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On March 9, 2023, Domo (unknown developer) released BRC-20. It’s a novel token standard implemented directly into BTC, and it makes use of ordinal inscription. Users may avoid constructing smart contracts (SCs) by storing script files on Bitcoin and associating tokens with satoshis.
Tokens under the BRC-20 standard may be issued, traded, and minted thanks to the integration of JSON data into ordinal inscriptions. Despite BRC-20’s status as a prototype fungible token, it has attracted attention from the Bitcoin community, prompting mainstream infrastructure providers to adopt it for issuance and trade.
Tokens under the BRC-20 standard are ordinally specific and hence non-fungible, but they are fungible, meaning they may be exchanged for one another and have the same value. This demonstrates the power of open-source communities. So, what does this new token standard bring to the market?
Innovations and Benefits of The BRC-20 Token Standard
With the BRC-20 token standard now in place on the BTC network, many new possibilities have opened up for what was formerly thought of as only a digital currency platform.
To begin, these tokens enable the tokenization of assets on the Bitcoin network. Tokens may now be used to represent everything from real estate to works of art on the Bitcoin network, making these assets more widely available and allowing for more flexible forms of ownership. In addition to building a more coherent and connected crypto ecosystem, the BRC-20 standard encourages interoperability by allowing for frictionless interactions across tokens and platforms.
Additionally, by providing a framework for creating custom tokens, BRC-20 has empowered developers and businesses to launch their own projects and initiatives directly on the BTC blockchain. This not only diversifies the use cases on the network but also attracts a broader audience, reinforcing BTC’s position as not just a pioneer but also an adaptable and evolving platform in the blockchain world.
BRC-20 vs. ERC-20
BRC-20 and ERC-20 tokens, while sharing a similar nomenclature and foundational concept, originate from two distinct blockchain ecosystems. ERC-20 tokens are native to the ETH platform, a blockchain renowned for its pioneering SC functionality. These tokens adhere to a specific set of protocols within ETH, ensuring uniformity and interoperability among various token implementations. On the other hand, BRC-20 tokens belong to the BTC network, a surprising revelation for many, given BTC’s primary identity as a digital currency.
While BTC’s primary function has been peer-to-peer transactions, the introduction of BRC-20 tokens showcases its adaptability, allowing for the creation of custom tokens with specific use cases on its blockchain. The primary distinction, therefore, lies in their respective blockchains: ETH’s versatility and focus on DApps versus BTC’s foundational role in the crypto space. Additionally, BRC-20 tokens lack SCs and have limited functionality, while ERC-20 tokens have expanded functionality, allowing for more services like lending and borrowing. Furthermore, ERC-20 tokens, established in 2015 and recognized in 2017, have been rigorously tested and proven to operate trustworthily, unlike BRC-20 tokens, which face high uncertainty in future developments.
Overload Challenges & Scalability
A new set of difficulties, focusing on scalability and network overload, emerged with the introduction of BRC-20 tokens to the BTC network. As a decentralized digital currency, BTC was never meant to support a large number of tokens transacting on its network at once. Congestion on the network caused by the increasing volume of BRC-20 token transactions resulted in decreased throughput and higher fees. Similar scaling problems occurred during peak demand for ETH’s ERC-20 tokens, and hence, this overload problem has some parallels.
Solutions to address these challenges for BRC-20 tokens are in active exploration. Layer-2 solutions, similar to ETH’s rollups, are being considered to offload some of the transactional burdens from the main BTC chain. Additionally, sidechains and off-chain solutions present potential avenues to enhance the scalability of BRC-20 tokens without compromising the security and decentralization tenets of the BTC network.
Over 14,709 distinct tokens have been created utilizing the BRC-20 standard, indicating tremendous market growth. It is a revolutionary system, with tokens having a market value of almost $1 billion. As the DeFi market grows and the team works to streamline token generation, more tokens and financial products will likely utilize this standard.