Understanding BRC-20

Bitcoin was the first Blockchain, launched by Satoshi Nakamoto, an anonymous developer, after the financial crisis in order to bring the power of the financial system back into the hands of its participants and away from central bankers and nation states. The Bitcoin network was designed to provide peer-to-peer cash that could be transferred across borders without the need for any intermediaries - a fully decentralised monetary system.

Now Bitcoin has evolved beyond this primary purpose, moving more towards a store of value similar to gold but in digital format. Since the launch of the Bitcoin network, many other blockchains have launched, including the Ethereum network which focuses more on being a decentralised compute platform allowing for the creation of smart contracts and with many tokens veing created on top of the Ethereum Virtual Machine (EVM).

In this sense, until recently, Bitcoin lagged behind its competitors, without a usable token system on-chain and missing out on the potential of the Decentralised Finance (DeFi) space. But with the introduction of the Taproot upgrade and the creation of the Bitcoin Ordinals protocol, this has changed and now tokens on top of the Bitcoin network, utilising the new BRC-20 token standard.

What is BRC20?

BRC-20 tokens are an experiment in the compatibility of the Bitcoin network with token standards, creating for the first time the ability to create and transfer digital assets on top of the Bitcoin network. 

These tokens are similar to ERC-20 tokens used on the Ethereum network and throughout the DeFi space, where tokens have various utilities and functions. These tokens have rapidly gained in popularity over the last year, with the total market growing to more than $1bn and multiple tokens receiving listings on tier-1 exchanges.

The BRC-20 tokens are managed utilising a UTXO system and require specialised front-ends including wallets and exchanges in order to translate and manage this data for users. Expanding the available infrastructure for BRC20 users will be imperative for the future growth of the space.

Unlike ERC20 tokens, crosschain compatibility remains limited for BRC20 tokens, along with utilisation in DeFi protocols, but we view this as an exciting space with huge growth potential in the coming months and years.

The Market Opportunity

The market for ERC20 tokens is huge, with more than $400bn in value spread across thousands of different tokens and protocols. Tapping into this market would expand the utility for the Bitcoin ecosystem and allow BRC20 to become a leading token standard, leading to growth of both BRC20 tokens and Bitcoin as a whole.

Ethereum has seen a rapid expansion thanks to the ERC-20 standard, with many use cases from simple memecoins through to complicated financial derivatives and so-called stablecoins offering on-chain alternatives to FIAT currencies. So far, BRC-20 tokens have been focused more on the meme and community building side, but recent and upcoming launches appear to be adding the first utility focused tokens to the ecosystem which bring the BRC-20 token into the next phase of its existence.

How it works?

BRC-20 tokens are a standard built on top of the Bitcoin Ordinals protocol. Using this mechanism, individual satoshis, or sats, on the Bitcoin network are inscribed with a serial number and certain data. The serial number is know as an “ordinal”, hence the protocol’s naming. 

The BRC-20 token standard utilises this method of inscription to include certain additional data (in the form of Javascript Object Notation (JSON) data) that gives the tokens additional functionality such as the ability to create the token, mint the token and transfer the token to other users.

Leading Projects

A number of BRC-20 tokens have now gathered significant followings and gained traction with large marketcaps and listings on centralised exchanges. 

ORDI

The first and currently largest BRC-20 token, ORDI is short for ordinals and was the first token to utilise this standard. It recently garnered significant attention by being the first BRC-20 token to be listed on Binance, but still lacks in terms of utility (it actually isn’t tied to the Ordinals protocol or the popular Ordinals Wallet). 

SATS

Another popular BRC-20 based memecoin, SATS now boasts a marketcap similar to ORDI and has gained the largest holder base of any BRC-20 token, this capitalises on the popular Bitcoin meme “stacking sats” and is (somewhat confusingly) named after the lowest denomination of BTC, a satoshi or sat. Again, the project should not be confused with the popular Unisats Wallet and Unisats Exchange, as it does not share utility across these ecosystems.

.COM

Although launched recently, .COM has quickly gained in popularity and is one of the first BRC-20 tokens aiming to have true utility. Launched by the team behind BRC20.com, which was recently purchased for 21 BTC, the platform intends to become the leading infrastructure provider for BRC20s. The .COM token will be a focal point of their ecosystem, with first-of-its-kind utility such as staking .COM tokens to earn other BRC20 tokens launching via the platform’s innovative Initial Farming Offering (IFO) system.