What is the BRC-20 Token Standard?

General Wallet Use

15 min

The Bitcoin Ordinals protocol and the launch of inscriptions on Bitcoin has opened up new doors for the world’s oldest blockchain.

One of the most notable contributions that Ordinals has made to the Bitcoin community is the development of the BRC-20 standard. When BRC-20 tokens launched on the Bitcoin network in March 2023, they heavily contributed to the rapid growth of the collectibles market on Bitcoin. The new tokens that were minted via the Ordinals protocol contributed to an exciting year for the Bitcoin blockchain that was full of new developments.

But aside from token creations, the BRC-20 standard explores the different forms that fungibility can take on Bitcoin.

What is a Token Standard?

A token standard essentially denotes the required technical properties, functions and interfaces when programming tokens on a given blockchain network. This allows tokenized assets to work reliably and consistently across platforms built on the same chain.

The ERC-20 standard by Fabian Vogelsteller and Vitalik Buterin is the most widely adopted token specification. It provides guidelines for vital functions like transferring tokens between addresses, checking balances, minting and burning supply and approving third-party token transfers on the Ethereum blockchain.

ERC-20 tokens enabled the vibrant ecosystem of tokens and crypto assets on Ethereum through a common framework.

Origins of the BRC-20 Token Standard

The BRC-20 standard was created in March 2023 by Domo, an anonymous on-chain analyst. Domo wanted to experiment and see if Ordinal theory could be used to enable fungibility of tokens on Bitcoin. This enabled the creation of fungible tokens known as BRC-20 tokens on the Bitcoin blockchain.

In economics, a fungible asset is something with units that are interchangeable and identical to each other. Fungibility means that each unit of the asset is exactly equivalent and carries the same value or utility as any other unit. A dollar bill, for example, has the same value and can be freely exchanged for any other dollar.

The same concept can be applied to crypto. In crypto, fungibility refers to a token or coin being completely interchangeable and indistinguishable from others of the same type. A fungible cryptocurrency means each of the same token can be swapped with another, and the value remains the same. No token has unique identifiable properties that mark it as different from the rest.

In the end, fungibility simply translates to consistency and interchangeability, both of which are critical attributes for viable mediums of exchange.

Domo emphasized in the BRC-20 Gitbook that the token standard was meant to be experimental. Given this, in no way, shape or form should the BRC-20 experiment be considered the standard for fungibility on Bitcoin using Ordinals, Domo stressed. However, the BRC-20 standard would explode in popularity, and new BRC-20 tokens would account for a substantial portion of new Ordinal inscriptions (and Bitcoin transactions as a result) just weeks after its launch.

How BRC-20 Tokens Work

BRC-20, similar to Ordinal theory, works on a “first-in-first-out” model. This means that the first person to deploy a specific token using the BRC-20 standard would be the rightful owner of the token.

To mint these tokens, users would essentially inscribe Bitcoin Ordinals with JSON (JavaScript Object Notation) text that defines the token. This text would include a few components, including: a 4-character ticker to help identify the token ("ordi" was the first BRC-20 token), a maximum supply number, the token limit per mint and functions to deploy, mint and transfer the tokens (which are the three types of BRC-20 transactions you can conduct). Every deploy, mint and transfer of a BRC-20 token results in a new inscription.

Once a user deploys a BRC-20 token, any user can go ahead and mint them. After tokens are minted, users can go ahead and transfer them between Bitcoin wallets that can support BRC-20 functionality.

BRC-20 vs. ERC-20 Token Standard

While the BRC-20 token standard was based on ERC-20, there are some key differences aside from which blockchain each token standard operates on.

The biggest difference is actually due to BRC-20's use of Ordinal inscriptions. ERC-20 tokens make use of smart contracts and, given that it’s on Ethereum, the ERC-20 token standard also makes use of the blockchain’s Proof of Stake consensus mechanism.

BRC-20 tokens, on the other hand, take the form of Bitcoin transactions on the Bitcoin main chain thanks to the use of the Ordinals protocol. This means that like Ordinals, the process of minting BRC-20 tokens takes place on the Bitcoin blockchain.

BRC-20 Tokens and the Call for Bitcoin L2s

The initial surge in BRC-20 tokens thanks to their popularity highlighted the importance of Bitcoin L2s as a scaling solution to help with congestion on the Bitcoin network.

In May 2023, crypto exchange Binance hinted at the possibility of integrating Bitcoin’s Lightning Network. The suggestion came after the exchange had to temporarily pause bitcoin withdrawals because of a huge influx of pending transactions caused by a surge in BTC network gas fees.

This was primarily thanks to the popularity of BRC-20 tokens as Bitcoin users flocked to create their own tokens. During the first week of May, BRC-20 tokens accounted for about 2 million Ordinal inscriptions that happened that week. It was a testament not only to the BRC-20 token standard, but also to the sustained fascination and excitement around the Bitcoin Ordinals protocol.

As a result, congestion on the Bitcoin network had hit another high. Many emphasized the need for L2 scaling solutions to clear up network congestion and ensure that transactions could be processed on the blockchain.

Binance did eventually complete their integration of the Lightning Network in July. By then, BRC-20 transactions had dipped, but it was still worth emphasizing that Bitcoin, by design, still faced scalability issues that needed to be addressed as new developments hit the ecosystem.

Bringing New Use Cases to the Bitcoin Blockchain

The emergence of BRC-20 tokens was a testament to the Bitcoin Ordinals protocol that demonstrated how existing technologies could still be built upon. While the experimental fungible token standard resulted in what many referred to as meme tokens, it gave the Bitcoin ecosystem another development to celebrate and an additional use case built on the Bitcoin blockchain.

Leather does offer BRC-20 tokens and Ordinals support in a bid to keep users updated on the latest projects and protocols on Bitcoin. Though the future of BRC-20 tokens and the BRC-20 protocol remain unclear, there's no telling how the token standard could evolve and what new discoveries could be made within the Bitcoin community.

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