What is BRC-20?

BRC-20 (Bitcoin Request for Comment) is a token standard that is inspired by the well-known ERC-20 token standard. It brings the possibility of minting fungible tokens on the Bitcoin network. BRC-20 was introduced in March 2023 by a Twitter user known as domo (@domodata).

Initially, Bitcoin was not meant to be used for anything other than P2P transactions. However, the Bitcoin Taproot upgrade, which took place in 2021, expanded its possibilities. Then, they were expanded even further with the Ordinals protocol, released in January 2023, which brought Bitcoin-based non-fungible tokens (NFTs) into the crypto world. 

Essentially, the Ordinals protocol is a satoshi (the smallest BTC unit) numbering system that enables inscribing data on satoshis. So, the protocol allows the direct inscription of data on the Bitcoin blockchain. These Ordinal inscriptions are what allows the minting and transferring of Bitcoin-based fungible tokens.

To be more precise, the BRC-20 token standard utilizes Ordinals inscriptions of JSON (JavaScript Object Notation) data to create smart-contract-like functionality on the Bitcoin network, thus allowing you to mint, deploy, and transfer tokens on it.

How do these inscriptions look? Here is an example of the very first BRC-20-based token called Ordinals (ORDI):

{ 
  "p": "brc-20",
  "op": "deploy",
  "tick": "ordi",
  "max": "21000000",
  "lim": "1000"
}

It might seem a bit complicated at first glance if you know nothing about programming, but it's actually very simple. "p" determines the token standard, "op" signifies that the operation of this inscription is ORDI deployment, while "tick", as you can see, determines the ticker of the token. Additionally, "max" signifies the maximum supply of ORDI (21,000,000 tokens) and "lim" determines the max amount of ORDI that can be minted per one transaction (1,000).

After the launch of ORDI, tens of thousands of new BRC-20-based tokens were deployed in a matter of several months. Though, it can be noticed that the standard is extremely popular when it comes to creating memecoins. Some of the top BRC-20 tokens (apart from ORDI) include DFUK, OSHI, PEPE, MEME, and so on.

BRC-20 VS ERC-20

Now, while BRC-20 is inspired by the ERC-20 token standard, the fact that it's used for creating fungible tokens is as far as their similarities go.

The ERC-20 token standard is Ethereum-based, which means it's secured via the Proof-of-Stake consensus mechanism. Besides that, ERC-20 tokens are created using smart contracts, providing them with much more functionality. And, overall, ERC-20 is an established token standard that was created in 2015, which means it's way more adaptable.

BRC-20, on the other hand, is an experimental project based on the Bitcoin network and, thus, secured via the Proof-of-Work consensus mechanism. Also, as you already know, BRC-20 tokens are created using Ordinals inscriptions, which are far from smart contracts when it comes to functionality. Additionally, since BRC-20 was developed only in 2023, its adaptability is limited.

BRC-20 Token Standard Limitations

While the BRC-20 token standard received quite a lot of hype, its future is still somewhat ambiguous. Many exciting experimental projects in the crypto world often rise high quickly but also tend to crash at an even faster rate. Besides, BRC-20 tokens are simple to mint, which means it's probable that many of them may become worthless.

Even the creator of this standard highlighted that this is just an experiment that explores the possibility of creating off-chain balance states with inscriptions, so it should not be considered as the key Bitcoin fungibility standard.

Besides, even though BRC-20 tokens are dubbed to be fungible, it might be more correct to refer to them as semi-fungible. This is the case because they can only be traded in predetermined amounts. So, if a buyer wants to acquire a specific amount of BRC-20 tokens, they must locate a seller who is willing to sell them that precise amount.