As Bitcoin begins its approach towards the next halving and the possible price appreciation due to the supply shock, there have always been crazes that piggyback off of it and try to ride the wave.
Remember ICOs in 2017? Or DEFI in 2021? Those fleeting fads that promised the world but fizzled faster than a warm creme soda? While innovation was on the menu, the only thing being cooked up in the kitchen was a host of easy-to-produce tokens with a supporting narrative to encourage retail to part with their Bitcoin in exchange for useless bytes of data.
Yeah, that vibe emanates from the latest stuffing metadata into block space craze. With the rise in popularity of Ordinals, a slew of developers have come on board to throw their version of NFTs, tokens and new meta protocols into the ring and capture some of the growing interest.
ARC-20 tokens, also known as Atomicals, are yet another one in a seemingly endless production line of new acronyms for arbitrary data stored on-chain. As these tokens roll out, each one builds on the next in an iterative process while claiming to provide unique functionality to the Bitcoin ecosystem.
To summarise the last year of tokens on Bitcoin, BRC-20 tokens offer you static tokens with no programmability, SRC-20 offers you “unprunable” tokens, ORC-20 tokens offer you static tokens with the ability to stake them, and CBRC-20 tokens are BRC-20 tokens that use a newer version of Ordinals and so fills up the graveyard of data that will be forgotten in the next cycle.
Previously, all token speculation happened outside of Bitcoin, on altcoin chains, but that narrative seems to have run its course. This cycle is all about having your ponzi built on the Bitcoin blockchain, making it easier to swap Bitcoin for tokens and confusing a host of new retail participants in the process. These new tokens whisper sweet nothings of revolutionising digital assets, bringing NFTs and tokenising everything to the hallowed halls of Satoshi. But before you empty your Bitcoin savings into this shiny mirage, let’s peel back the hype and expose the hollowness of ARC-20’s promises.
What are ARC-20 tokens?
ARC-20, like some tokens created with Inscriptions, uses the native Satoshi unit to represent each token, and they can be split and combined just like regular Bitcoin UTXOs; think of the ARC-20 token hitching a ride on a Satoshi, but representing a value to a market separate from that of Satoshis.
Atomicals are minted using Bitcoin transactions, and these minting transactions can be used to create ARC-20 tokens or NFTs known as realms, which can host specific sets of metadata, like creating a profile that hosts all your social media accounts, website details and more, claiming to offer immutable profiles.
Imagine if you stuck glitter on a potato and called it a disco ball. That’s kind of what ARC-20 tokens are to Bitcoin. They’re essentially the abandoned idea of coloured coins, and BitDNS dressed up with a fancy technical name and the promise of “enhanced digital assets.” In reality, they’re just another layer of complexity slapped onto a blockchain already struggling with scalability and transaction fees.
How do ARC-20 tokens work?
Atomicals featured use case is the ability to create NFTs or tokens that can be updated or overwritten instead of being data that cannot be changed on-chain; it’s now that but with a series of “revised” transactions that are respected by the protocol.
Instead of minting your token or NFT and being done with it, Atomicals will link together any updates to your previous transactions, as a sort of Google Doc but using the Bitcoin blockchain.Â
This means you could overwrite satoshis to hold a new token or update your Realm with new information. The old transactions remain on-chain, but the protocol will reference the latest version while stringing the old ones along.
Picture this: you take a Bitcoin transaction, shove a bunch of data about your precious digital collectable or whatever into it, and then hope everyone else interprets it the same way you do.
That’s the magic of ARC-20.
It relies on everyone agreeing on how to decipher these data snippets, which, in the Wild West of crypto, is about as likely as finding a consensus on what constitutes “good pizza.”
Is this with or without pineapple? Who knows!
A proof of work playground
One of the reasons BRC-20 tokens are so popular is due to a mechanism known as “fair mints“, where users need to perform a Bitcoin transaction to claim a limited amount of tokens in a short-of-issuance lottery.Â
Despite these free mints being better than an outright premine and ICO listing, they still provide an outright advantage to anyone with the money to claim tokens. Users with deeper pockets can perform multiple mint claims, while those with big bucks can even approach miners to ensure their claims are settled first.
To throw a spanner in the works when it comes to minting, Atomicals introduces GPU Mineable Tokens that demonstrate proof of work and energy burn.
Instead of your proof of work to get the token being paid fees to miners, you now need to do that while also providing individual proof of work with a CPU or GPU miner and then submitting that with your transaction.Â
Since users need to do this hashing to submit a minting transaction by Atomicals standards, you are creating provably rare and hard-to-find tokens.
What would ARC-20 tokens be used for?
From what we can gather from the documentation, Atomicals focuses on standardising all these current meta protocols, which we see spinning up weekly, adding new complexity to the game of token hunting.
Instead of relying on one or two nodes that provide the indexers that all apps and wallets refer to because each standard is different. Atomicals wants to provide one open-source standard for indexers to use, making the creation of marketplaces easier, and wallets won’t have to fiddle with new settings and implementations to manage these so-called assets.
If wallets and service providers adopt it, it is another question; even if it’s superior, it doesn’t mean it will be the winner. If that were the case, smart contract token standards like ERC-20 would be where all this speculation takes place, not using JSON files stuffed into witness data.
BRC-20 tokens, for all their shortcomings, have a simple use case to create pump-and-dump frenzy meme tokens; that’s it; it’s almost admirable in its simplicity, in just being a scam creation protocol.
Trying to add new features seems like needless effort and complexity for what this market is for and how it attracts capital. Despite all these so-called improvements on BRC-20, here’s the real kicker: no one can definitively say what ARC-20 tokens are actually for. Some say NFTs, some say digital identities, and some say simply storing files on the blockchain (because of Bitcoin’s notoriously fast storage, right?).
But the truth is, it’s all a jumble of possibilities without a concrete use case. It’s like trying to build a sandcastle on a glacier – the foundation isn’t stable enough.
So why are Atomicals pointless?
Because ARC-20 adds needless complexity to Bitcoin without solving any actual problems, it bloats the blockchain even further without growing a scalable market. Atomicals, like anything built on Bitcoin, have a hard limit in block space but fail to acknowledge this limitation like failed protocols of the past, like OMNI and Counterparty.
Atomicals, with its gimmick mining and revision indexing, only encourage further block space consumption for little return instead of looking at more efficient ways of abstracting this data off-chain and using resources more effectively, which protocols like RGB and rollups already offer.
Atomicals will see your finances explode
As a newcomer to Bitcoin, it’s easy to get swept up in the crypto hype, social media posts, paid-for publicity or publications just publishing positive content for the clicks.
But make no mistake, even if it’s being “built on Bitcoin”, this entire crypto industry is only there to have you part with your Satoshis. If you read up about any of these new meta protocols, all you will find are glowing reports of their feature sets, how they are innovative and offer new use cases for Bitcoin, and not once will they mention the trade-offs and downsides.
Instead of getting hypnotised by the shiny bells and whistles of ARC-20, remember: if it sounds too good to be true, it probably is. Stick to the fundamentals, and if you do want to invest in something other than Bitcoin, look at acquiring equity in solid businesses with real-world applications and leave the vaporware for kids and beanie baby collectors.
Do your own research.
If you want to learn more about ARC-20 tokens, use this article as a jumping-off point and don’t trust what we say as the final say. Take the time to research, check out their official resources below or review other articles and videos tackling the topic.
