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An Overview of BRC-20: An experimental standard for fungible tokens on the Bitcoin network

What is BRC-20?

Created by Twitter user @domodata on March 8, 2023, based on a protocol called the Ordinal protocol. BRC-20 is an experimental standard for fungible tokens on the Bitcoin network. Similar to Ethereum’s ERC-20 standard, BRC-20 specifies the name, supply, and transfer functionalities of tokens issued on the Ethereum network. All token contracts developed on Ethereum adhere to this standard.

Since the Bitcoin network does not support smart contracts, BRC-20 leverages the Ordinal protocol to deploy token contracts, mint tokens, and transfer tokens by setting inscriptions as JSON data format. This means that developers can create and issue fungible tokens using the Ordinal Protocol.

What is the Ordinal Protocol?

Proposed in January 2023 by Casey Rodarmor, Ordina Protocol took the Bitcoin community by storm. It is a system for numbering the smallest unit of Bitcoin, satoshis (sats). 1 BTC equals 100 million sats, and originally, each satoshi was the same unit. For example, 1 BTC held by XX was the same as 1 BTC held by YY. Although often dubbed as NFTs of the Bitcoin network, Ordinal has different qualities than NTFs. For example, the value of each Ordinal is completely unique.

You can create Ordinals with all sorts of data, including text, images, and more. Doing so makes it a “digital artifact”. This is because the act of inscription makes one Satoshi different from the next, and therefore uniquely valuable.

Thus, BRC-20 can be understood as a mutated Ordinal NFT, where the inscriptions on NFTs are images, while the inscriptions on BRC-20 are unified text data in JSON format. In the case of BRC-20, the inscriptions also serve as the ledger for BRC-20 tokens and can be used to track every token transfer.

BRC-20 Tokens

Today, two of the most held BRC-20 tokens are ORDI and WOJAK. MAP Protocol community has also released the MAPO token in the BRC-20 standard earlier in 2023. Keep in mind that most of these tokens have been created for educational or entertainment purposes and may not hold any future value.

What are the limitations of BRC-20?

Limited interoperability

The BRC-20 token standard was specifically tailored to function within the Bitcoin blockchain ecosystem. This aspect leads to interoperability challenges, particularly for users who wish to utilize alternative blockchain systems. This limitation arises due to the absence of the feature on the BTC network.

Interoperability between chains is important because it facilitates seamless token transfers within the crypto ecosystem across disparate blockchain networks. This allows users to use cheaper, more efficient networks when this is convenient.

Limited utility

Primarily designed for the tokenization of fungible assets, the BRC-20 standard is unsuitable for the tokenization of nonfungible assets or the implementation of complex token features such as tokenized ownership rights or conditional transfers

As such, projects that necessitate more specialized tokenization functionalities that go beyond the BRC-20 standard’s capabilities are likely to seek more feature-rich token standards.

What is ORC-20?

ORC-20 is an open standard for ordinal tokens on the Bitcoin network, created with the aim of adding new features to BRC-20. It is aimed to be backward compatible with BRC-20, to improve adaptability, scalability, and security, and to eliminate the possibility of double spending, which has been an issue that plagued certain BRC-20 tokens.

As is the case with BRC-20 Tokens, ORC-20 is an experimental project, and there is no guarantee that the tokens created with this standard will have any value or utility. They might bring in new features, but they also could bring along a new set of issues, bugs, and trade-offs that market participants will naturally exploit.