BRC-20 is a token standard that uses the Ordinals protocol to create fungible tokens on Bitcoin.
Ethereum’s ERC-20 token standard was revolutionary when it was proposed in 2015. It paved the way for a bustling ecosystem of fungible tokens on the Ethereum blockchain, all built from the same guidelines so they could be incorporated into smart contracts. The ERC-20 standard left such an impact on the cryptocurrency space that it inspired similarly-named standards on the TRON (TRC-20) and BNB Smart Chain (BEP-20) blockchains—even though the original naming convention was Ethereum-specific.
In March 2023, a developer named Domo proposed a parallel standard for fungible tokens on the Bitcoin blockchain and named it BRC-20. This standard was made possible by previous Bitcoin innovations like the Taproot upgrade and Ordinals. It allows for the minting (creation) and trading of tokens based on Bitcoin’s technology.
Within two months of the token standard’s creation, the popularity of BRC-20 significantly drove up activity and fees on Bitcoin’s network, dominated by tokens widely considered memecoins. By May 2024, more than 800 BRC-20 tokens had been created.
How do BRC-20 tokens work?
BRC-20 tokens are fungible assets that rely on the Bitcoin network for their basic framework and functions. However, their invention used the building blocks of two very important advances that provided a necessary foundation:
Taproot – The Taproot upgrade was a soft fork that was introduced to Bitcoin in 2021. It created the ability to perform more complex transactions than were previously possible on the network, including those that use the Lightning Network.
Ordinals – The Ordinals protocol was not formally an upgrade to the Bitcoin code. Instead, it was simply built as a way to track satoshis (sats, the smallest units of a bitcoin) and allow for the “inscriptions” of data on these sats that are comparable to non-fungible tokens (NFTs).
Based on these innovations, developers can add (inscribe) data onto satoshis that can then be tracked through the Ordinals protocol. For BRC-20 tokens, the inscribed data comes in the form of JSON code, which outlines important information like maximum supply and name. Unlike on Ethereum, smart contracts are not necessary for BTC-20s to function.
Other fungible token solutions were introduced to Bitcoin around the same time as BRC-20—all slightly different from the others. Following the same naming convention, SRC-20 tokens use Stamps (rather than Ordinals) to create fungible tokens using JSON code. Meanwhile, Runes launched in April 2024 and relies on Bitcoin’s base code (specifically, UTXO and OP_RETURN) rather than a secondary protocol like Ordinals or Stamps.
How are BRC-20 tokens used?
BRC-20 tokens can be used just like any other fungible token. Unlike BTC itself, BRC-20 tokens can be minted and traded for specific purposes or with specific associations (i.e., with a project). In its early months, almost all BRC-20 tokens were memecoins. The first of these was ORDI, named to represent BRC-20’s reliance on the Ordinals protocol. ORDI was the first fungible Bitcoin-based token to be listed on a centralized exchange. Many others followed, and trading of these tokens was almost entirely speculative.
Because of the onslaught of BRC-20 memecoins congesting the Bitcoin network and driving up transaction fees, many in the Bitcoin community criticized the project, even referring to its tokens as creating “spam” on the network.
Conclusion
BRC-20 is a token standard that defines the rules for creating fungible tokens on the Bitcoin blockchain.
The basis for the BRC-20 token standard uses the foundation built by Bitcoin’s Taproot upgrade and the Ordinals protocol.
In the first year since its inception, most of the activity of BRC-20 token minting and trading involved memecoins.