The term "BRC-20" has become one of the most fascinating topics in the cryptocurrency industry. This standard is more than just a novelty—it has captured significant attention due to its considerable impact on the entire crypto ecosystem, including driving a surge in network transaction fees. In this guide, we'll break down the essentials of BRC-20 tokens in an easy-to-understand way.
What Is a BRC-20 Token?
BRC-20 is a token standard that facilitates the issuance and transfer of tokens on the Bitcoin blockchain. Its ability to enable easy token creation on Bitcoin's network has led to a rapid increase in the number of tokens since its introduction.
BRC-20 was invented by an engineer named Domo in March 2023. The acronym BRC stands for "Bitcoin Request for Comment."
How Do BRC-20 Tokens Work?
BRC-20 tokens operate using a protocol known as Ordinals, which was initially created to support Bitcoin-based NFTs.
Ordinals allow satoshis (the smallest units of Bitcoin) to be inscribed with unique data, such as images or text, making them distinguishable and thus capable of serving as non-fungible tokens (NFTs). Although BRC-20 relies on a protocol originally intended for NFTs, it now simplifies the creation of various fungible tokens.
Tokens created using BRC-20 do not rely on smart contracts, which are self-executing agreements. Instead, they enable peer-to-peer transactions by storing JSON files on the Bitcoin network. JSON is a file format used for storing structured data and is widely used in crypto and blockchain applications. However, it cannot perform the complex operations required for smart contracts.
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How Many Tokens Have Been Created Using BRC-20?
Because BRC-20 simplifies token creation on Bitcoin, a wide variety of tokens have been launched.
According to data from BRC-20.io, over 14,000 distinct tokens had been created as of mid-May 2023. Collectively, these tokens reached a total market capitalization of approximately $530 million, with a 24-hour trading volume of around $200 million at that time.
Which BRC-20 Tokens Should You Watch?
The top token by both market capitalization and liquidity (24-hour trading volume) on BRC-20 is Ordinals (ORDI). According to BRC-20.io, ORDI had a market cap of $330 million and a 24-hour trading volume of $200 million as of May 13, 2023.
Since then, ORDI has continued to dominate much of the market activity among BRC-20 tokens. Although various meme-inspired tokens have also been created using the standard, most have not reached ORDI's level of market presence. As more exchanges begin supporting BRC-20 tokens, additional assets may be listed, potentially changing the landscape.
What Impact Do BRC-20 Tokens Have on the Crypto Market?
The influence of BRC-20 extends far beyond the tokens created using the standard.
Since the introduction of BRC-20, the number of BRC-20 transactions on the Bitcoin blockchain has repeatedly surpassed that of regular BTC transfers. The increased activity has congested the Bitcoin network, driving transaction fees to their highest levels in two years. This congestion has become a significant concern, with some exchanges even temporarily pausing Bitcoin withdrawals due to network overload.
Higher fees have sparked debate within the community. Some argue that increased fees provide miners with greater incentives, enhancing Bitcoin's security. Others point out that ordinary users bear the cost of these higher fees. Regardless, the fee surge caused by BRC-20 activity has notably altered the Bitcoin transaction environment.
What Future Developments Are Expected?
A successor to BRC-20, known as BRC-21, is already in development. Once completed, BRC-21 is expected to allow tokens originating on other blockchains to be issued on the Bitcoin network as well.
This could further expand the use cases and interoperability of Bitcoin, though it may also introduce new technical and economic challenges.
Frequently Asked Questions
What does BRC-20 stand for?
BRC-20 stands for "Bitcoin Request for Comment." It is a token standard on the Bitcoin blockchain, similar to how ERC-20 functions on Ethereum.
Are BRC-20 tokens the same as Bitcoin?
No. BRC-20 tokens are distinct digital assets created on the Bitcoin blockchain using the Ordinals protocol. They are separate from Bitcoin (BTC) itself.
Can I store BRC-20 tokens in any Bitcoin wallet?
Not all Bitcoin wallets support BRC-20 tokens. You need a compatible wallet that recognizes Ordinals inscriptions and JSON data to hold and transfer these tokens.
Why did BRC-20 cause Bitcoin transaction fees to rise?
BRC-20 transactions consume block space on the Bitcoin network. A high volume of these transactions can lead to network congestion, resulting in increased fees as users compete to have their transactions processed quickly.
Is BRC-20 only for fungible tokens?
BRC-20 is primarily used for creating fungible tokens, but it builds on the Ordinals protocol, which was originally designed for Bitcoin NFTs. This shows the flexibility of the underlying technology.
What is the difference between BRC-20 and ERC-20?
BRC-20 operates on the Bitcoin blockchain and uses JSON inscriptions instead of smart contracts. ERC-20 is an Ethereum-based standard that relies on smart contracts for token functionality.