BRC-20 Token: A Beginner's Guide

Directory

1. Introduction to Ordinals and Inscription
2. BRC-20 Token Applicable Fields
3. BRC-20 Market Overview
4. Comparison of BRC-20 Tokens with Other Standard Tokens
5. The Impact of BRC-20 on the Bitcoin Market
6. Community Response
7. Risks and Challenges
8. Future Outlook

1. Key Points

• BRC-20 is an experimental Token standard that allows for the deployment, minting, and transfer of fungible Tokens on the Bitcoin blockchain.

• The total market value of BRC-20 tokens once reached 1 billion USD, but compared to ERC-20 or BEP-20 tokens, they have simpler functionalities and do not support smart contracts.

• The minting frenzy at the beginning of May caused congestion in the Bitcoin memory pool, leading to a surge in transaction fees.

• Many people welcome higher transaction fees, believing it helps supplement miners' income. However, some are concerned that high fees affect users in low-income areas.

• The current BRC-20 Token risks are relatively high and require more infrastructure support.

• Ordinals, inscriptions, and BRC-20 tokens demonstrate a significant organic demand for Bitcoin block space, which may be key to Bitcoin's long-term security.

• The development of Bitcoin Layer 2, support for BRC-20 infrastructure, and innovations in Token design may be future development directions.

2. Introduction

Since the launch of the Ordinals protocol, innovation in the Bitcoin ecosystem has resurged. BRC-20 is the latest innovative achievement and has become a sensation in the past few weeks.

BRC-20 was first proposed in March 2023 as an experimental Token standard that supports the deployment, minting, and transfer of fungible Tokens on the Bitcoin blockchain. This means that both fungible and non-fungible Tokens ( inscriptions ) have become part of the Bitcoin ecosystem. The total market capitalization of these Tokens once exceeded 1 billion USD, and the leading BRC-20 Token $ORDI has been listed on multiple exchanges.

Although many people are excited about the increased activity in the Bitcoin ecosystem, some believe it deviates from Bitcoin's "design purpose" and express dissatisfaction with the rising transaction fees.

This report will explore the origins of BRC-20, the current market, comparisons with ERC-20, the impact on Bitcoin metrics, community divides, potential risks, and future outlook.

Disclaimer: BRC-20 Token risks are extremely high and are in the early stages of price discovery. This material does not constitute investment advice, nor is it a recommendation to buy or sell any securities, cryptocurrencies, or to adopt any investment strategies. The creator of the BRC-20 standard, domo, named it "brc-20 experiment" and specifically reminds at the beginning of the document that this is an experiment.

3. Background

What is ordinal (Ordinal ) and inscription (Inscription )?

ORD is an open-source software that can run on Bitcoin full nodes, tracking individual satoshis according to the "ordinal theory." The ordinal theory assigns a unique identifier to each satoshi. These satoshis can be "inscribed" with any content ( such as text, images, or videos ), creating "inscriptions" (, which are native digital artifacts of Bitcoin ), also known as NFTs.

BRC-20 Token applicable fields

On March 9, anonymous Twitter user domo proposed the BRC-20 method to create a fungible token standard on top of the Ordinals protocol. This method engraves JSON data onto a single satoshi through ordinals, allowing for the deployment, minting, and transfer of fungible BRC-20 tokens. The initial design only allows three operations: deploying tokens, minting tokens, and transferring tokens.

The first deployed token contract is $ORDI, with a single minting limit of 1000 tokens and a maximum supply of 21 million (, paying tribute to Bitcoin's maximum supply of ). Within less than a day, all 21 million $ORDI tokens were minted. Subsequently, other tokens such as $MEME and $PEPE emerged.

BRC-20 Market Overview

The BRC-20 market is still in its early stages. As of May 16, there are more than 18,000 BRC-20 Tokens, with a total market capitalization of 500 million USD. The market cap was once close to 1 billion USD in early May, but it is currently self-correcting to find a more stable balance point.

$ORDI is the first and largest BRC-20 Token by market capitalization, leading in both market cap and trading volume.

4. The Impact of BRC-20 on the Bitcoin Market

Homogenization and Non-Homogenization

Since the emergence of BRC-20, the inscription market has undergone significant changes. In February, image-based inscriptions were gradually replaced by text inscriptions mainly related to BRC-20, (. From late April to May, text-based inscriptions dominated, with a substantial increase in the daily number of inscriptions.

From March 30 to May 13, the total number of inscriptions increased from approximately 650,000 to over 6.1 million, a nearly 10-fold increase. The proportion of text-based inscriptions rose from 36% to 78%, while the proportion of image-based inscriptions fell from 51% to 9%.

![Binance Research Institute's lengthy article: The Principles, Current Status, and Future of Bitcoin BRC-20])https://img-cdn.gateio.im/webp-social/moments-cb5c519eb56dc5ffc1446b8301a3abbf.webp(

) memory pool

The number of unconfirmed Bitcoin transactions ### and the number of transactions in the memory pool ( have been rising throughout 2023, and recently surged significantly due to the increased interest in inscriptions and BRC-20. This, in turn, affects the transaction costs on the Bitcoin blockchain.

![Binance Research Institute Long Article: Bitcoin BRC-20 Principles, Current Status, and Future])https://img-cdn.gateio.im/webp-social/moments-7545bdcd8581886e2e3e17e7913f5b03.webp(

) Transaction Fee

The Bitcoin security model incentivizes miners to protect the network through block rewards and transaction fees. The block reward halves every four years, eventually reducing to zero in the long term. Therefore, transaction fees will ultimately become the sole compensation for miners.

Since the beginning of this year, the proportion of transaction fees in the total rewards for miners has risen from 1-2% to 2-3%, and in May it even soared to over 20%. Although this cannot be entirely attributed to inscriptions and BRC-20, these innovations are likely significant factors.

In early May, there were even Bitcoin blocks where transaction fees exceeded the 6.25 BTC block reward. Considering that for most of 2022, transaction fees accounted for only 1-2% of miner income, this is a significant milestone.

![Binance Research Institute's lengthy article: Principles, Current Status, and Future of Bitcoin BRC-20]###https://img-cdn.gateio.im/webp-social/moments-962c5af8d1167a5db86c63c4f60b6660.webp(

![Binance Research Institute Long Article: Bitcoin BRC-20 Principles, Status, and Future])https://img-cdn.gateio.im/webp-social/moments-79bf9fd470942fa78c6d8fac4708d29b.webp(

5. Community Response

) "Qinfei" group

Many people are surprised by the attention that ordinal numbers and BRC-20 are receiving, believing that it helps to increase Bitcoin transaction fees and address the long-term income issues of miners. Higher fees may attract more independent miners to join the network, enhancing decentralization and security.

"Low Fee" camp

Others are more concerned about the "true purpose" of Bitcoin as a peer-to-peer transaction system. They worry that data-intensive transactions related to ordinals will cause network congestion, drive up fees, and hinder peer-to-peer transactions. Some even believe that ordinals and BRC-20 are an attack on Bitcoin.

BUIDLer

Some key projects and developers are building tools and infrastructure to take these innovations to new heights:

• UniSat wallet provides ordinal and BRC-20 wallet, as well as experimental BRC-20 market.
• ALEX is building a DeFi ecosystem on Bitcoin Layer 2 Stacks, launching the BRC-20 trading DEX beta.
• The Rare Satoshi Association focuses on collecting rare Satoshis.

![Binance Research Institute Long Article: Principles, Current Status, and Future of Bitcoin BRC-20]###https://img-cdn.gateio.im/webp-social/moments-808aee17a52767f6f957b0fd5106ecf1.webp(

6. Risks and Challenges

• Limited infrastructure: BRC-20 is still in the early experimental stage, lacking mature trading and indexing tools.
• Lack of practical utility: Currently, most BRC-20 Tokens are Meme Tokens, lacking practicality and a serious holder base.
• High risk of fraud: Due to the market being relatively new, there is a higher risk of fraud.

![Binance Research Institute Long Article: The Principles, Current Status, and Future of Bitcoin BRC-20])https://img-cdn.gateio.im/webp-social/moments-864d52b7b549a067d93ec44914cee494.webp(

7. Future Outlook

) Bitcoin Layer 2

Bitcoin needs scalability solutions to support larger scale adoption. The development of Layer 2 solutions such as the Lightning Network and Stacks will be key.

Infrastructure

The trading process needs to become smoother, and a well-developed DEX and indexer will be important advancements. Institutions like the Bitcoin Frontier Fund are supporting related innovations.

Token Design Innovation

Developers are exploring ways to increase the flexibility of BRC-20, such as adding whitelists and Token burning features. New standards like ORC-20 and SRC-20 are also emerging.

![Binance Research Institute Long Article: Bitcoin BRC-20 Principles, Current Status and Future]###https://img-cdn.gateio.im/webp-social/moments-6422fd82ddd2bb2d1630abfbd935ceaf.webp(

8. Conclusion

Ordinal, inscriptions, and BRC-20 tokens have demonstrated a significant demand for Bitcoin block space. This helps address the transaction fee issue and provides a potential path for the long-term sustainability of Bitcoin.

Bitcoin Layer 2 scaling solutions, infrastructure development, and Token innovation will be key focuses for future development. With the number of inscriptions growing exponentially, the development in this area is worth close attention.

![Binance Research Institute's lengthy article: Principles, status, and future of Bitcoin BRC-20])https://img-cdn.gateio.im/webp-social/moments-9b244bf9236f99e5c2b35b1c50d5a72b.webp(