Read the BRC-20 token in one article

Simply put, BRC-20 is an attempt to add alternative use cases to the Bitcoin base layer immediately after the Ordinals Protocol was founded, which made Bitcoin NFTs rapidly popular.

Broadly speaking, BRC-20 is trying to become a token standard, similar to Ethereum’s ERC-20. Just as Chainlink is an Etheruem-based token and LINK is an ERC-20 token, the BRC-20 token should also be Bitcoin-based. The normal version of Bitcoin initially made no effort to achieve this.

BRC-20 token

The origin of the BRC-20 token

The Ordinals Protocol is a strategy for tagging and numbering the smallest unit of Bitcoin, “Satoshi.” The introduction of this agreement lays the foundation for BRC-20. Ordinals’ process involves populating Sats or Satoshis with additional data to make them unique — beginning a new era of Bitcoin NFTs.

However, on March 8, 2023, Domo, the individual holder of the Bitcoin NFT project Ordinals Face, launched Bitcoin’s experimental token standard, or BRC-20. The project wanted to use the Bitcoin base layer to create an inscriment-driven token, instead known as BRC-20.

Although the inscription on Sats already exists at this stage, Domo plans to inscribe some JSON (JavaScript Object Notation) data onto Sat, opening the door to minting new BRC-20 tokens. You can even think of them as BRC-20 Ordinals because they use the same protocol and follow the inscription.

What is the BRC-20 token?

From a distance, the BRC-20 standard looks like any other token using a specific base layer, such as ERC-20, BEP-20, etc. However, as a token standard, BRC is as simple as the Bitcoin Request for Comment (Bitcoin Request for Comment). It doesn’t have built-in smart contract functionality to drive token functionality.

Simply put, the BRC-20 token uses the Ordinals inscription method and uses JSON data to populate satoshi (satoshi), making the token suitable for deployment, minting, and transfer.

For any random entity to become a token, it needs a wallet that can decode its metadata or fill. While ERC-20 tokens and the like have smart contracts to do all of this, this isn’t complicated for the BRC-20 standard.

For BRC-20, the text-based script file is stored on Sat (remember the JSON data we’ve discussed) and attributes the token state to that file. The specific BRC-20 wallet can then understand and parse that script file for deployment, minting, and transfer.

This is the first instance of the JSON data type inscribed on Sat. Note that it lists all elements such as agreements, operations (starting things), stock codes (ORDI — the first BRC-20 token), maximum supply, and minting limits.

BRC-20 deployment JSON. Source: Gitbook

Note that this JSON script is intended to deploy or create BRC-20 tokens. Things change when you need to transfer or mint coins. But we’ll talk about this later.

The BRC-20 token uses the Ordinals protocol to write specific types of text into Satoshi, making it a wallet-readable, interchangeable token.

BRC-20 and Ordinals Connections: Are They the Same?

If you look closely, you’ll see that BRC-20 is just an experimental use case for the Ordinals Protocol (a novel inscription strategy). The BRC-20 token itself is not Ordinal or NFT. It just makes tagged or numbered Sats an alternative to standard tokens, not NFTs.

Before the advent of BRC-20, people used images, video, and audio to record Satoshis, the smallest unit of Bitcoin. Since the introduction of new token standards, there has been a shift to using text-specific inscriptions.

The BRC-20 token has led to a spike in the use of textual inscriptions. Source: Dune Analytics

How does the BRC-20 token work?

Token management, which includes a new type of token such as BRC-20, generally has the following three aspects:

1. Create a token or token deployment
2. Minting tokens or generating new ones
3. Transfer tokens according to trading requirements

Although BRC-20 is an experimental token standard, according to the JSON script we looked at, every BRC-20 token complies with these three aspects of token management.

Like any other token, how it works depends on how users interact with it. Furthermore, there is a clear difference between BRC-20 and the standard irreplaceable Ordinal in terms of fungibility, which gives the BRC-20 token value and utility.

If this experimental token becomes popular, the new token standard will be able to create, mint, and even compatible tokens for trading. The idea is to provide another use case for Bitcoin rather than simply labeling it as a P2P digital currency network.

How does the process of deploying, minting, and transferring tokens work?

Although the BRC-20 token doesn’t involve any smart contracts or EVM support, there are still some behind-the-scenes JSON deployments that exist in the form of inscriptions. Let’s take a deeper look at how the BRC-20 token actually works or is designed.

We did see deployment or token creation JSON scripts before. When you go to a compatible BRC-20 marketplace or wallet (such as UniSat), you can click Deploy. Once you’ve followed the instructions on the screen, you’ll be able to create your own BRC-20 token. Once created and assigned characteristics to the token (such as maximum supply and minting limits), you can begin minting coins.

Here is the flow of the “Mint” function:

BRC-20 token minting function process. Source: Gitbook

If you want to make the same transfer based on purchase/sale requirements, please consider using the following process:

BRC-20 token transfer function process. Source: Gitbook

What do these processes mean for BRC-20?

According to the built-in process, each process is a function or f (x) called by the minter or sender to invoke steps and complete the job. This means that every step is an inscription and qualifies as a deal.

Since every small process requires an inscription, it’s not surprising that transactions have become too many and difficult to process, causing network congestion. This is one reason why Binance had to stop Bitcoin withdrawals.

The BRC-20 token inscription soared. Source: Messari

Note that these processes are built within the BRC-20 ecosystem. Users only need to use the front-end selection field to begin the process. This means selecting them within the wallet to perform the desired function.

One thing to keep in mind, though, is that even the original creator, Domo, considered the entire BRC-20 blockchain, which originated from the Ordinals protocol, to be an experiment. He even mentioned that although this is an innovative token standard, fungible tokens will have no value and should not be minted without restraint.

gm. I’m very happy that someone enjoyed this experiment. Here are some additional instructions.

1. These tokens will have no value. Please don’t waste money on lots of minting.

2. Due to the way some inscription tools are set up, the “balance” may be minted to https://t.co/mja39YGIow… The address of the intermediary used in

— domo (@domodata) 2023/3/9

But have people been listening? Let us find out

Most popular BRC-20 tokens and should you give them

But have people adopted these suggestions? Let’s have a look.

Should I consider using the most popular BRC-20 token?

According to data from the BRC-20 market BRC-2-.io, there are 14,307 tokens that have been deposited. That’s the point for the conservative experimental and hypothetical BRC-20 blockchain standard.

BRC-20 token standard: BRC-20

As of mid-May 2023, the market capitalization of these tokens has surpassed $465 million. But that’s not the case. Here’s a list of popular BRC-20 tokens that made a splash:

If you notice tokens like SHIB and PEPE on the list, don’t get overly excited and think they’re trading at different prices on the BRC-20 blockchain. In reality, they are just fake SHIB and PEPE tokens, and the BRC-20 token minters introduced them to the Bitcoin network using only their name.

Note that the ORDI token with ID #1 was the first BRC-20 token to be minted. There are a few other interesting names, including Piza — whose name comes from the pizza meme.

Advantages of the BRC-20 token

Although the entire crypto community has been debating the need, value, and even the benefits of the BRC-20 token. Here’s the information we can gather:

1. The BRC-20 token standard provides a new use case for Bitcoin.
2. It’s not difficult to create and mint tokens like these because there are no complex smart contracts like ERC-20 involved.
3. The security of the BRC-20 token comes from the most secure blockchain ever created — Bitcoin Network
4. It provides a wide range of possibilities for Bitcoin’s layer 2 and scaling solutions, including the Lightning Network.
5. These tokens will promote fungibility and open up new possibilities for Bitcoin.
6. According to the PoW approach, increased demand for cyberspace is slowly becoming good news for BTC miners, who still need to verify and approve BRC-20 transactions.

Disadvantages of the BRC-20 token

The BRC-20 does offer some advantages, but it also has quite a few worrisome points:

1. There is no deep connection to the Bitcoin network because creating BRC-20 tokens is just a way to embed metadata into Sat, which can be read back and interacted with based on written scripts.
2. The secondary market facilitated the trading of BRC-20 tokens, which had nothing to do with the original Bitcoin ecosystem.
3. These tokens aren’t easy to manage because they require interaction with a full set of tools, wallets, and other steps.
4. The BRC-20 token encourages trading on CEX because tokens such as ORDI are already online at companies such as Gate.io. While there’s nothing wrong with that, it’s not in line with Bitcoin’s decentralized spirit.
5. BRC-20 tokens are easy to mass-produce because there aren’t any smart contracts to distribute broader rules.
6. The BRC-20 token, which uses the Ordinals protocol, is still individually inscribed on the sat. As a result, the otherwise dusty number of BRC-20 transactions continues to accumulate within the network, causing network congestion.
7. If the BRC-20 space surges, it could launch a full unregistered securities space within the Bitcoin network.

Market experts say the reasoning fallacies in the BRC-20 token space far outweigh its benefits. Luke Dashjr, who has been the core developer of Bitcoin since 2011, believes that the Ordinals and BRC-20 tokens are spam and need to be filtered out as soon as possible.

“Action should have been taken a few months ago. Spam filtering has been a standard part of Bitcoin Core since day one. The existing filters haven’t been extended to the Taproot deal, which is a mistake.”

——From Bitcoin Core developer Luke Dashjr on Twitter

As you can see, the SegWit and Taproot updates have increased block space, reduced transaction costs, and brought other adjustments, which have laid the foundation for these inscription-based solutions associated with the Bitcoin ecosystem.

Resolving Bitcoin Network Congestion Through Minor Tweaks?

Although we have given several disadvantages of BRC-20, the spike in transaction costs due to network congestion is one that cannot be ignored.

The popularity of the BRC-20 token has led to a surge in fees. Source: Cryptoquant

In countries like El Salvador where BTC is legal tender, people now pay close to $20 for a $100 transaction.

I’m in El Salvador now 🇸🇻. I just witnessed a scene where #btc was used to withdraw cash

Now, this person lives in a country where the average wage is $300-$350, and must pay $20 to withdraw $100.

I want you to consider this when enabling fkn jpeg or meme token speculation.

This is… pic.Twitter.com/rtvLQG7dnn

-- Tweet from Marce Romero (@MarceMR19) on May 8, 2023

Incorporating Tier 2 or Lightning Network may be a good way to dispel similar concerns.

Here’s a response to Bitcoin educator Dan Held’s previous tweet:

“L1 was never cheap; that’s what L2 (Lightning Network) is for!”

From Trust Machines marketing consultant Dan Held on Twitter

_ _

Domo, the creator of the BRC-20 token standard, also emphasized a similar initiative — the introduction of Taro. Taro is a protocol for creating assets on the Bitcoin blockchain and transferring them to the Lightning Network to enjoy low fees and large transaction volumes.

Lightning Network will help solve the problem of rising fees. Source: Messari

What is BRC-21?

Don’t worry, we’re not going to complicate this with another token standard. In fact, BRC-21 is a very simple concept proposed by Interlay Labs — a Bitcoin-specific decentralized platform. Under the proposal, BRC-21 established standards for minting and transferring BRC-20 tokens from and from Bitcoin associated with ecosystems such as Ethereum and Polkadot, while ensuring that the Lightning Network supports token transfers.

If BRC-21 is more widely adopted, it will bring the following features:

1. Able to represent other assets such as SOL and ETH on Bitcoin.
2. Designing a decentralized cross-chain asset minting and transfer method
3. Redirect congested Bitcoin transactions to layer 2 protocols to provide some kind of programmability to the entire process.
4. Bringing decentralized stablecoins into the Bitcoin ecosystem.

A simple way to understand BRC-21 is to think of it as any other on-chain packaging asset.

“This allows L1 assets such as ETH, SOL, DOT, and decentralized stablecoins such as DAI and LUSD… to be minted onto Bitcoin and used on the Lightning Network.”

——From Interlay founder Alexie Zamyatin’s Twitter

ORDI Token Economics: BRC-20.io

Use cases for BRC-20 tokens

Although the use cases haven’t really been formed, due to the experimental nature of the BRC-20 standard, the following ideas are circulating:

tokenize

The BRC-20 token standard can be used to tokenize real-world assets. However, this only makes sense if the Lightning Network redirects a large number of transactions — keeping the layer 1 underlying protocol idle to make room for more pressing transactions such as P2P transfers.

A new way to P2P

If some BRC-20 tokens start to gain attention and value as a result, such as ORDI listed on Gate.io, many people might consider using ORDI for P2P payments. Although the idea is still quite remote, something even crazier is already happening in the cryptocurrency space!

DeFi exists

As far as DeFi exists, Bitcoin is currently ranked 16th (a ranking specific to TVL). While Lightning Network has a nearly 79% share of the Bitcoin DeFi space, BRC-20 tokens can bring more liquidity through easier integration. However, in order for it to work, we may have to combine BRC-20 with layer 2 protocol products and the ambitious BRC-21.

Now that we’ve discussed almost all the theoretical aspects of the BRC-20 token, let’s explore the concept of tokenization next.

Tokenomics of the BRC-20 token

First, the tokenomics of each BRC-20 token may be different. As we mentioned before, the JSON script during deployment determines the total supply and minting capacity of the relevant tokens. If you want to deploy BRC-20 tokens, you are free to choose your own token economy model.

Token supply

Let’s take a look at ORDI, the first BRC-20 token.

ORDI tokenomics. Source: BRC-20.io

ORDI has a supply of 21 million tokens (similar to BTC), and currently 100% of the supply forms circulation or minting supply.

Available supply of Peza tokens. Source: BRC-20.io

The total supply of the token PEZA is 420,420,000. Of these, only 45% have been minted, so new BRC-20 tokens can be minted.

Distribution

Token distribution is arbitrary. According to guidelines published by Domo, if you use the right features and inscriptions to mint tokens, the inscription service may have a balance first. Balance shifts aren’t always automatic and may require some adjustments.

However, if the wallet or marketplace that helps with minting and inscribing mentions the following in advance, you can get newly minted BRC-20 tokens simply by entering your address.

The address of the leading inscription. Source: UniSat

The total supply remains locked up, indicating the number of tokens that can enter circulation. Once in circulation, the token distribution will include the coin minter, sender, or receiver, or both, depending on the holding ratio.

With UniSat (an BRC-20 compatible wallet), you can also track the distribution of specific addresses.

BRC-20 token distribution. Source: UniSat

Token utility

As far as token utility is concerned, BRC-20 tokens such as ORDI and SHIB have yet to take any steps to prove their utility. However, ORDI is already online on centralized cryptocurrency exchanges such as Gate.io and Crypto.com.

Currently, the only conceivable use of the BRC-20 token is for miners to earn more as fees soar. What’s certain is that they’re giving meme coin enthusiasts a new option to trade new volatile assets.

Another notable token feature is that every token purchase event provides a percentage of royalty fees to token deployers. This is probably one reason why so many BRC-20 tokens have sprung up.

According to UniSat, the deployer royalty for each volume purchase order is around 0.2%.

Wallet

Currently, there aren’t many wallets that support BRC-20 tokens. However, here are a few things you can consider:

UniSat (the most popular wallet in the current social craze, and also an open source and fast wallet)

UniSat wallet user interface

Ordinals wallet (supports Ordinals and BRC-20 tokens)

User interface for BRC-20 tokens in the Ordinals wallet

Buy BRC-20 tokens on the Ordinals wallet

Ordswap (go to write for minting and deployment)

OrdSwap’s user interface

BRC-20.io (Go to the marketplace to send BRC-20 tokens and write them for minting, deployment, and transfer)

BRC-20.io user interface

Set up an BRC-20 token wallet

Now that we’ve reviewed all of our BRC-20 wallets, let’s take a look at how to set up a wallet. Let’s take Unisat as an example.

Comparing UniSat to other wallets. Source: UniSat

Go to Unisat.io and set up a wallet.

You must select a taproot address that only supports Ordinals and BRC-20 tokens.

UniSat and Taproot addresses. Source: UniSat

Once done, you’ll be taken to your wallet dashboard where you can perform the “Receive” and “Transfer” options.

You can return to UniSat’s home page and go to Write to deploy a new token, or mint a token whose circulating supply does not yet equal the total supply.

BRC-20 token minting. Source: UniSat

BRC-20 token deployment. Source: UniSat

UniSat Marketplace

However, if you want to buy BRC-20 tokens, you can go to the UniSat marketplace to choose.

BRC-20 token market. Source: UniSat

On this page, we’re trying to buy 50 ORDI, paying close to $4.52 in network fees and 1.6 in developer royalties. %的服务费和0.2%

Buy BRC-20 tokens in bulk. Source: UniSat

Once you’ve bought or received some BRC-20 tokens, you can go to the UniSat wallet homepage to transfer money as needed.

As mentioned before, each function, including transferring, minting, or deploying tokens, requires a separate inscription.

The following assumes a JSON transcribed data script for ORDI:

BRC-20 tokens transfer data. Source: PazngMI

Your UniSat wallet will tell you how many tokens you can transfer.

Are BRC-20 tokens transferable. Source: PazngMI

Pro Tip: If you’re planning to transfer BTC from a centralized cryptocurrency exchange to a UniSat wallet, we recommend creating a SegWit address first. Once you get your BTC here, you’ll be able to move it to your Taproot address and begin interacting with BRC-20 tokens.

Should I buy or cast the BRC-20?

First, if a portion of the token supply can be used for minting, then there is an advantage to minting tokens directly. For example, if you want to get Face, you can directly mint this token. Note that the inscription text is also shown, which you need to check before minting the coins.

Mint JSON for the BRC-20 token. Source: UniSat

On UniSat, it will be minted directly to your address. Once you’ve completed that section, you’ll be taken to the address check and fee confirmation section. Once confirmed, you’ll mint five Face tokens to your address.

Mint BRC-20 Face tokens. Source: UniSat

There are a variety of payment options to choose from, which makes minting on Unisat very easy. You can check the estimated time it will take to complete the transaction by visiting mempool.space.

Practical example of UniSat

If you want to transfer your recently minted Face token, you’ll use “Inscription Transfer” again, just like calling a function.

Transfer Face post inscriptions. Source: UniSat

As mentioned before, each step in the whole process requires calling a function. Also, the transfer of inscriptions and the final transfer or listing of Face tokens will incur network fees — this is important to keep in mind.

Buy Face BRC-20 tokens directly: UniSat

Buy Face BRC-20 tokens directly. Source: UniSat

Buy Face now through the UniSat Marketplace to compare. You might have to pay close to $33 to get 2 Face BRC-20 tokens. Therefore, for negotiable tokens, it is better to opt for minting.

For ORDI, Pepe, or other products that have reached circulation capacity, they can only be obtained through purchase.

In some cases, you will need at least 20 UniSat point cards to access the marketplace. That means you’ve at least deployed or minted tokens before entering the buying market. This 20 UniSat point card threshold is one of the main reasons driving up online prices, because every point card means an inscription or transaction on the Sat, which can block some cyberspace.

BRC-20 capacity takes up Bitcoin block space. Source: Cryptokoryo

Difference between BRC-20 and ERC-20

By now, you should have understood how BRC-20 tokens work and how to interact with them. Let’s now compare this to ERC-20 and see how fundamental their differences are:

Point 1: BRC-20 is related to the Bitcoin network, while the ERC-20 token standard relates to the Ethereum ecosystem.

Point 2: BRC-20 tokens have very few features because they don’t have smart contract functionality. ERC-20 tokens can interact with other chains and protocols, depending on their smart contract terminology.

Point 3: The market capitalization of these tokens varies. As of mid-May, the value of BRC-20 was close to $450 million, while The ERC-20 token is well above the $150 billion mark.

Point 4: The BRC-20 token now follows a proof-of-work consensus mechanism, and network congestion is good news for miners. ERC-20, on the other hand, follows a proof-of-stake consensus mechanism and focuses on validators and staking.

Point 5: Although you can use Etherscan to track the movement of ERC-20 tokens, Ordiscan can perform the same operations on BRC-20 serial numbers and inscriptions. You can think of Ordiscan as BRC-20’s Dextool, which provides a comprehensive introduction to NFTs, BRC-20 tokens, and everything related to the Bitcoin ecosystem.

Finally, the BRC-20 wallet is still in the process of gaining acceptance of the inscription concept, and only a few dedicated wallets are popular. In contrast, ERC-20 token wallets are already studying the concept of account abstraction, which can make the experience easier for internet enthusiasts.

Overall, apart from a few alphanumeric and numeric similarities, there is a very clear difference between the two.

BRC-20 market

Although we’ve already introduced a number of wallets that also serve as BRC-20 marketplaces, you can specifically look for the following wallets to buy and sell BRC-20 tokens.

1. UniSat
2. Gamma
3. Magic Eden
4. Ordinals Market
5. Ordswap
6. Open Ordex
7. Ordinals wallet

BRC-20 market activity. Source: Ignas | DeFi Research

UniSat saw the most activity in the BRC-20 market, according to Dune‘s data.

The future path of the BRC-20 token

Currently, the BRC-20 token standard isn’t loaded with features, which doesn’t include the revenue generated for miners when purchasing tokens and the sudden increase in royalties for deployers. The community remains divided, and some developers have even called for the complete removal of these so-called spam entities. For many tech-focused crypto evangelists, however, the concept has piqued their interest in possible use cases corresponding to the Bitcoin ecosystem.

Related discussions with the Lightning Network and BRC-21 integration suggest that the BRC-20 token standard may have opened up a whole new dimension in web3.

Statement:

(1) This article has been reprinted from [Beincrypto], and the copyright belongs to the original author [Ananda Banerjee]. If you have any questions about the reprint, please contact the Gate Learn team, and the team will handle it as soon as possible according to the relevant procedures.

(2) Disclaimer: The views and opinions expressed in this article only represent the author’s personal opinions and do not constitute any investment advice.

(3) Other language versions of the article are translated by the Gate Learn team, and translated articles may not be copied, distributed, or copied without mentioning Gate.io.