In the fast-paced cryptocurrency world, technological advancements and upgrades occur at an astonishing rate. Staying informed about these developments can be both intimidating and imperative, as you wouldn't want to overlook the next big thing in crypto. The blockchain industry has expanded significantly, transitioning from relying solely on the Bitcoin blockchain to comprising numerous blockchains such as Ethereum, Binance Smart Chain, Solana, and many others.
These networks have given rise to numerous protocols and token standards, each offering unique functionalities. BRC-20 tokens are the latest tokens and token standard to make headway in the crypto world. So, as an investor looking for the next big opportunity, understanding BRC-20 tokens holds great significance.
This article covers everything you need to know about the BRC-20 token standard and provides a quick buying guide to help you get started.
What Is the BRC-20 Token Standard?
The BRC-20 token standard was developed as an experimental fungible token standard by the crypto enthusiast Domo in March 2023. It aims to facilitate the creation and transfer of tokens using the ordinals protocol on the Bitcoin blockchain.
Unlike the tokens built on the ERC-20 standard on the Ethereum network, the BRC-20 tokens don't rely on smart contracts. Instead, BRC 20 tokens rely on the Bitcoin ordinals inscriptions initially implemented on the Bitcoin blockchain in January 2023 by software engineer Casey Rodarmor.
The Bitcoin ordinals work on the basis of JavaScript Object Notation (JSON), enabling the inclusion of code, data, images, etc., on Satoshi tokens. Satoshi is a unit of BTC, where 100 million satoshis are equal to 1 BTC. BRC-20 tokens are fungible tokens used for minting and transferring tokens exclusively. In contrast, the ERC-20 token standard creates tokens with smart contract functionality such as governance, etc.
The JSON data inscribed on Satoshis is used to program them, imbuing them with non-fungible qualities similar to NFTs (Non-Fungible Tokens). However, despite possessing NFT-like characteristics, Satoshis remain fungible, meaning they are interchangeable and hold equivalent value. Some popular BRC-20 tokens comprise PEPE, ORDI, WOJAK, etc.
BRC-20 (Bitcoin Ordinals) vs. Other Token Standards
The BRC-20 token standard derives its name primarily from the ERC-20 token standard on the Ethereum network. However, BRC-20 tokens differ significantly from other token standards, with the ERC-20 token standard being the most popular among them.
To create tokens on the Ethereum network, smart contracts must be written and deployed on the network. In contrast, to create BRC-20 tokens on the Bitcoin network, the ordinals protocol is used to inscribe Satoshis using JSON. BRC-20 tokens run parallel to BTC on the Bitcoin base chain, meaning any activity on BRC-20 tokens won't affect Bitcoin. On the other hand, ERC-20 tokens and other token standards operate in conjunction with their parent networks, and any activity on them is directly reflected in their parent network.
Another major factor distinguishing BRC-20 tokens from tokens issued by other standards, such as ERC-20, BEP-20, etc., is their community-oriented distribution. The Bitcoin community and any other individual can mint BRC-20 tokens, although there are restrictions on the number of tokens a wallet can mint. This decentralized approach to token distribution and minting sets BRC-20 tokens apart. In contrast, with other token standards, the token supply, minting, distribution, etc., can be controlled by a single entity, thereby undermining the decentralized nature of the tokens.
What Are BRC-20 Tokens?
The smallest unit of Bitcoin is Satoshi, and as mentioned earlier, 100 million Satoshis make one BTC. On the Bitcoin blockchain, each Satoshi is assigned a unique ordinal number in the order of its issuance. This numbering system of Satoshis is known as ordinals. Initially, these ordinals only served as numerical identifiers, but after the Bitcoin Taproot upgrade in 2021, the ordinals protocol could be used to attach more data with Satoshis. This gave rise to Bitcoin Ordinal NFTs and BRC-20 tokens, with ORDI being the first BRC-20 token minted.
How Are BRC-20 Tokens Created?
Using Javascript Object Notation (JSON), it's possible to deploy even executable code on the Bitcoin protocol. In the case of the experimental BRC-20 token standard, JSON inscriptions are employed to define various attributes of a token, such as its supply, minting rules, identity, and more. Once the JSON inscriptions are used to deploy token contracts on the Bitcoin blockchain, anyone with an ordinal wallet can mint BRC-20 tokens.
BRC-20 Tokens Use Cases
While the BRC-20 token standard is still in its nascent stage, it has several prominent use cases. Below are some of its use cases:
Trading
The price of Bitcoin has already reached unprecedented levels, and there is little to no room to make degen plays. Multiple BRC-20 tokens, such as PEPE and WOJAK, are listed on major cryptocurrency exchanges, enabling people to trade in them.
Peer-to-Peer Transfers
Similar to other crypto assets, BRC-20 tokens can be used to make peer-to-peer (P2P) transactions. They are also a form of digital assets that can be spent among peers and community members. Since BRC-20 tokens operate on the Bitcoin network, they benefit from the efficiency and security features associated with the network. It's worth noting that the transaction fees must be paid in BTC when you transfer tokens.
Decentralized Finance and Other Financial Products
DeFi protocols have grown by leaps and bounds since the DeFi Summer in 2019. This was primarily driven by the expansion of the Ethereum network and other Ethereum Virtual Machine (EVM)-compatible chains. The Bitcoin network was not prominently involved in the DeFi ecosystem or other financial products like yield farming and liquidity pools until recently. With the introduction of the BRC-20 token standard, which enables the creation and integration of tokens on the Bitcoin network, there has been a shift. Unlike Bitcoin, BRC-20 tokens can now be integrated into decentralized exchanges, lending protocols, yield farming platforms, and other DeFi applications.
How to Buy BRC-20 Tokens?
Some popular BRC-20 tokens and even their derivatives contracts can be purchased easily through centralized exchanges. To buy or mint a new BRC-20 token, follow the steps given below.
- Visit www.ordinalswallet.com to create an ordinal wallet. Ensure to save the seed phrase securely.
- Send BTC from a centralized exchange to your wallet to pay the transaction fees.
- Click BRC-20 to see the list of BRC-20 tokens.
- Select the token you wish to buy and choose the best sale price available. Click "Buy Now," and the token should be reflected in your wallet.
Conclusion
BRC-20 tokens hold significant potential for the Bitcoin protocol, representing a notable technological advancement within the ecosystem. By addressing previous limitations of the Bitcoin protocol, BRC-20 tokens open up possibilities for various use cases and have the potential to drive new developments in decentralized finance (DeFi) and blockchain interoperability.
However, it's essential for users to approach investments in BRC-20 tokens with caution, as with any investment in the cryptocurrency space. Given the nascent stage of development and the evolving nature of BRC-20 tokens, it's crucial to conduct thorough research, assess the associated risks, and exercise prudence when participating in BRC-20 token-related activities.
FAQs
1. What are BRC-20 tokens? BRC-20 tokens are built on the Bitcoin Network using the ordinals protocol.
2. How do you buy BRC-20 tokens? Some popular BRC-20 tokens, such as PEPE, can be bought on centralized exchanges, while others - through www.ordinalswallet.com.
3. How are BRC-20 tokens created? These tokens are created using JavaScript Object Notion to make ordinal inscriptions on Satoshis, thereby creating tokens with equal value.
4. What's the difference between BRC-20 and ERC-20 tokens? The ERC-20 tokens are built on the Ethereum network and follow the ERC-20 token standard deployed using smart contracts. On the other hand, BRC-20 tokens are built on the Bitcoin blockchain and follow the BRC-20 token standard without the need for smart contracts.
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