7, 2023, based on the “first principles,” which means the total supply of the token isn’t predetermined, has no special allocation made to the founder, and the code can’t be altered or modified. This ensures that the token is distributed fairly and equally.

You can buy VMPX on Gate.io by creating an account on Gate.io and completing the registration process. Also, you need to fund your spot trading account, search for VMPX/USDT and place an order to buy. Wait for your transaction to be completed and store your VMPX token on the exchange or in your wallet.

NALS

NALS is a popular meme token built on the Bitcoin blockchain and employs Ordinals inscription to create and manage token deployment, minting, and transfer.

At present the number of addresses holding NALS tokens is over 2000 and has great potential. The token can be traded on Gate.io with the most active trading pair being NALS/USDT. The token recorded an all-time high price of 0.713892 on May 31, 2023. $Nals has well-built tokenomics with promising prospects for the future.

Pepe BRC

Pepe—a green frog with different expressions—is a popular internet meme that is widely shared across various social media platforms. It is another meme token on the Bitcoin blockchain and like the other BRC-20 tokens, it does not hold any fundamental or intrinsic value and has no utility. Pepe BRC-20 token is different from ETH PEPE, the popular ERC-20 token, and was launched a month earlier.

Pepe has great potential for growth with the number of token holders increasing and a rapidly growing market capitalization. The token is traded on Gate.io with the pair, PEPEBRC/USDT.

Meme

Meme is based on internet memes. It is an in-demand BRC-20 token that pays homage to “Meme,” the original NFT project on the Ethereum blockchain that features pineapple-themed artworks.

Meme is the second token launched on the Bitcoin blockchain network, deployed on March 8, and is regarded as the first meme token. It has a total supply of 99,999 and implements a burning mechanism to reduce its supply. The token can be traded on Gate.io with the following trading pairs, MEME/BTC and MEME/USDT.

PIZA

PIZA is a token deployed on the Bitcoin blockchain. It was created to commemorate the Bitcoin Pizza Day, a popular event in the history of cryptocurrency. The token is traded on Gate.io with the pair, PIZABRC/USDT.

Note: Before investing in these tokens, it’s important to do your own research and understand the risks and potential return on investment. BRC-20 tokens are highly volatile and may not be suitable for all investors. Currently, most of these cryptocurrencies are used as a medium of exchange and are useful only within the Bitcoin ecosystem.

Implications for the Bitcoin Blockchain and its Ecosystem

As earlier stated, the original design of the Bitcoin blockchain wasn’t to accommodate fungible or non-fungible tokens. The Bitcoin blockchain is quite slow and lacks scalability with a block time of 10 minutes, which limits its potential to process transactions at a fast rate using the Proof of Work consensus mechanism.

For instance, an average transaction on the Bitcoin blockchain takes up 16KB of block space and an inscription on a satoshi can take up the entire 4MB of space, filling up the block, requiring more computational power to process and verify transactions.

On May 6, 2023, the volume of Bitcoin transactions recorded an all-time high leading to an astronomical increase in the transaction fees and block time. Obviously, the Bitcoin network was clogged with so many unconfirmed transactions from inscriptions. This led to increased activity on the blockchain, leading to network congestion, delayed transactions, increased block height, and skyrocketing transaction fees.

Critics of the recent development have argued that the launch of Bitcoin Ordinals and BRC-20 tokens might lead to the spamming of the blockchain with unnecessary transactions, thus slowing the network. On the contrary, several other Bitcoin users and even the founder of Bitcoin Ordinals, Casey Rodarmor believes this will secure the network by filling up the blocks and increasing the number of miners needed to verify transactions thus, securing the blockchain.

Conclusion

Bitcoin Ordinals is indeed a game changer for the Bitcoin ecosystem, placing the blockchain in a position to compete with the leading smart contract blockchain, Ethereum in launching both fungible and non-fungible tokens as well as attracting NFT collectors and projects to the blockchain. Also, the Ordinal theory enabled the launch of the Bitcoin token standard, BRC-20 which allows for the creation and launch of fungible tokens on the blockchain with ORDl and Pepe leading the chart. However, caution should be exerted when exploring these tokens as they are still in their experimental phase.

Further, this development has been greeted with both adulation and criticism within the Bitcoin community with many wondering what this entails for the Bitcoin blockchain and its future as a medium of exchange and value store. This question will linger in the minds of many as we watch the Bitcoin ecosystem unfold.