BRC-20 Tokens: What Are They & How Do They Work?
July 12, 2023
BRC-20 tokens have caused quite a stir in the Bitcoin community, as they allow the creation of Bitcoin-native fungible tokens directly on the Bitcoin blockchain.
Read on to learn what BRC-20 tokens are, how they work, and why they are considered controversial by pockets of the Bitcoin community.
What is the BRC-20 Token Standard?
The BRC-20 token standard is an experiment introduced by Domo, a pseudonymous data analyst, in March 2023. Domo initiated the experiment by launching his own BRC-20 token named “ordi.” This experimental token standard employs Ordinal Theory to bring fungible tokens to Bitcoin.
Ordinal Theory involves assigning numerical values to individual satoshis, the smallest bitcoin units, enabling seamless data inscription, tracking, and transfer.
BRC-20 is short for Bitcoin Request for Comment 20. While it is modeled after Ethereum’s ERC-20 token standard, which stands for, you guessed it, Ethereum Request for Comment 20, the two token standards are not the same.
Important to note: In the BRC-20 document, Domo observes that the token standard is fun, experimental, and should by no means “be considered THE standard for fungibility on [Bitcoin] with ordinals.” Moreover, he warns investors against making any financial decisions based on the BRC-20 design.
How Do BRC-20 Tokens Work?
Let’s take a look at how these new Bitcoin-native tokens work.
Deploy, Mint, and Transfer
BRC-20 tokens are created by storing JSON data within an individual satoshi (sat) using the deploy function. You will need a wallet compatible with Ordinals to do this or a platform that provides inscription services like Unisat. The JSON data specifies key information about the token, such as the ticker, the maximum supply, and the limit (the token limit per mint).
Here’s an example:
Let’s say we want to create a BRC-20 token called GENY, with a maximum supply of one million and a limit of 100. The JSON data could look something like this:
During the deployment phase, the tokens have not been created yet. To generate the actual tokens, you need to trigger the mint function within the wallet. Ensure that you stay within the token limit per mint, which in this case is 100. You can mint tokens until the maximum supply is reached. Once the BRC-20 tokens have been minted, you can specify the transfer amount and utilize the transfer function to move them to the desired destination.
BRC-20 Tokens Are Peculiar
The BRC-20 token standard uses ordinal inscriptions to deploy, mint, and transfer tokens. What this means is that a mint NFT has to be created in order to mint a BRC-20 token.
On the other hand, a transfer NFT is generated for the purpose of transferring or selling a BRC-20 token. In simpler terms, the BRC-20 token standard uses Ordinal inscriptions, which are de facto Bitcoin NFTs created through the application of Ordinal Theory.
This process of generating BRC-20 tokens has been compared to minting an ERC-721 token (an NFT on Ethereum) each time you want to mint, transfer, or trade an ERC-20 token. Of course, this would be very odd and inefficient. For this reason, BRC-20 tokens possess a unique nature. Domo, the creator of the standard, acknowledges the inefficiency of the BRC-20 token standard and, consequently, suggests Lightning Labs' Taproot Assets protocol (previously known as Taro) as a more effective solution for asset issuance on the Bitcoin blockchain.
While the BRC-20 token standard employs Ordinals, it is important to note that not all Ordinals qualify as BRC-20 tokens. The distinction lies in the fact that Ordinal inscriptions are non-fungible, rendering them non-exchangeable with other ordinals. On the contrary, BRC-20 tokens are fungible, enabling them to be interchanged with other BRC-20 tokens.
Meme Coins on Bitcoin: The Early Days of BRC-20 Tokens
It’s not surprising that many BRC-20 tokens are meme coins, considering a meme coin craze has swept through the cryptoverse in Q2 2023. Ethereum-based meme coins like PEPE and WOJAK have exploded as investors have been speculating on their prices.
Bitcoin meme coins, created using the BRC-20 token standard, have also gained traction, capturing market values worth millions of dollars. Moreover, you will notice that popular Ethereum meme coins are now on Bitcoin as well. For instance, PEPE and WOJAK are on Bitcoin as PEPE BRC and Wojak Coin. Other BRC-20 meme coins are PIZA, MEME, DOGE, OXBT, OSHI, and BULL.
Meme coins are tokens inspired by popular memes. For example, PEPE meme coins are inspired by Pepe the Frog, a popular internet meme that emerged in the early 2000s. On the other hand, Wojak meme coins draw inspiration from an internet meme featuring a bald cartoon character that potentially originated on a Polish image board around 2009.
What’s the Difference Between BRC-20 and ERC-20 Tokens?
Examples of BRC-20 Tokens
Ordi was the first BRC-20 token created by Domo on March 8, 2023. It has a maximum supply of 21 million tokens that have all been minted. As of this writing, Ordi’s price is $7.6, and its market cap is $160,628,051.
Ordi trades on 17 markets, including Gate.io, OKX, Crypto.com, Kucoin, BitMart, Unisat, and Bitget.
OXBT is a BRC-20 token generated on May 11, 2023, by a team of pseudonymous individuals. The token has a maximum supply of 200 million tokens that are currently 100% minted. At the time of writing, the price of OXBT was $0.08, and its market cap was $16,773,993.
OXBT presently trades on AscendEX, previously BitMax, and ALEX.
Pepe BRC-20 was established on March 9, 2023, by a pseudonymous team. The meme coin has a maximum supply of 42,069,000 tokens that have been 100% minted. As of writing this article, Pepe’s price was $0.05, and its market cap was $2,199,016.
Pepe BRC-20 trades on five markets, including BitMart, Gate.io, Bitget, NovaDAX, and BingX.
Why Are BRC-20 Tokens Controversial?
BRC-20 tokens have caused controversy between Bitcoin maximalists (the purists that believe Bitcoin’s only role is to serve as sound money) and another group of Bitcoin enthusiasts who are open to experimenting with other use cases for the Bitcoin network.
BRC-20 token supporters believe that high block space demand is good because it means more subsidies for Bitcoin miners. Bitcoin maximalists, on the other hand, are of the belief that smaller blocks are essential to prevent centralization tendencies concerning full nodes.
The disagreements stem from the fact that BRC-20 tokens, whose transactions are recorded on the Bitcoin blockchain, are increasing the demand for the limited block space (4MB). As these tokens attract numerous speculative investors, the demand for Bitcoin's block space has reached unprecedented levels.
However, this surge in demand negatively impacts regular individuals who rely on BTC for payments or trading, as it leads to increased transaction fees. High fees force users to either wait for long periods (expanding the mempool size) for miners to confirm their transactions or pay more for their transactions to be prioritized.
The Bitcoin network was notably highly congested in May 2023, to the point that Binance had to temporarily pause BTC withdrawals. The graph below shows the significant spike in the Bitcoin average transaction fee during that month.
Although the hype around BRC-20 tokens appears to have calmed down, bringing transaction fees down with it, some Bitcoin purists are worried that if the hype renews in the future, Bitcoin’s vision of becoming the best money in the world could be threatened by higher on-chain fees.
Another point of contention is that most BRC-20 tokens have no real utility, and most if not all, are tokens polluting the Bitcoin network. Even Domo acknowledges the financial worthlessness of these tokens, but as always, investor speculation in the crypto space is to be expected when something “hot and trendy” emerges.
“Worthless tokens threaten the smooth and normal use of the Bitcoin network as a peer-to-peer digital currency,” Bitcoin developer Ali Sherief states.
Another Bitcoin developer, Luke Dashjr, reckons that Ordinals, and BRC-20 tokens in extension, are an attack on the Bitcoin network. To solve this issue, Dashjr has built a patch called Ordisrespector that Bitcoin nodes can apply to keep network-clogging tokens out of the Bitcoin blockchain. In other words, Ordisrespector acts as a spam filter for the Bitcoin network, spam being Ordinals and BRC-20 tokens in that view.
What Could the Future Have in Store for BRC-20 Tokens?
Being an experimental token standard, there is a possibility that BRC-20 tokens might fade away and give way to a superior standard or a more effective solution for token issuance on the Bitcoin blockchain.
However, asset issuance on Bitcoin will likely come on Bitcoin layer-2 protocols, where it won’t affect on-chain transaction fees.
What is fairly likely, though, is that the BRC-20 meme coin hype will end at some point (if it hasn’t already), potentially leaving many investors stuck with tokens they can’t sell.
What does BRC stand for in crypto?
BRC stands for Bitcoin Request for Comment, a token standard created for experimental purposes only. In full, the token standard is named BRC-20, which is a play on ERC-20, a popular Ethereum token standard.
BRC-20 tokens bring fungible tokens to Bitcoin and could not have been possible without Ordinal Theory. Ordinal Theory designates each individual satoshi with an ordinal number, allowing it to be identified, tracked, and inscribed with data.
Who created BRC20?
The BRC-20 token standard was created by Domo, a pseudonymous data analyst, in March 2023. Domo launched this token standard with a BRC-20 token standard of his own called ORDI. ORDI is currently the largest BRC-20 token by market cap.
According to the official BRC-20 documentation written by Domo, BRC-20 is an experimental and fun token standard. Because of its experimental technical design, he discourages anyone from making any financial decisions based on the token standard.
What are the advantages of BRC-20 tokens?
BRC-20 tokens have made it possible for anyone to mint a Bitcoin-native fungible token. This has been exciting for that part of the Bitcoin community that would like to see the Bitcoin network being used for asset issuance and beyond. Additionally, BRC-20 tokens have brought more users to the Bitcoin blockchain, boosting adoption.
Why are BRC-20 tokens impacting Bitcoin network fees?
Unlike regular Bitcoin transactions, BRC-20 tokens require more block space for storing data. This increases the demand for the limited block space, which rises as more and more investors speculate on these tokens. Going by the law of supply and demand, the high block space demand drives fees upwards, forcing users to pay more money if they want their transactions to be prioritized. At the same time, miners are receiving higher transaction fees, boosting their revenues.
When did BRC-20 come out?
Domo inscribed the first BRC-20 token, ORDI, on March 8, 2023. During this time, Ordinal NFTs were quite popular since most people were excited by the idea of Bitcoin-native NFTs. Both ordinal NFTs and BRC-20 tokens use Ordinal Theory, a methodology proposed by developer Casey Rodarmor in late 2022. Following the creation of ORDI, more tokens were generated, many of them being meme coins.
What was the first BRC20 token?
ORDI was the first BRC-20 token. It was inscribed by the creator of the BRC-20 token standard, Domo. ORDI is the largest BRC-20 token by market cap, trading at $7.6 at the time of writing. ORDI has a maximum supply of 21 million tokens that have been 100% minted.