You may be familiar with ERC 20 tokens—the most widely used token standard on the Ethereum blockchain.

But did you know that there is a new way to create and transfer tokens on the Bitcoin blockchain? They are called BRC 20 tokens. These experimental tokens use ordinal inscriptions to enable fungibility and innovation on the Bitcoin network.

In this article, we will find the answer to what is BRC 20? How do they work? Why are they creating a buzz?

Key Insights:

  • Understanding what the BRC-20 token is and how it works.
  • Understanding how you can make your own BRC-20 Token.
  • Understanding the impact of BRC-20 Tokens on the Bitcoin network and its fees.
  • Understanding how BRC-20 differs from ERC-20 Token standard.

What is BRC 20

BRC 20 tokens are fungible tokens on the Bitcoin blockchain. They can be created and transferred on the Bitcoin network. The tokens were made due to a bug within Bitcoin’s Taproot upgrade in 2021.

They use a method called ordinal inscriptions to attach a JSON code to satoshis, which are the smallest units of Bitcoin. The JSON code specifies the features of the token, such as its name, symbol, supply, and distribution.

The Bitcoin network can interpret this information and distinguish the token as a different asset from Bitcoin.

Some examples of the top BRC 20 tokens are ORDI, MEME, PIZA, and PEPE. The total market value of BRC 20 tokens is over $600 million as of May 2023.

How Does BRC 20 Work?

BRC 20 tokens work by adding a JSON code to some bits of Bitcoin called satoshis. JSON is a way of writing data that computers can understand. The JSON code gives the name, symbol, number, and other stuff about the BRC 20 token.

You will also need a wallet that can connect with Bitcoin ordinals. The ordinals are a way of numbering and ordering the satoshis on the Bitcoin network. Each ordinal wallet can create a limited number of BRC 20 tokens based on the total number set by the JSON code.

How do I Create my own BRC 20 token?

To create a BRC 20 Token, You must encrypt a JSON data object with the name, symbol, decimals, total supply, and initial price.

Then, in a Bitcoin transaction, this data item is transferred to itself after being converted into an ordinal address. By doing this, the first group of your BRC 20 coin is created and assigned to your wallet address.

Now, you need a wallet that accepts ordinals and inscriptions. Using the same technique, you may add another JSON data object to another satoshi to produce additional tokens. Each creation has a market cap, and the overall supply cannot be surpassed.

Note: BRC 20 tokens are still in their experimental stages. Creating new tokens will eventually render them useless. There are already 10,000 tokens or more.

Based on the data from Dune Analytics. Since April, the number of new tokens minted since the BRC 20 token standard was created has increased significantly.

New Tokens Minted On The Brc 20
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BRC 20 vs ERC 20 Tokens: Key Differences

Brc 20 Vs Erc 20

Some of the main distinctions between BRC 20 and ERC 20 are:

  1. BRC 20 tokens do not rely on smart contracts, while ERC 20 tokens do. This implies that BRC 20 tokens have less functionality and cannot interact with other DApps and protocols.
  2. BRC 20 tokens are generated using the Ordinals protocol. ERC 20 tokens are created using the EVM, which runs smart contract code.
  3. BRC 20 tokens have a more restricted supply than ERC 20 tokens, as they depend on the availability of Satoshis. ERC 20 tokens can have any supply as specified by the token creator.
  4. BRC 20 tokens are more compatible with the Bitcoin blockchain, while ERC 20 tokens are more compatible with the Ethereum blockchain.

Related Article: BEP-2 VS BEP-20 VS ERC 20

The Pros and Cons of BRC 20 Technology

The Benefits of BRC 20 Technology

  1. Fungibility: BRC 20 tokens are fungible, meaning they are interchangeable.
  2. Creativity: BRC 20 tokens open up new possibilities for the Bitcoin network, such as decentralized finance and tokenization.
  3. Decentralization: They benefit from the security and decentralization of the Bitcoin network, which uses the most decentralized consensus mechanism, called PoW.

Challenges and Risks of Using BRC 20 Tokens

  1. Compatibility issues: BRC 20 tokens need a special wallet that supports ordinals to create and send them, and they are not compatible with most Bitcoin wallets or exchanges. This reduces their usability and adoption by the broader Bitcoin community.
  2. Scalability problems: They depend on the Bitcoin network’s speed and capacity, which are often slow and congested compared to other blockchains. This can lead to high fees, long confirmation times, and low throughput for BRC 20 transactions.
  3. Security Risks: BRC 20 tokens are exposed to the same attacks and risks as Bitcoin, such as double-spending, 51% attacks, or hacking. Moreover, BRC 20 tokens may have bugs or vulnerabilities in their JSON code that could affect their functionality or security.
  4. Regulatory problems: The tokens may face legal uncertainties or challenges from regulators who may not recognize them as legitimate or compliant tokens.
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How does BRC 20 impact Bitcoin Network?

The creation of BRC 20 Tokens led to network congestion in the Bitcoin network. People use them for jokes, art, games, and social media.

Because more people want to use these tokens, the network becomes more congested, and the fees increase. This can annoy users, but it also makes the network safer because more people want to run it.

According to Blockchain.com, the fees were the highest since May 2021. The highest average fee was $30.91 for each transaction. This was 700% more than the April transaction fees. 

Minted Fees On Brc 20 Network

The total fees for making Bitcoin Ordinals were $17.7 million on May 8. (Source: TokenTerminal)

How to trade BRC 20 Tokens?

To trade BRC 20 tokens, you require a Bitcoin ordinal wallet that can handle BRC 20 tokens and a crypto exchange that offers the tokens you want to trade.

  1. Create a Bitcoin ordinal wallet.
  2. Choose a BRC 20 exchange that supports the tokens you want to trade and create an account there.
  3. Select the BRC 20 token pair you want to trade and enter the amount and price you want to buy or sell.
  4. Connect your Bitcoin ordinal wallet to the BRC 20 exchange using your wallet address or QR code.
  5. Transfer the tokens to your wallet address.
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Final Thoughts

To sum up, the BRC 20 standard allows you to build and trade tokens on Bitcoin. They use JSON to give tokens features and link them to satoshis. These tokens work like other cryptos. You can buy, send, and trade them.

BRC 20 tokens can have a bright future if Bitcoin network congestion issues can be solved. They can have many possible uses, like lending and staking on the Bitcoin network. They can also be used to make digital assets representing things like collectibles or art.

BRC 20 tokens are a cool test that shows what Bitcoin as a network can do. They may lead to more new and valuable things on Bitcoin.

FAQs

Who Created the BRC 20 Token Standard?

An unknown person called Domo made the BRC 20 token standard in March 2023. He wanted to try making tokens on the Bitcoin blockchain, like Ethereum’s ERC 20 tokens.

What is Bitcoin Ordinals?

Bitcoin Ordinals is a way to add JSON data to satoshis. The JSON data can give a token a name, symbol, supply, and other features. Bitcoin Ordinals lets people create and send BRC 20 tokens on the Bitcoin network.

Is BRC 20 Ecosystem Safe to Invest in?

BRC 20 tokens are new and have yet to be tested much. They have some good things, like being secure and decentralized like Bitcoin, but also some bad things, like being slow and hard to use with other networks.

Most importantly, they are only meme coins with no use cases. Therefore, mass adoption in the long term is almost impossible.

BRC 20 tokens are not controlled or approved by anyone, and investors should be careful and do their homework before investing in them.

Is BRC 20 Same as ERC 20?

BRC 20 and ERC 20 are not the same. They are different ways of making tokens on other blockchains. BRC 20 tokens are made on Bitcoin, and ERC 20 on Ethereum. One big difference is that BRC 20 tokens don’t use smart contracts, but ERC 20 tokens do.

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