Meta: Is it an NFT? Is it a crypto? No, it’s BRC-20, the new fungible token taking crypto by storm. Learn what they are, how they work, and if you should invest.
You know all about non-fungible tokens (NFTs). You’ve heard about memecoins and why they’re all the rage. You’re even caught up on Bitcoin Ordinals (yeah, they’re supposed to be a kind of NFT and they’re on Bitcoin, right?).
But the hottest thing to hit crypto in mid-2023 isn’t an NFT. It is on Bitcoin. It sounds like the familiar tokens floating all around the Ethereum blockchain. And yes, most of them are memecoins.
Enter BRC-20, a new type of crypto token that lives on the Bitcoin blockchain.
Confused? In this article, we’ll take a look at the new type of crypto that’s threatening to (literally) break the Bitcoin blockchain.
Technically, BRC-20 is a type of cryptocurrency that derives its name from the more popular ERC-20 token. ERC stands for Ethereum Request for Comment and is a common prefix to a range of tokens built on Ethereum. ERC-20 is the most-used type of token and the simplest. They represent anything that is fungible and are, therefore, usually used to represent currency, but also in-game assets, or shares in a company.
In that same technical way, BRC-20 is a fungible token just like ERC-20, except that it is built for the Bitcoin network. As a token standard, it allows the creation of fungible tokens on Bitcoin. Unlike ERC-20, however, it doesn’t support smart contracts.
BRC-20 was first created by pseudonymous developer Domo, who announced its launch on Twitter as an “experiment into “brc-20’s” and fungibility on bitcoin with ordinals”.
In short, this experimental token standard was supposed to be a Bitcoin solution for the creation and transfer of new digital assets.
Now the backstory behind this was the popularity of Bitcoin Ordinals – NFTs on the Bitcoin blockchain – which surfaced several months earlier in January 2023.
NFTs had long been the playground of Ethereum and other smart contract blockchains. Bitcoin, supposedly, had extremely limited capabilities for smart contracts, supporting only Bitcoin and little-known Dapps and tokens in the past. It was also thought to be really difficult to create fungible tokens on the network
NFTs, as you might remember, are non-fungible tokens. They’re completely unique and different from one another. The entire reasoning behind why NFTs represent collectibles and “rare” items.
BRC-20 tokens are fungible, allowing for a new type of token that can be interchanged with each other.
While BRC-20 is loosely based on ERC-20, they actually don’t work the same way under the hood. Both let users create their own crypto tokens – you can now literally create and deploy your own tokens on Bitcoin, just as you would with ERC-20 on Ethereum.
Ordinals, the protocol used to create Bitcoin NFTs, reminded people that Bitcoin could be used in other ways, using a new type of protocol to “inscribe” data on satoshis, the tiniest unit of bitcoin – 1 BTC = 100 million satoshis.
By using the Ordinal protocol, one could inscribe 0.00000001 BTC with additional data, containing a serial number that points to the location of a Bitcoin-based NFT.
Using the same Ordinal protocol, people can now create and mint Bitcoin-based tokens that are fungible in nature – the new BRC-20 token.
Within weeks of BRC-20’s release, the experiment resulted in a tsunami of new tokens. The first few to gain traction were called ORDI, PEPE, MEME, and PUNK. Apart from ORDI, if it isn’t obvious to the reader, the rest are all derivations of meme tokens and NFTs that exist on other blockchains.
Unsurprisingly, the next several hundred new tokens minted took the same mould of memecoins with seemingly random nonsensical names. As of mid-May 2023, there are now over 14,000 new BRC-20 tokens in existence, with a collective market cap (market capitalisation) of $527 million (data from BRC-20.io).
The introduction of Ordinals had already begun to put stress on the Bitcoin network, as inscriptions took up precious block space, but BRC-20’s popularity has reignited worries of Bitcoin network congestion to levels not seen since 2017.
Throughout May 2023, there have been as many as 400,000 bitcoin transactions waiting for confirmation, with fees spiralling to as much as 500 satoshi per byte.
To add context, for most of 2022, you could pay as little as 1 satoshi per byte.
That means that just trading tokens could set you back tens, if not hundreds, of dollars worth of BTC in transaction fees.
As to whether or not you should invest, the objective and educational perspective gives a firm “no”. BRC-20 tokens are experimental, have no proven utility, and, appear to be nothing more than memecoins at the moment.
The amount of money changing hands for BRC-20 is a perfect demonstration of the FOMO (Fear of Missing Out) effect, with speculators eager to cash in on the fad. To be sure, early speculators are likely to make money from excited buyers coming in later, driving prices sky-high. Mis-time your entry, however, and you will likely lose everything trying to trade tokens.
It is worth noting, however, that the Ordinals protocol has reminded people that the Bitcoin blockchain is capable of much more than most might think. It isn’t too far-fetched to think that BRC-20 tokens could prove useful in the future, once they overcome challenges such as negligible utility, low liquidity, high volatility and technical maturity.
Some of the more popular BRC-20 crypto assets can be bought on exchanges like Gate, but if you’re looking for safer deals, you’re going to have to comb through various Bitcoin-based decentralised exchanges or DEXs to find listings.
Some places you could check out include Openordex or OrdinalsWallet marketplace.
You’ll also need a Taproot address or wallet, which is a type of Bitcoin wallet supporting the latest Bitcoin upgrade called Taproot. Taproot’s what makes it possible to use the Ordinals protocol so you’d have to familiarise yourself with options including Sparrow Wallet or Ordinals Wallet.
You’ll be using these to transfer tokens, and also to pay for them. Be aware, you should familiarise yourself with Taproot wallets and the Ordinals protocol as they can be quite technical, although the wallets mentioned in this article are making it simpler to use these new technologies with each daily update.
