The BRC-20 token standard is an experimental framework modeled on the ERC-20 Ethereum token standard that brings fungible tokens to the Bitcoin network. BRC-20 was created in March, 2023, and operates by way using the Bitcoin Ordinals protocol for the creation and transfer of fungible tokens.
What is a Token Standard?
Token standards are the rulebook by which a token operates on a given blockchain network. Token standards are a subset of smart contract standards, which represent the rules that a given smart contract must follow to operate on and remain fully compatible with the underlying network.
Origins of the BRC-20 Token Standard
The BRC-20 token standard can trace its roots to Ethereum’s ERC-20 token standard, which allows for the creation and distribution of fungible assets. However, BRC-20 differs from the ERC-20 protocol in that it uses Ordinals inscriptions rather than smart contracts.
The BRC-20 standard was first developed in March, 2023 by a blockchain analyst going by the name of Domo, who originally called the token standard a “fun experiment” on bringing fungible assets to the Bitcoin network.
How BRC-20 Tokens Work
BRC-20 tokens use Ordinals protocol inscriptions to mint new fungible assets on individual satoshis (sats), allowing users to create unique tokens with specific properties.
Each new user-created variety of token will have its own parameters, and every token meeting that set of specific parameters will be fungible, meaning Alice’s token will be the same as Bob’s much like Alice’s $1 bill would be the same as Bob’s $1 bill.
Advantages and Disadvantages of the BRC-20 Token Standard
Pros of the BRC-20 token standard
BRC-20 allows for the creation of new and unique fungible assets on the Bitcoin network via the Ordinals protocol
Leverages the security features of the Bitcoin network
A unique experiment that could become a high-growth area of the wider Bitcoin network ecosystem as users gain familiarity
Simple minting and transaction
Cons of the BRC-20 token standard
BRC-20 has no smart contract functionality
Limited to the Bitcoin network and ecosystem
May not be compatible with all Bitcoin wallets
Relatively small developer footprint within the Bitcoin ecosystem
BRC-20 transactions can increase congestion on the Bitcoin network, leading to slower speeds and higher fees
How Does the BRC-20 Standard Affect the Bitcoin Blockchain?
BRC-20 expands the functionality of the Bitcoin network by introducing the ability to create customizable and fungible assets.
BRC-20 is not a fork of the Bitcoin blockchain, nor does it require the use of Layer 2 protocols like the Lightning Network. It leverages the Ordinals protocol to inscribe individual satoshis with specific information.
BRC-20 Token Standard Outlook
BRC-20 may increase the adoption of tokenized assets on the Bitcoin network due to its relatively simple operational nature, which does not require smart contracts.
Though still in the experimental phase, BRC-20’s promise in introducing fungibility to the Bitcoin network could drive its further adoption by both users and developers seeking to expand Bitcoin’s use cases.
Scalability and congestion concerns dictate that the widespread adoption of the BRC-20 token standard could lead to more innovation, such as Layer 2s designed to work with the standard.