BRC-20 tokens, a new cryptocurrency inspired by Ethereum's ERC-20 standard, have emerged on the Bitcoin blockchain. These tokens use a protocol called Ordinals to inscribe data on satoshis, the smallest unit of Bitcoin. Since its launch in March 2023 by an anonymous developer named Domo, the BRC-20 market has rapidly grown, accumulating over $700 million in total market cap.
Token standards are a subset of smart contract standards, focusing on creating, issuing, and deploying tokens on the blockchain network. BRC-20 tokens leverage a recent innovation within the Bitcoin development community called Ordinals. Ordinal Inscriptions are a new type of digital asset inscribed on satoshi, the smallest unit of Bitcoin. These inscriptions allow BRC-20 tokens to operate as experimental fungible tokens on the Bitcoin base chain.
Check out our blog on BRC-20 and how it’s driving the recent memecoin trend.
Unlike traditional token standards on EVM chains, BRC-20 tokens do not rely on smart contracts to manage rules and regulations. Instead, they store a script file in Bitcoin and attribute tokens to satoshis, enabling easy transfers between users. However, BRC-20 tokens currently lack the ability to interact with smart contracts.
BRC-20 tokens can be used to create Bitcoin blockchain-based tokens, facilitate trade between other tokens of the same type, and allow token creators to mint or trade BRC-20 tokens from a Bitcoin wallet. However, they cannot be used to interact with smart contracts and are not NFTs.
Bitcoin’s BRC-20 vs. Ethereum’s ERC-20: What’s Different?
The main difference between BRC-20 and ERC-20 tokens is that BRC-20 tokens operate on the Bitcoin blockchain, while ERC-20 tokens operate on the Ethereum blockchain. BRC-20 tokens are secured by Bitcoin's Proof of Work consensus mechanism, while ERC-20 tokens are secured by Ethereum's Proof of Stake consensus mechanism.
The Impact of BRC-20 on the Bitcoin Network
The ease of minting BRC-20 tokens has led to an explosion of projects, with over 14,000 BRC-20 tokens listed on the tracking platform BRC-20.io. However, most of these tokens offer limited functionality or use cases, with fewer than 30 having a market cap of over $1 million as of May 10.
The recent surge in BRC-20 activity has negatively impacted Bitcoin's network performance, as BRC-20 token transactions rely on the Bitcoin network. This has led to congestion and delays for regular BTC transactions, with users reporting transition throughput timeframes of over 4 hours and significant spikes in transaction fees.
Learn more about BRC-20 tokens’ impact on the NFT market.
What’s Next For BRC-20 Tokens?
While BRC-20 tokens are gaining attention, their current lack of smart contract functionality limits their use in ecosystems like DeFi. However, if BRC-20 tokens gain enough traction, adoption, and expanded functionality, they could potentially be upgraded to include smart contract functionality. Projects like Stacks (STX) are already working on integrating DeFi, NFTs, apps, and smart contract functionality with the Bitcoin blockchain.
Further development of BRC-20 tokens could see them approach the same level of functionality offered by the ERC-20 token standard, allowing more advanced DeFi applications to be built on the Bitcoin blockchain. For now, BRC-20 tokens are primarily limited to the issuance of memecoins.
