BRC-20 Token: Starting from Scratch in the Metaverse Assets

Introduction

BRC-20 Tokens are the latest innovation of the Ordinals protocol, making headlines on cryptocurrency social media in the past few weeks. This is an experimental token standard that supports the deployment, minting, and transfer of fungible tokens on the Bitcoin blockchain. Although the total market capitalization of these tokens once reached $1 billion, the tokens themselves are relatively simple, lacking smart contract functionality, and are not as complex as ERC-20 or BEP-20 tokens.

Due to the minting frenzy in early May, the Bitcoin mempool experienced severe congestion, causing network transaction fees to soar. Considering the importance of supplementing miner income as block rewards gradually decrease, many in the ecosystem welcome higher fees. However, some criticize that this will lead to users in price-sensitive areas losing access.

In this early market stage, BRC-20 tokens carry considerable risks and require more infrastructure support. As the founder stated, this is an experiment and potential risks should be carefully scrutinized.

Ordinals, Inscriptions, and BRC-20 Tokens help demonstrate that there is a significant organic demand for Bitcoin block space, aside from traditional currency use cases. This may be a key factor in the long-term sustainability of Bitcoin's security model.

The development of Bitcoin's second-layer networks, support for BRC-20 infrastructure, and further innovations in Token design may be the next direction of development in this field.

Background

What are Ordinals and Inscriptions?

Ordinals is an open-source software that can run on any Bitcoin full node, which tracks individual satoshis according to the "ordinal theory" as described by its founder Casey Rodarmor. A satoshi is the smallest unit of the Bitcoin network, with 1 Bitcoin equaling 100 million satoshis. The ordinal theory assigns a unique identifier to each satoshi on Bitcoin. In addition, these individual satoshis can be "inscribed" with arbitrary content such as text, images, and videos to create "Inscriptions", which are native digital artifacts on Bitcoin, also known as NFTs.

To learn more about Ordinals and Inscriptions in detail, including their history, technical background, comparisons with other NFTs, and their impact on the market, please check our recent report "A New Era for Bitcoin?".

( Which fields are BRC-20 Tokens applicable to?

As Inscriptions allow for the use of non-fungible Tokens )NFT( on Bitcoin, people naturally ask, "What about fungible tokens?" This is where BRC-20 comes into play.

On March 9, an anonymous Twitter user named domo posted a tweet proposing a method called BRC-20 to create fungible Token standards on top of the Ordinals protocol. The idea is to inscribe JSON data onto a single satoshi through Ordinals to deploy, mint, and transfer fungible BRC-20 Tokens. JSON is essentially a text-based data format, so the method is fundamentally about writing text onto a satoshi to create fungible Tokens. The initial design only allowed for three different operations: deploying Tokens, minting Tokens, and transferring Tokens.

The first deployed Token contract is the $ORDI Token, with a minting limit of 1000 Tokens per transaction and a maximum supply of 21 million ), paying tribute to Bitcoin's maximum supply of ###. This release caused quite a stir in a subfield of the Bitcoin community, and within less than a day, all 21 million ORDI Tokens were minted. Soon after, other Tokens emerged, such as $MEME, $PEPE (, not the one on Ethereum ), and $PUNK.

( What is the market like for BRC-20?

BRC-20 was conceptualized only a few months ago, and it can be fairly said that this market is still in its infancy. Nevertheless, developers and enthusiasts have been experimenting day and night. As of May 16, 2023, there are over 18,000 BRC-20 tokens with a total market capitalization of $500 million. This market cap approached $1 billion in the first few days of May, but as is expected with any such craze, the market is self-correcting to find a more stable equilibrium.

Ordi)$ORDI( Token is the first BRC-20 Token and is still the market leader to date. This is evident in both market capitalization and trading volume, and recent listings on several different exchanges may have contributed to this.

![Binance Research Institute Long Article: Bitcoin BRC-20 Principles, Current Status, and Future])https://img-cdn.gateio.im/webp-social/moments-b50b5256a6456f140005967ac390c67f.webp###

How does using BRC-20 Token compare to using tokens of other standards? (

Although the name "BRC-20" is an imitation of Ethereum's "ERC-20" Token standard, there are significant differences between them.

• Different blockchains

BRC-20 tokens exist on the Bitcoin blockchain, while ERC-20 exists on the Ethereum blockchain, and BEP-20 exists on the BNB Smart Chain, etc. Therefore, BRC-20 tokens rely on various characteristics of the Bitcoin chain, which are quite different from ERC-20 or BEP-20, such as transaction speed and fees. This means that the experience of using BRC-20 may be very different from the experience of transacting on other chains.

• Lack of smart contract functionality

ERC-20 tokens and BEP-20 tokens are created using smart contracts on the Ethereum and BNB Smart Chain blockchains, respectively, thus they have a high degree of programmability and the ability to execute various operations and rules. This is very different from the relatively simple BRC-20 tokens, which are not based on smart contracts and have quite limited functionality.

• Market Infrastructure

ERC-20 Tokens and BEP-20 Tokens are much more mature than BRC-20 Tokens. While the former have been around for years and have led to the establishment of various types of infrastructure ) such as DEX, compatibility with centralized exchanges, fiat on-ramps, cross-chain capabilities, etc. (, the situation is not the same for BRC-20 Tokens. Of course, BRC-20 has only been around for a few months, so we cannot expect them to have a similar level of infrastructure. Nevertheless, this fact is still worth keeping in mind, as it highlights the significant differences in risk profiles between them and the more mature standards ) such as ERC-20 and BEP-20###.

The Impact of BRC-20 on the Bitcoin Market

( Homogeneous and Non-Homogeneous

First, let's quickly understand how the entire Inscription market has changed since the emergence of BRC-20 Tokens. Please remember that BRC-20 Tokens were first conceptualized on March 9, 2023, while Inscription has been available since December 2022. As we can see, in February, images were the main type of Inscription used in the market. This was when the Ordinals craze began, and Bitcoin NFT collections started to emerge. Even from February to early April, although text Inscription became more common, there were still some days when images were the most widely used type of Inscription.

Now, if we look at the second half of April to May, we will see a significant change. The text-based Inscription) is primarily related to BRC-20 Token, which has been dominant, essentially excluding any other media types. Furthermore, the daily number of Inscriptions is several times the amount we saw from January to early April. This proves that BRC-20 Token has been able to generate huge popularity since the concept's inception, and its momentum is tremendous.

In our report "The New Era of Bitcoin?", we provided a chart of Inscription types engraved as of March 30. We can compare these numbers with the current composition of the Inscription market to better understand how BRC-20 tokens dominate the entire Inscription market. As we can see, text-based Inscription has more than doubled its advantage in just six weeks, while image-based Inscription has decreased by more than five times. In terms of total Inscription numbers, from March 30 to May 13, they increased from about 650,000 to over 6.1 million—an almost tenfold increase.

![Binance Research Institute Long Article: Bitcoin BRC-20 Principles, Current Status, and Future]###https://img-cdn.gateio.im/webp-social/moments-7aa91dfa7b7c880c05ffc1d3984775c1.webp(

) memory pool

Just a reminder, the memory pool is essentially a waiting room for unconfirmed transactions that have not yet been included in a block. These are sorted by the additional fees, and a more congested memory pool means more competition to get transactions into the next available block.

So far, the total number of unconfirmed Bitcoin transactions — that is, the number of mempool transactions — has been on the rise in 2023. Recently, the interest generated by Inscription and BRC-20 means that the number of mempool transactions ( has surged significantly compared to last year ). This, in turn, affects the cost of executing transactions on the Bitcoin blockchain.

transaction fee

As a metric that may have sparked the most discussion within the Bitcoin community, fees have been a focal point of debate, dating back to the block size wars from 2015 to 2017.

As a brief overview of this situation, let's review how Bitcoin's model incentivizes miners to protect the network through two economic incentives: block rewards and transaction fees. Block rewards are halved approximately every four years and will eventually reduce to zero in the long run. Therefore, ultimately, transaction fees will be the only compensation for miners, serving as the security budget for the chain. Given that Bitcoin's use cases have been relatively limited until this year, primarily asset transfer (, these fees have historically only accounted for a small portion of miners' income, which has been a concern for many in the Bitcoin community.

However, a close look at last year's latest data reveals that transaction fees increased from 1-2% of total miner rewards to 2-3% at the beginning of the year, and surged to over 20% in May. While we cannot conclude that this is solely due to Inscription and BRC-20, we have relatively sufficient reason to believe that a significant part of this initiative is attributable to these innovations within Bitcoin.

![Binance Research Institute's comprehensive article: The principles, current status, and future of Bitcoin BRC-20])https://img-cdn.gateio.im/webp-social/moments-7545bdcd8581886e2e3e17e7913f5b03.webp(

Of course, not everyone is happy about the increasing transaction fees on the Bitcoin blockchain. Another consequence of this is that the cost of sending Bitcoin to another party has correspondingly increased ). Many people consider this to be the "true" utility of Bitcoin ###.

Bitcoin transaction fees had previously surged, especially in December 2017 and April 2021. However, both instances occurred during strong bull markets for Bitcoin and the crypto space. This is the first time that fees have significantly spiked in what many consider to be the mid-phase of a bear market.

However, it is worth remembering that Bitcoin transaction fees have soared in the past; this is not a unique or extreme event. The recent surge can even be seen as a kind of warning, indicating that Bitcoin needs innovation to prepare for further increases in the future.

Ultimately, Ordinals, Inscription, and BRC-20 Tokens have helped unleash significant demand for the Bitcoin blockchain. They have created a demand for block space that has not been seen for a while with Bitcoin. Many people believe that Bitcoin has lost its attention to games like Ethereum, but the creation of Inscription and BRC-20 seems to be changing that narrative. From a financial perspective, Bitcoin miners need to continue to be compensated, even as block rewards decrease; fees must compensate for this loss of income, just like any business that might expect core revenue continues to shrink until it becomes zero.

Community Response

The initial innovation of using ordinal theory to track individual Satoshis and further inscribing them with data has sparked a heated debate within the Bitcoin community. As you might imagine, BRC-20 Tokens have taken this debate to a new level.

( "亲费" group

As we discussed above, the sustainability of Bitcoin's security model has been a major concern for many in the community. With