Stackers

BRC-20

What Are BRC-20 Tokens?

BRC-20 tokens are an experimental token standard created for the Bitcoin blockchain, inspired by Ethereum’s widely adopted ERC-20 standard. Introduced in March 2023, BRC-20 tokens enable the creation, minting, and transfer of fungible tokens directly on the Bitcoin network. Unlike ERC-20 tokens, which rely on Ethereum’s smart contract functionality, BRC-20 tokens operate using Bitcoin’s Ordinals protocol and Taproot upgrade.

How BRC-20 Tokens Work

BRC-20 tokens utilize ordinal inscriptions to function. Ordinal inscriptions are a way to attach data, such as JSON scripts, to individual satoshis (the smallest unit of Bitcoin). These inscriptions allow developers to define token rules, mint tokens, and facilitate their transfer. Key aspects include:

  • Token Definition: JSON scripts are stored directly on the Bitcoin blockchain, specifying token properties such as name, supply, and minting rules.
  • No Smart Contracts: Unlike Ethereum’s smart contracts, BRC-20 tokens depend on simple script files, making them less versatile but simpler to deploy.
  • Wallet Dependency: BRC-20 tokens require Bitcoin-compatible wallets for minting, storage, and transfers.

BRC-20 Tokens vs. ERC-20 Tokens

Although BRC-20 tokens take inspiration from ERC-20, there are fundamental differences:

  • Blockchain Network:
    • BRC-20: Issued on the Bitcoin blockchain, protected by Bitcoin’s Proof-of-Work (PoW) mechanism.
    • ERC-20: Issued on Ethereum, secured by its Proof-of-Stake (PoS) mechanism.
  • Smart Contracts:
    • BRC-20: Does not support smart contracts, limiting functionality and use cases.
    • ERC-20: Fully supports smart contracts, enabling complex applications such as decentralized finance (DeFi) protocols and automated marketplaces.
  • Programmability:
    • BRC-20: Limited programmability due to the lack of smart contracts.
    • ERC-20: Highly programmable, making it suitable for a wide variety of applications.
  • Maturity:
    • BRC-20: New and experimental, with limited adoption and tools.
    • ERC-20: Well-established with robust developer support and a wide range of use cases.

Impact on the Bitcoin Network

The rise of BRC-20 tokens has had a notable impact on the Bitcoin network:

  • Increased Transactions: In late April 2023, BRC-20 transactions accounted for over 50% of Bitcoin’s total transactions.
  • Higher Fees: The surge in BRC-20 activity has led to increased transaction fees, reminiscent of the memecoin frenzy on Ethereum.
  • Developer Interest: By introducing fungible tokens to Bitcoin, BRC-20 has attracted developers to explore new use cases on the network.

Applications and Popularity

BRC-20 tokens are primarily used for creating and trading memecoins, with notable examples like PEPE contributing to their popularity. As of mid-2023, over 8,500 BRC-20 tokens had been minted, most of which were classified as memecoins.

Challenges and Risks of BRC-20 Tokens

  1. Lack of Adoption:
    • Being experimental, BRC-20 tokens have not yet achieved widespread adoption or ecosystem support comparable to Ethereum-based standards.
  2. Security Concerns:
    • Early-stage tooling has led to vulnerabilities, such as the double-spend attack on the Unisat wallet in April 2023.
  3. Network Congestion:
    • Increased BRC-20 activity has caused congestion on the Bitcoin blockchain, leading to slower transaction times and higher fees.
  4. Limited Functionality:
    • The absence of smart contract support restricts the token’s versatility and use cases.

Future Prospects

While BRC-20 tokens are still in their infancy, they represent a significant evolution for the Bitcoin blockchain, adding fungible token capabilities to a network traditionally focused on value transfer and store of wealth. Despite the challenges, their introduction has opened new avenues for experimentation, development, and potentially broader adoption of tokens on the Bitcoin network.