What Are BRC-20 Tokens? BRC 20 Tokens Explained

Key Takeaways: 

• BRC-20 tokens are created using ordinal inscriptions and run in parallel to BTC on the Bitcoin network.
• BRC-20 employs JavaScript Object Notation (JSON) ordinal inscriptions to define token characteristics on the Bitcoin network.
• BRC-20 tokens can be transferred from one wallet to another; with further development, they can also be integrated with other DeFi applications and protocols.

What is BRC-20 Token, and how does it work? 

BRC-20 is modeled after Ethereum’s ERC-20 token standard and was proposed in Bitcoin Request for Comment 20 by Anonymous developer Domo in March 2023.

The BRC-20 is a token standard that uses ordinal inscriptions to enable the minting and transfer facilities of fungible tokens on the Bitcoin blockchain. Token standard is simply a set of rules defining the working of created tokens; for example, ERC-20 is the standard for creating ERC-20 tokens on the Ethereum blockchain. However, unlike the ERC-20 standard, the Bitcoin BRC-20 standard is not approved and is still in progress. 

Originally, Bitcoin was created just as a decentralized p2p currency, without functionalities to deploy smart contracts or other decentralized applications. The Bitcoin Taproot upgrade in 2021 opened the gate to attach more data onto Bitcoin block space through ordinal protocol giving rise to Bitcoin NFTs and BRC-20 token development. The Ordinals protocol is a system to inscribe a serial number to each satoshi(smallest unit of bitcoin) and add them onto bitcoin transactions along with ordinal data. 

BRC-20 tokens embed JavaScript Object Notation(JSON) into ordinal inscription to define and initialize token smart contract functionality. Hence, allowing users to deploy, mint, and transfer tokens on the Bitcoin network.

Read more: Bitcoin Price Prediction

Use-Cases of BRC-20 Tokens

• P2P transfer: 

Just like Bitcoin, BRC-20 tokens can also be used for peer-to-peer transactions between wallets on the network. Since the BRC-20 blockchain is Bitcoin, transaction fees are charged in Bitcoin. 

• Tokenization: 

With further development, BRC-20 tokens can be used to create crypto assets pegged to other commodities like fiat currency, gold, etc. By employing JSON code, users can define token characteristics and properties such as supply, minting, and issuance mechanism in ordinal inscriptions.

• DeFi: 

Bitcoin’s rigid and simple design has been a drawback, limiting the development of decentralized protocols and applications to its network. BRC-20 tokens offer a promising future for bringing growth and liquidity to the Bitcoin blockchain. These tokens can be integrated with DeFi exchanges, yield farming protocols, and GameFi by incorporating additional features.

BRC-20 Token vs ERC-20 Token 

Top 5 BRC-20 Tokens 

BRC-20 tokens are usually created for amusement or as meme coins. The top five BRC-20 tokens are as follows:

• Coin #1: ORDI
• Coin #2: VMPX
• Coin #3: PEPE
• Coin #4: PIZA
• Coin #5: MEME

Read more: Top Ethereum ERC-20 Tokens

How are BRC-20 tokens impacting Bitcoin fees and transactions?

The BRC-20 token economy has experienced significant growth due to its popularity. Its current cumulative market cap resides at $600 million with over 24,000 created tokens, the technology shows great potential. However, Its current limitations can be a hindrance to its growth and development.

One of the drawbacks of the BRC-20 token is its block size, leading to network congestion and higher gas fees. On 8 May 2023, the Bitcoin network reported over 300,000 pending transactions and a record-high gas fee of $30. This is because ordinal inscriptions add token instructions data directly on the blockchain, acquiring significant block space.

Furthermore, the BRC-20 blockchain currently lacks support for smart contracts and Ethereum Virtual machines, limiting developers and investors from utilizing the full potential of Bitcoin.

How to buy BRC-20 tokens?

BRC-20 tokens can be traded in two ways:

1. Listed Exchanges: You can buy or sell BRC-20 tokens through centralized exchanges in which they are listed, then store them in supporting wallets. Exchanges for trading BRC-20 tokens are Binance, OKX, Deepcoin, Bitrue, and CoinW.
2. Ordinal Exchange: You will need an ordinal wallet in order to trade on the ordinal exchange. Follow the given steps:
   

• • Step 1: Go to ordinalswallet.com and create an ordinal wallet. Make sure to back up your secret phrase.
  • Step 2: To find all listed BRC-20 tokens on the platform, click on BRC-20 in the navigation bar,
  • Step 3: Select the token you wish to buy from the given token list to see available tokens for sale. Next, click the “Buy Now” option to purchase a token.

Know More: How to Buy Bitcoin India

Conclusion

In conclusion, with further development and integrations, BRC-20 tokens can open new gates for DeFi projects and apps in the Bitcoin ecosystem. However, the technology is still in its experimental phases and might face challenges ahead. Therefore, traders and investors are advised to closely monitor market liquidity, diversify portfolios, and apply risk management strategies.

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