What Are BRC-20 Tokens?

BRC-20 Tokens explained

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If ordinals and inscriptions weren’t enough to get a bitcoin maximalist hot under the collar, then the latest use case for the ordinals protocol is sure to trigger a few rage tweets simply by hearing the name alone.

For the last few weeks, monkey and punk jpeg minting has taken up headlines and block space but soon faded as these projects that are easy to reproduce ran out of initial demand and sellers and block space became easy to bid for once again.

Those that claimed inscriptions to be speculative and that they would not hold up as a way to pay for additional miner security budget feel vindicated. But, like a certain sickness, we all had to deal with, it has mutated, and the tech is being used to generate a faux ERC-20 token standard on bitcoin, called, you guessed it, BRC-20 tokens.

What are BRC-20 tokens?

The BRC-20 “token standard: is an experimental fungible token created using Ordinals and Inscriptions and saved on the bitcoin base chain. It utilises Ordinal inscriptions of JSON data to deploy token contracts, mint tokens, and transfer tokens.

This is not a token standard like you’re used to with EVM chains, which create smart contracts that manage the token standard and its various rules, but simply is a way to store a script file in bitcoin and use that file as a way to attribute tokens to satoshis and then allow them to move from one user to another. 

The BRC-20 token was created by Twitter user @domodata on March 8th, 2023. The name is a play on Ethereum’s ERC-20 token standard, but they don’t have the ability to interact with smart contracts like the EVM standard it derivates its name from.  

There is no shortage of ways to create tokens on other chains, all of which have their own markets and exchanges with liquidity where they can be traded. The token market is a vehicle for speculation and scams, and hearing this ERC-20 term might attract these users, and this behaviour might migrate to bitcoin. 

While this may drive demand for bitcoin to pay for fees and take up block space, it could pull unsuspecting investors into purchasing useless metadata that only select wallets even bother to translate into anything worth displaying in a human-readable fashion. Even the creator has noted it’s just an experiment, and the tokens are not intended to be worth anything–though degen speculators may see it differently.

Token terminology can be confusing. 

BRC-20 tokens are not the only used as a naming convention for tokens on bitcoin but also on another forked smart contract chain called Bitgert BRC-20.

This iteration of BRC-20 tokens should not be confused with the token standard created on another obscure forked chain. Bitgert is another EVM chain that initially began life is a token on Binance Smart Chain but thought that it would generate some excitement and investor capital if they were to create their own chain where they control consensus and entice users with lower transaction fees on their centrally controlled chain. 

Bitgert has the BRISE token as a native currency; any tokens built on this chain are referred to as BRC-20 tokens on its BRC20 blockchain, just launched when the market least expected it.

So be careful if you do venture down this path, but in the end, it doesn’t really matter because either way, you’re likely to be scammed out of your money with these meme tokens. 

BRC-20 creator announces project

The first BRC-20 Token (ordi)

The first token contract deployed was for the “ordi” token, with a limit of 1,000 tokens per mint and 21,000,000 tokens total. 

Ordinal wallets such as Unisat were quick to deploy tooling for the BRC-20 standard, and in less than 18 hours, all 21,000,000 ordi tokens had been minted, with pending mints for an additional 1,500,000 ordi tokens that were not within the limit.

Useless data stuffed on-chain with a different name. 

BRC-20 might be an interesting experiment in what you can do with witness data and text files on-chain, but creating a fungible token standard for Bitcoin–with a bunch of flaws doesn’t seem to be a practical long-term solution for any problems we have today or in the future. 

Still, that is not likely to stop the crypto market from throwing time, effort and money at a flawed implementation to see how far they can push it. Like it or not, we are likely to see a lot of tooling pop up to deploy, mint, send, and receive BRC-20 tokens, which could mean another subset of transactions competing for precious block space and interrupting your ability to secure 1 sat/vbyte transactions to secure your cold storage funds or create a lightning channel.

As the Ordinals space continues to attract speculators and evolves, we’re going to see developers push the limits of what can be done with a Taproot transaction. 

Inscriptions and BRC-20 are only the beginning, and while I think these are failed causes from the start, it doesn’t mean someone cannot create profitable pump-and-dump projects for themselves in the short term. 

Token standards that already exist in the bitcoin ecosystem.

Suppose you are serious about creating assets on bitcoin, such as gaming items, vouchers, tickets, or stablecoins backed by a centralised entity, like a company. Then there are already established standards to do that without bogging down the bitcoin base chain. 

AMP assets on Liquid

AMP assets are the token standard for the Liquid Network; users can spin up Liquid Nodes and create their own assets like gaming currencies, in-game items, vouchers etc.

Or work directly with Blockstreams asset issuer for building more complex products like tokenised debt like the BMN or STOs. Once set up and regulatory approval has been covered, users can issue and manage assets on the Liquid Network securely from an intuitive platform in a single, seamless experience.

Taro assets on Lightning 

Taro is a new Taproot-powered protocol for issuing assets on the bitcoin blockchain that can be transferred over the Lightning Network for instant, high-volume, low-fee transactions. An entity could run the code on their Lightning nodes to create these assets and manage the issuance of them, while Taro the protocol allows the asset to run this token/asset standard with security and stability of the bitcoin network and the speed, scalability, and low fees of Lightning.

Pear credit

Pear Credit is a P2P open protocol that allows anyone to issue centralised credit tokens without a blockchain, using cutting-edge Hypercore designs which would be interoperable with bitcoin and the Lightning Network.

RGB network

RGB is a third-layer protocol and smart contract implementation that operates with a client-side validation. All the data is kept outside the bitcoin transactions, such as the bitcoin blockchain or lightning channel states. It allows you to create your own tokens using their token standard RGB-20, which can move on bitcoin and Lightning rails.

What’s next for BRC-20?

While the warnings have already been given, and the creator is already distancing themselves from the viability of the project, you can bet that all this will fall on deaf ears, and there are discords foaming at the mouth thinking up ways on how this can make them some money.

There is already an active community–and builders like Unisat–seem to be running with the BRC-20 standard even though the creator has pointed out repeatedly that it’s just an experiment, it has issues, and the tokens may not be worth anything.

This just goes to show you that tokens were never about the tech but just a way to try and funnel money from the naive to those in cahoots at the base of token issuance operations. 

While the token standard and tooling can be improved to allow non-technical people to enter the space, these token standards are not bitcoin, nor are they safer than tokens on other chains. Just because it’s saved on bitcoin doesn’t mean it’s going to save you or act as savings in the long term.

BRC-20 tokens are rug-pull technology, and rest assured, once a market is made for this bitcoin-saved metadata, you’ll see people selling you overpriced JSON files for bitcoin. 

Do your own research.

If you want to learn more about BRC-20 on bitcoin, use this article as a jumping-off point and don’t trust what we say as the final say. Take the time to research other sources, and you can start by checking out the resources below.

A token of no appreciation.

So what do you think of BRC-20 tokens? Will it take off and move more speculation to bitcoin? Will the tooling used to create these standards become widely adopted? Or will this all fall flat on its face like previous attempts to add non-native assets on the bitcoin base chain?

Let us know in the comments down below.

Disclaimer: This article should not be taken as, and is not intended to provide any investment advice. It is for educational and entertainment purposes only. As of the time posting, the writers may or may not have holdings in some of the coins or tokens they cover. Please conduct your own thorough research before investing in any cryptocurrency, as all investments contain risk. All opinions expressed in these articles are my own and are in no way a reflection of the opinions of The Bitcoin Manual

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