BRC-20

Technical Standard for Fungible Ordinals on the Bitcoin Blockchain

Introduction

BRC-20 is an experimental, technical standard to create and trade fungible ordinals on the Bitcoin blockchain.

Technical Implementation

A BRC-20 standard guides the creation of new fungible ordinals. An ordinal is a satoshi, the smallest unit of Bitcoin equivalent to 0.00000001 BTC, which is inscribed with JSON-formatted data [1]. This information isn’t coded like smart contracts for ERC-20’s—it is directly embedded onto the token and uses a small amount of storage. Inscription was made more efficient and private through Bitcoin’s Taproot update. The data inscribed is predominantly text-based, but can also encompass various formats such as audio, video, or image.

Ordinals were initially created as collections of unique digital artifacts akin to nonfungible tokens (NFTs), such as Taproot Wizards. However, the BRC-20 standard enables the creation of fungible ordinals. This means they are uniform and interchangeable, much like how one paper dollar can be exchanged for another. These BRC-20 tokens, designed to be compatible with the Ordinals protocol, operate seamlessly on the Layer 1 of the Bitcoin network.

Ordi

The first BRC-20 token was created in March 2023 by Domo, documenting the deployment (launch onto the Bitcoin network) of ‘Ordi’.

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

The Ordi token has 5 functions:

p = Protocol: tells processing systems this is a BRC-20 event
op = Operation: specific event type (out of deploy, mint, and transfer functions)
tick = Ticker: of Ordi
max = Maximum supply: of Ordi
lim = Mint Limit: Maximum Ordi tokens each user can mint

Only “p”, “op”, “tick”, and “max” are required functions to create a token that is BRC-20 compliant, while the “lim” and “dec” (function to specify the decimal precision) functions are optional [2]. The Ordi whitepaper has since been regarded as the definitive BRC-20 white paper to create BRC-20 tokens.

There are two other operations for BRC-20 tokens: mint and transfer:

// Function Mint – Source: BRC-20 Gitbook
{
    "p": "brc-20",
    "op": "mint",
    "tick": "ordi",
    "amt": "1"
}

// Function Transfer – Source: BRC-20 Gitbook
{
    "p": "brc-20",
    "op": "transfer",
    "tick": "ordi",
    "amt": "500"
}

The mint and transfer event have the same required specifications with an additional “amt” function, which specifies the amount of tokens minted by the inscriber or the amount of tokens transferred from sender to receiver. Sending BRC-20 tokens from one party to another requires using an ordinal-enabled wallet that has a taproot address.

Current Landscape

The current landscape of BRC-20 tokens has evolved from the original Ordi to primarily utility tokens and memecoins.

Utility Tokens

There are projects innovating in the BRC-20 and Ordinals space that have launched native BRC-20 tokens to fund their development and provide incentives within their ecosystems.

For example, $DSWP is the governance token of the Dot Swap protocol, which is a platform that swaps BRC-20 tokens using an automated market maker and liquidity pools. [3] The $DSWP is a BRC-20 governance token modeled after $UNI from Uniswap, designed to be used as incentives for liquidity providers, support for the growth of the DotSwap ecosystem, and as DAO governance. Liquidity for the token is supported via a liquidity pool from community-funded BTC. Unlike ERC-20 tokens, BRC-20 tokens themselves cannot be programmed to self-execute or enforce any guarantees. Governance for $DSWP is supported by veTokenomics, where users lock their $DSWP for a period of time to receive veDSWP token, a representation of their voting power on matters like determining LP rewards, staking rewards, protocol upgrades, partnerships, etc. [4]

Due to the inherent limitations of the Bitcoin blockchain in terms of smart contract functionality, BRC-20 utility tokens face challenges in efficiently handling complex functions commonly seen with ERC-20 utility tokens like distribution mechanisms (ICOs, airdrops), access control, and interactions with other protocols.

Memecoins

Most BRC-20 tokens that exist today can be classified purely as meme coins. These tokens are primarily created for cultural significance, and drive market activities by speculative trading. BRC-20 tokens are no exceptions to high volatility—the BRC-native meme coin SATS, which draws inspiration from the Satoshi unit of Bitcoin, saw a 470% increase in its value within the first two weeks of December 2023 [5].

Traditional memecoins have also found their way into the Bitcoin blockchain, such as PEPEBRC (PEPE) or DOG3 (DOGE). BRC-20’s have grown in popularity due to the reputation of the Bitcoin blockchain and opportunities for coin trading and speculative investments. As of today, there have been over 350 BRC-20 tokens created, with a $1.7 trillion market capitalization and $61 billion in trading volume [6].

Impact

The influx of minting and reselling of BRC-20 tokens has driven up activity on the Bitcoin network to all-time highs of over 600,000 transactions, double previous levels [7]. However the Bitcoin network wasn’t designed to support high scale token trading, with a transaction capacity of just 7 transactions per second (compared to Ethereum's TPS of 30 and Solana's TPS of 6500). This limitation leads to real bitcoin transactions being priced out due to rising competitive gas fees, leading to hundreds of thousands of pending transactions in the memepool [8]. Binance had to close BTC withdrawals for several hours on May 7 because of an overflow of transactions due to the PEPE token [9].

These negative externalities have urged Bitcoin core developers to find solutions to mitigate the impact of the use of BRC-20 tokens. Luke Dashjr has proposed to extend spam filters to Taproot transactions, while Ali Sherief proposed to “enforce this "censorship" at the node level and introduce a run-time option to instantly prune all non-standard Taproot transactions [10] [11].

The negative externalities come from the fact that BRC-20 tokens workaround a chain that doesn’t natively support tokens. Despite this, inscription tokens are being adopted to chains that do support programmed tokens, such as Ethscriptions on Ethereum or Doginals or Dogecoin. [12]. Popular inscription chains include Polygon PoS and Avalanche with over 168 million and 119 million respectively [13]. Speculation on these coins have seen the adoption of inscription tokens across 13 chains, demonstrating a rapid and widespread interest in the potential of this new vertical.