Cryptocurrencies have revolutionized the financial landscape, and among the various digital assets that have emerged, token standards have played a crucial role in facilitating value creation and transfer. One such standard is the BRC-20 (Bitcoin Request for Comment 20) token, which operates on the Bitcoin blockchain. This Cryptopolitan guide will explore the concept of BRC-20 tokens and their deployment, briefly comparing them to the widely known ERC-20 token standard on the Ethereum network.
Understanding BRC-20 Tokens
The creation of Bitcoin NFTs called Ordinals and BRC20 tokens was made possible by the Taproot upgrade to the Bitcoin network in 2021. This upgrade increased privacy, security, and scalability and allowed more data to be attached to Bitcoin, making it possible to attach images and create Ordinals. While attaching data to Bitcoin has always been possible through technical loopholes, the amount of data you could attach was limited. The Taproot upgrade allows users to store up to 4 Mbs of data, opening up the possibility of attaching other information.
The creator of Ordinal Theory, Casey Rodarmor, designed the first ordinal client to use Taproot to make Inscriptions. BRC-20 tokens, an experimental token standard, were developed following the launch of the Ordinals Protocol.
The first BRC-20 token to be generated was called “ordi.” To enable BRC-20 tokens, bitcoin wallets immediately adopted the technology. In the following months, many more BRC-20 tokens, many meme tokens, were released. Some BRC-20 tokens have seen stratospheric price jumps and amassed substantial market caps as of May 2023.
How does Bitcoin Ordinals work?
The Ordinals protocol enables assigning a serial number to each satoshi. This means that every satoshi within the Bitcoin network can be identified uniquely.
These ordinals facilitate the tracking of satoshis throughout transactions. By appending supplementary data or metadata to a satoshi, such as artwork, collectibles, or virtual goods, users can generate distinctive digital assets tied to specific satoshis.
Bitcoin ordinals, known as “Bitcoin NFTs,” differ from conventional NFTs regarding their underlying infrastructure. While most NFTs are linked to blockchain platforms like Ethereum, Bitcoin ordinals leverage the Bitcoin blockchain for their creation and storage. The Ordinals protocol introduces a distinct approach to representing and monitoring unique digital assets on the Bitcoin network.
BRC-20 tokens on the Ordinal Protocol
BRC-20 tokens were developed as an experimental token standard to facilitate the creation and transfer of fungible tokens on the Bitcoin network, similar to the ERC-20 token standard used on Ethereum and other EVM-based blockchains.
The functioning of BRC-20 tokens involves using ordinal inscriptions on satoshis, the smallest units of Bitcoin. Through Bitcoin ordinals, each satoshi is assigned a unique number and can be identified within the Bitcoin network. JSON inscriptions are attached to these satoshis, defining the core features and characteristics of the BRC-20 tokens. This process is similar to smart contracts and allows for creating and managing BRC-20 tokens. While Ordinals are used to create NFTs by tagging individual satoshis, BRC-20 tokens involve minting satoshis to hold information about an entire collection of tokens.
BRC-20 tokens possess fungibility, meaning each token holds the same value and can be freely exchanged or transferred like any other cryptocurrency. They can be spent or transferred between users on the Bitcoin network. While BRC-20 tokens and ERC-20 tokens share similarities in operating on a parent blockchain network, they differ because of the distinctive infrastructures and ecosystems of the Bitcoin and Ethereum networks. This results in variations in functionalities and compatibility with wallets and exchanges.
BRC-20 vs ERC-20 token standard
The BRC-20 token standard can be seen as the Bitcoin counterpart to Ethereum’s ERC-20 token standard. ERC-20 tokens have gained significant traction and have become the foundation for countless decentralized applications (dApps) and token ecosystems on the Ethereum network. Similarly, the BRC-20 token standard aims to provide a similar token creation and utilization framework on the Bitcoin blockchain.
While both standards enable fungible tokenization, there are notable differences between BRC-20 and ERC-20 tokens. First, the underlying blockchain infrastructure differs, with BRC-20 tokens operating on the Bitcoin blockchain and ERC-20 tokens on the Ethereum blockchain. This distinction affects transaction speed, fees, and network scalability.
Furthermore, each standard has its own set of features and capabilities. While ERC-20 tokens have a well-established and mature ecosystem with extensive tooling, smart contract functionality, and widespread adoption, BRC-20 tokens are still considered experimental and do not provide smart contract functionality. The level of support, developer tools, and platforms for BRC-20 tokens may not be as extensive as those for ERC-20 tokens.
Compared to ERC-20, the BRC-20 protocol currently offers very little functionality. Users can only create, deploy, and transfer tokens.
Controversy
The Ordinal protocol has sparked debates and divisions within the Bitcoin community. The controversy surrounding BRC-20 tokens has triggered discussions about their implications for the principles, functionality, and overall ecosystem of the Bitcoin network.
Bitcoin purists and maximalists are against the Ordinals project, prefer no innovation on the network, and believe it simply stays as a form of money. They argue that Ordinal inscriptions are spam that bloat block space and crowd out more legitimate financial transactions on the network. They believe the Ordinal protocol goes against Satoshi Nakamoto’s original vision of Bitcoin as a peer-to-peer cash system.
On the one hand, some Bitcoin community members welcome the Ordinals project and believe that it offers more financial use cases for Bitcoin. They argue it drives demand for block space and fees while bringing more use cases to Bitcoin.
Ordinals intensify the struggle for block space, which could cause higher transaction fees for consumers who want quicker confirmation times. The collective storage area where pending transactions are kept before being processed, known as the mempool, is getting bigger and bigger. To replace one version of an unconfirmed transaction with a new one that pays nodes a more significant transaction fee, some traders were compelled to employ the replace-by-fee technique at the height of the early May market.
This rise in fees has not been well-received by some members of the Bitcoin community. Higher transaction fees can affect the usability and cost-effectiveness of the Bitcoin network. On May 6, 2023, there was a spike in unconfirmed transactions, which temporarily halted the Bitcoin blockchain. Because of rising fees, the top cryptocurrency exchange Binance twice had to suspend withdrawals.
As a result of BRC-20 tokens and ordinals, some Bitcoin miners are now making more money processing blockchain transactions than they do from mining new BTC for the first time since 2017.
How do I create an ordinal inscription?
To create an ordinal inscription on the Bitcoin blockchain, the process varies based on your level of coding proficiency and familiarity with the ordinal theory. Here are the steps for different skill levels:
Beginner: If you prefer a no code/low code approach, a platform like OrdinalBots can be a good starting point. OrdinalBots handle the programming for you, allowing you to focus on your creativity and ideas.
Intermediate: If you are comfortable coding, you can explore the Ordinals API on GitHub. Hiro offers developer-friendly APIs for Bitcoin, and they have a supportive developer community.
Advanced: If you have a deep understanding of coding and the rules of the ordinal theory, you can follow these steps to immortalize your creation on the Bitcoin blockchain:
1. Select the content you wish to inscribe, such as a video, artwork, or text document.
2. Use an editor or coding tool to create an “envelope” that encapsulates your content and the necessary metadata.
3. Utilize a Bitcoin wallet or software that supports the ordinal protocol to create a taproot output. This output commits to the script containing your inscription content. Take care to construct the transaction per the rules of the ordinal theory.
4. Broadcast the taproot output to the Bitcoin network, making your inscription “live” on the blockchain.
5. To make your inscription visible to everyone, spend the taproot output. This action reveals the inscription content on-chain. Once again, ensure that the transaction adheres to the rules of the ordinal theory.
6. Congratulations! Your inscription is permanently stored on the blockchain using taproot script-path spend scripts. This means it cannot be altered or deleted, ensuring its long-term preservation.
How to deploy a BRC-20 token
Note that creating ordinal inscriptions and BRC-20 tokens on the Bitcoin blockchain requires a solid understanding of coding concepts, Bitcoin wallets, and the ordinal theory. It is crucial to exercise caution and follow best practices to ensure the successful and secure creation of your inscription.
To create a BRC-20 token, you can follow these steps:
- Enter the necessary details of your BRC-20 token, such as the token name, symbol, decimals, maximum supply, and initial value, into a JSON (JavaScript Object Notation) data object.
- Encode the JSON data object to ensure it can be processed and interpreted correctly.
- BRC-20 tokens utilize ordinal inscriptions on satoshis through Bitcoin ordinals. These inscriptions are JSON-encoded and attached to satoshis, functioning similarly to smart contracts. The inscriptions define the core features and attributes of the BRC-20 token.
- After creating the BRC-20 token and assigning its traits, you can proceed with the minting process, such as the maximum supply and mint limit.
Please note that the exact process of creating a BRC-20 token may vary depending on the platform or tools you choose to use. It is essential to consult official documentation, guides, or resources specific to your platform for a more detailed and accurate understanding of the creation process.
Ordinal protocol- tools and resources
UniSat
UniSat Wallet is an open-source Chrome extension that supports Bitcoin Ordinals and brc-20 tokens. It lets you store and transfer your Ordinals NFTs and see unconfirmed NFTs immediately. Additionally, you can inscribe on the fly without needing a full node and store, mint, and transfer brc-20. UniSat Wallet is a non-custodial wallet, which means they cannot access your funds. They also do not store your seed phrase, password, or private information. Your accounts are derived from your Secret Recovery Phrase.
Deploying BRC20 tokens on UniSat
- Visit the UniSat deploy page.
- Click the ‘brc-20’ tab.
- Select ‘Deploy.’ Fill in the required information. Tick is a case-sensitive four-character of your identifier.
- Click ‘Next.’ Confirm the information on the pop-up, and then click ‘Next.’
- Enter the BTC address to receive the inscription’ and select network fee.
- Click ‘Submit & Pay invoice.’
- Pay to the address provided and wait for the transaction to confirm.
LooksOrdinal
LooksOrdinal is a platform that provides a service for the bulk inscription of Ordinals on Bitcoin in a self-custodial manner. It is the most powerful and cost-effective method for inscribing Ordinals on Bitcoin.
LooksOrdinal also has an Ord/Eth Bridge feature that enables users to bridge their Bitcoin Ordinals to Ethereum NFTs and vice versa.
Another helpful tool is brc-20.io which enables users to explore brc-20 tokens.
Conclusion
BRC-20 tokens represent an innovative advancement in token standards on the Bitcoin blockchain. They offer a way to create fungible tokens using the ordinal protocol and JSON inscriptions. While sharing similarities with ERC-20 tokens, BRC-20 tokens operate within the unique Bitcoin ecosystem, presenting their advantages and challenges. As the cryptocurrency landscape continues to evolve, it will be fascinating to observe further exploration of BRC-20 tokens and their implications for the broader crypto ecosystem.
