An in-depth look at Bitcoin’s BRC-20 and Ordinals.

What are BRC-20 tokens and how do they work?

A brief history.

BRC-20 tokens present a groundbreaking approach to surpass the inherent limitations of Bitcoin’s programmability, allowing the creation of semi-fungible tokens through the use of Ordinal inscriptions.

This standard generates native Bitcoin tokens that are not compatible with Ethereum EVM, requiring the possession of a Bitcoin wallet in order to use them.

It all started on March 8, 2023, when the expansion of the network to accommodate new token types pushed the recent Bitcoin NFT hype to the extreme. This happened when an Ordinals Face project holder, known as Domo, introduced the BRC-20 standard by way of experiment, allowing direct logging of JSON data (a lightweight, easy-to-interpret JavaScript programming protocol) into satoshis (the smallest units of Bitcoin).

The Domo standard opens new possibilities for ecosystem usage, potentially comparable to the functionality offered by Ethereum’s ERC-20 or Binance Smart Chain’s BEP-20 standards.

BRC-20 & Ordinals.

There are certain limitations with the BRC-20 standard, and the main one is its incompatibility with the use of smart contracts. 

But, by itself, the implementation of BRC-20 on the Bitcoin network enables the integration of new use cases. This, combined with the launch of the Ordinals protocol, has led to a huge surge of new tokens, resulting in a temporary overload that caused a network disruption on May 6th.

Over 14,000 BRC-20 tokens have currently been distributed on Bitcoin, compared to an estimated 400 million tokens on Ethereum.

Regarding their tokenomics, each BRC-20 token has its own unique characteristics determined by the script, including factors such as the maximum supply of units. If you are unsatisfied with the configuration of a token, you have the option to create a new one with an alternative design.

UniSat, the most used BRC-20 wallet.

But… what are Ordinals, exactly?

Ordinals introduce a numbering system for the satoshis of Bitcoin, enabling the tracking and transfer of individual sats. Each satoshi, which is the smallest unit of Bitcoin, is assigned a unique serial number through ordinals. This serial number is included in a designated section of a Bitcoin transaction, along with the associated ordinal data. By utilizing this information, one can verify the rightful ownership of the funds and prevent double spending.

Unlike traditional NFTs, which rely on external file hosting, the use of ordinals proves valuable in securing NFT market transactions as they store data directly on the blockchain, encompassing various formats such as text, HTML, images, and more. This peculiarity increases congestion, but is more practical than hosting the data on an insecure remote source.

The term “ordinals” derives its name from the significant role that order plays in both the numbering scheme and the transfer process. The numbering scheme is based on the order in which satoshis are mined, while the transfer scheme depends on the order of transaction inputs and outputs.

Script registered in a satoshi using Ordinals.

What are the differences between BRC-20 and ERC-20?

As mentioned above, one of the main differences between these two standards is their compatibility with smart contracts: BRC-20 is not compatible, unlike ERC-20. Due to their originating ecosystem, BRC-20 tokens are based on the PoW (mining) consensus algorithm. On the other hand, ERC-20 tokens operate on the PoS (staking) mechanism.

Another significant contrast between BRC-20 and ERC-20 tokens is their market capitalization. Due to their recent entry into the market, BRC-20 tokens have a relatively small market capitalization of around 465 million dollars, in contrast to the over 150 billion dollars of ERC-20 ones.

The young age of BRC-20 tokens also impacts the availability of wallets: there are very few specialized options for managing these tokens, as their functionality relies on script inscription. Some wallet options to consider include UniSat, Ordinals Wallet, Ordswap, and BRC-20.io.

Pros and cons of BRC-20 tokens.

Supporters of BRC-20 tokens highlight several advantages:

• They expand the possibilities within the Bitcoin ecosystem and can be used to tokenize physical assets.
• Their creation is quick and straightforward, without the need for smart contracts.
• They promote the adoption of Layer 2 solutions for Bitcoin, such as the Lightning Network.
• They enhance Bitcoin’s presence in DeFi space!

On the other hand, there are some drawbacks:

• BRC-20 tokens are not directly connected to the Bitcoin ecosystem, as they are exchanged on a secondary market.
• Their creation does not bring anything new to the crypto space, as they are essentially metadata embedded in satoshis.
• The ability to create them in large numbers can lead to spam and network congestion, resulting in increased fees.
• Bitcoiners worry that the rise of BRC-20 tokens may attract the scrutiny of US regulators, who have not yet targeted the Bitcoin ecosystem.

Finally, how can I create a BRC-20 token?

Creating a BRC20 token requires just five lines of code in a JSON file.

1. You define the ticker name, set the maximum token supply (21 million), and establish limits for token minting per session (typically 1000 tokens).
2. Among the vast number of identical satoshis (2.1 quadrillion), assigning an image, text, or numerical inscription can suddenly confer value to a specific token!
3. To begin working with BRC20 tokens, you must connect to a wallet by securely storing your seed phrase.
4. Once connected, you can easily inscribe your own token by simply dragging and dropping an image or file into the wallet interface.
5. Specify the Bitcoin address where you wish to receive the token and pay the associated fee (usually around $2-$3 depending on network congestion).
6. After completing the fee payment, your token will appear in your wallet.

BRC-20 mint with UniSat.