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A Deep Dive into BRC20 Tokens

It’s hard to believe it’s been over a decade since the launch of Bitcoin, the world’s first cryptocurrency, a decentralized digital currency without a central bank or single administrator. Throughout its existence, Bitcoin has primarily been used as a currency, a digital asset to be bought, sold, or held. However, with the recent emergence of BRC20 tokens, Bitcoin is transforming beyond its original use-case, demonstrating an exciting evolution in the crypto landscape.

BRC20 Tokens: A Revolutionary Proposition

Let’s start at the very beginning: what exactly is a BRC20 token?

In short, BRC20, which stands for Bitcoin Request for Comment 20, is an innovative token standard proposed in the Bitcoin network. Designed to mimic the functionality of ERC-20 tokens, familiar to those in the Ethereum space, BRC20 tokens bring an exciting new layer of functionality to Bitcoin.

What sets these tokens apart is their unique utilization of ordinal inscriptions and JavaScript Object Notation (JSON). This technology enables the creation, deployment, and transfer of tokens directly on the Bitcoin network. It’s a revolution that’s rewriting our perception of Bitcoin’s capabilities.

Bitcoin Ordinals: A Prelude to BRC20 Tokens

To understand BRC20 tokens, we first need to dive into the world of Bitcoin Ordinals. Implemented as part of Bitcoin’s 2021 Taproot upgrade, ordinals bring a new level of complexity to the Bitcoin blockchain. They introduce a unique system of numbering satoshis (the smallest unit of Bitcoin), thereby giving every satoshi a distinct identity.

These ordinal inscriptions are not just arbitrary numbers – they hold data. This mechanism allows users to append additional data to these satoshis, thereby turning each satoshi into a kind of tiny hard drive that can hold everything from simple text to complex media files like audio, video, images, and even whole applications!

The Ordinals Protocol

The Ordinals protocol is a system for numbering satoshis and allowing users to attach extra data to satoshis in a process known as “inscription”. Satoshis are the smallest units of bitcoin, and each one has a unique ordinal number that indicates its order of issuance and transfer.

BRC-20 tokens use the Ordinals protocol to inscribe JSON data onto satoshis, which defines the name, symbol, supply, and minting rules of the token. BRC-20 tokens are fungible tokens that can be created and transferred on the Bitcoin blockchain.

Bitcoin NFTs also use the Ordinals protocol to inscribe data onto satoshis, but the data can be in the form of text, images, audio, or video. Bitcoin NFTs are non-fungible tokens that represent unique digital assets on the Bitcoin blockchain.

Birth of BRC20 Tokens: Bitcoin’s Tryst with Tokenization

Launched by the enigmatic developer ‘domo’ on March 9, 2023, BRC20 tokens mark the first major attempt to introduce a standard for creating fungible tokens on Bitcoin. Much like Ethereum’s ERC-20 tokens, BRC20 tokens are designed to add a layer of functionality to the Bitcoin network, allowing for the creation, deployment, and transfer of tokens.

The creation of BRC20 tokens involves incorporating a JSON-encoded script into the ordinal inscriptions on Bitcoin. This JSON-encoded script essentially contains a set of rules and guidelines for token management, and it is these rules that transform a regular ordinal into a BRC20 token.

While Bitcoin’s minimalistic design does not inherently support smart contracts or tokenization, BRC20 tokens provide a workaround. They leverage Bitcoin’s ordinal inscriptions to bring the idea of tokenization to Bitcoin, thereby opening up an entirely new realm of possibilities for the Bitcoin network.

BRC20 vs. ERC-20: The Pros and Cons

Understanding the potential of BRC20 tokens requires us to draw a comparison with their Ethereum counterpart, the ERC-20 tokens.

On the surface, both token standards serve similar purposes: they facilitate the creation of tokens within their respective networks. However, BRC20 tokens have an edge in that they operate on the Bitcoin blockchain, boasting lower gas fees and a higher level of security compared to ERC-20 tokens.

That’s not to say BRC20 tokens are superior in every way. A notable drawback lies in Bitcoin’s slower block verification speed, a byproduct of its increased security measures. Additionally, while ERC-20 tokens have a well-established ecosystem of wallets, exchanges, and dApps, BRC20 tokens are still in the early stages of adoption.

Spotlight on Top BRC20 Tokens

Currently, several BRC20 tokens are making waves within the crypto community. Leading the pack are tokens such as ORDI, VMPX, PEPE, PIZA, and MEME. Each of these tokens boasts unique properties and market potential, signaling a promising future for the BRC20 standard.

BRC20 Tokens: Unveiling Their Use-Cases

The implications of BRC20 tokens are both fascinating and game-changing, offering a plethora of potential use-cases:

Peer-to-Peer Transfer

Much like Bitcoin, BRC20 tokens can be used to facilitate peer-to-peer transactions between wallets on the network. In this case, transaction fees would be charged in Bitcoin.

Tokenization

By incorporating JSON code into ordinal inscriptions, BRC20 tokens can serve as representations of assets. These could range from fiat currency to commodities like gold and beyond.

Decentralized Finance (DeFi)

The evolution of BRC20 tokens has opened up exciting avenues for DeFi on the Bitcoin blockchain. It’s conceivable that these tokens could integrate with DeFi exchanges, yield farming protocols, and the rapidly expanding GameFi sector.

The Allure and Limitations of BRC20 Tokens

BRC20 tokens, despite their theoretical fungibility, have their fair share of limitations. The process of minting these tokens involves participating in a priority gas auction, and exchanging them requires the creation of ‘transfer NFTs.’ Additionally, BRC20 tokens are far from user-friendly – to ascertain the BRC20 balance of a wallet, users need to rely on an off-chain indexer to interpret the inscriptions.

Despite these challenges, BRC20 tokens have garnered significant attention within the Bitcoin community. They represent an exciting experiment in Bitcoin’s potential evolution, offering a glimpse into a future where Bitcoin could become more than just a digital currency.

The Impact on Bitcoin Transactions and Fees

Ordinals and, consequently, BRC20 tokens require more block space than regular peer-to-peer transactions. As competition for this space intensifies, transaction fees increase, creating a backlog in the mempool – a storage area for unconfirmed transactions. At its peak, this forced users to use a technique known as ‘replace-by-fee,’ essentially outbidding others to expedite their transactions.

This scenario led to two suspensions of withdrawals on Binance, as the required fees surpassed what the exchange usually allocated for transactions.

Why are BRC20 Tokens Stirring Controversy?

The creation of BRC20 tokens and ordinals has sparked two primary debates:

  1. Network Congestion and Rising Fees: These tokens and ordinals have been blamed for overcrowding the network and escalating transaction fees.
  2. Mission Drift: Critics argue that they “pollute” the Bitcoin blockchain with non-financial data, straying from Satoshi’s vision of a peer-to-peer cash system.

Unlike Ethereum’s NFTs that store data externally, Bitcoin’s ordinal NFTs house the entire data file within the Bitcoin transaction. This makes them incredibly large, leading to network congestion.

On the other side of the debate, proponents like ex-Kraken executive, Dan Held, and MicroStrategy’s Michael Saylor, argue that this evolution is beneficial for Bitcoin. They suggest that the demand for block space and the increased transaction fees could offset the dwindling profitability from Bitcoin mining.

Wallet For storing BRC20 Tokens

Xverse is an advanced Bitcoin wallet designed specifically for the fast-growing Web3 ecosystem built on top of the Bitcoin network. It is recognized as one of the market-leading Bitcoin Web3 wallets, providing users with a wide range of features and functionalities for managing their digital assets.

As a comprehensive wallet solution, Xverse allows users to securely store, send, and receive Bitcoin, Bitcoin NFTs, and BRC-20 tokens, all within a single platform. This integration of multiple asset types makes Xverse a convenient choice for individuals seeking to explore the world of native Bitcoin L1 assets.

With its user-friendly interface and intuitive design, Xverse aims to simplify the management of digital assets and empower users to navigate the complexities of the Bitcoin ecosystem. The wallet ensures the utmost security of users’ holdings through state-of-the-art encryption and robust security measures, providing peace of mind to individuals concerned about the safety of their assets.

Xverse is built on the principles of privacy, security, and convenience, addressing the needs of both experienced Bitcoin enthusiasts and newcomers to the cryptocurrency space. By offering support for BRC-20 tokens, Xverse extends its functionality beyond traditional Bitcoin assets, enabling users to fully participate in the evolving Web3 landscape.

Treading with Caution: The Risks of BRC20 Tokens

While the buzz around BRC20 tokens is hard to ignore, they come with significant risks. These tokens are an ongoing experiment. Their limited utility, combined with the ease of minting, raises concerns about their future worth. Therefore, it’s crucial for users and investors to tread lightly, conducting thorough research before diving headfirst into the BRC20 arena.


Bitcoin’s innovative ecosystem continues to evolve with the introduction of BRC20 tokens, unlocking new potentials for fungibility. However, as this exciting chapter unfolds, the watchword is caution. As they say, “not all that glitters is gold,” and in the dynamic world of cryptocurrencies, this adage holds truer than ever.