BRC-20 Token: A Beginner's Guide

Directory

1. What are ordinals and inscriptions?
2. Which fields are BRC-20 Tokens applicable to?
3. What is the current state of the BRC-20 market?
4. How does BRC-20 Token compare to other token standards?
5. The Impact of BRC-20 on the Bitcoin Market
   • Homogeneous and Non-homogeneous
   • Memory Pool
   • Transaction Fees
6. Community Response
   • Support high fee camp
   • Support low fee camp
   • Developer
7. Risks and Challenges
   • Lack of infrastructure
   • Insufficient practical utility
   • High risk of fraud
8. Future Outlook
   • Bitcoin Layer 2 Network
   • Infrastructure
   • Token design innovation
9. Conclusion

1. Key Points

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

• The total market value of the Token once reached 1 billion USD, but compared to ERC-20 or BEP-20 Tokens, its functionality is relatively simple.

• The coin minting frenzy at the beginning of May led to congestion in the Bitcoin memory pool and skyrocketing transaction fees.

• Some people welcome higher fees, believing it helps miners' income. Others are concerned it will affect users in price-sensitive areas.

• BRC-20 tokens currently have a high level of risk and lack infrastructure support. As an experiment, potential risks need to be scrutinized rigorously.

• Ordinals, inscriptions, and BRC-20 tokens demonstrate a clear organic demand for Bitcoin block space, which may be a key factor for the long-term sustainability of the Bitcoin security model.

• The development of Bitcoin's Layer 2 network, support for BRC-20 infrastructure, and innovations in Token design may be key focuses for future development.

2. Introduction

Since the launch of the ordinal protocol earlier this year, innovation in the Bitcoin ecosystem has surged again. BRC-20 Tokens are the latest result of this ordinal-driven innovation, which has become a sensation in recent 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 fungible tokens and non-fungible tokens ( inscriptions ) have become part of the Bitcoin ecosystem. The total market capitalization of these tokens once exceeded $1 billion, with the leading BRC-20 token $ORDI listed on multiple exchanges.

While many are excited about the increased activity in the Bitcoin ecosystem, some believe it deviates from Bitcoin's "original intent" and express concerns about the impact of these innovations on Bitcoin transaction fees.

This report will explore the origins of BRC-20, the current market situation, a comparison with ERC-20 Tokens, the impact on Bitcoin metrics, community divergences, potential risks, and future prospects.

Disclaimer: BRC-20 Token is extremely high risk and is in the early stages of price discovery. This material does not constitute investment advice, nor is it a recommendation to buy or sell any cryptocurrency. The creator of the BRC-20 token standard, domo, describes it as "BRC-20 experiment" and warns that "this is an experiment, please proceed with caution."

3. Background

What are ordinals and inscriptions?

Ordinals ( is an open-source software that can run on any Bitcoin full node, which tracks individual Satoshi according to the "Ordinals Theory". Satoshis, abbreviated as sats ), are the smallest unit of the Bitcoin network, with 1 Bitcoin equal to 100 million sats. The Ordinals Theory assigns a unique identifier to each sat.

These individual sats can be "inscribed" with any content ( such as text, images, videos ), thereby creating "inscriptions" ( which are native digital artworks of Bitcoin ), also known as NFTs.

To learn more about ordinals and inscriptions in detail, please refer to our recent report "The New Era of Bitcoin?".

( What fields are BRC-20 Tokens applicable to?

BRC-20 Token is a fungible token standard built on the ordinal protocol. On March 9, 2023, an anonymous Twitter user named domo proposed the concept of BRC-20, which allows JSON data to be inscribed on a single sat through ordinals to deploy, mint, and transfer fungible BRC-20 Tokens. JSON is essentially a text-based data format, so this method is effectively writing text onto sat to create fungible tokens.

The initial design only allowed three operations: deploying a Token, minting a Token, and transferring a Token. The first deployed Token contract was $ORDI, with a minting limit of 1000 Tokens each time, and a maximum supply of 21 million. All 21 million ORDI Tokens were minted in less than a day. Subsequently, other Tokens appeared, such as $MEME, $PEPE, and $PUNK.

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

( What is the current state of the BRC-20 market?

The BRC-20 market is still in its early stages, but developers and enthusiasts have been actively experimenting. As of May 16, 2023, there are over 18,000 BRC-20 Tokens, with a total market capitalization of $500 million. This market cap was once close to $1 billion in early May but has since declined.

$ORDI is the first and currently the largest BRC-20 Token by market capitalization, with trading volume significantly increasing after being listed on multiple exchanges.

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

How do BRC-20 Tokens compare to other Token standards? (

Although the naming of "BRC-20" mimics the "ERC-20" standard of Ethereum, there are significant differences between the two:

• BRC-20 is on the Bitcoin blockchain, while ERC-20 is on Ethereum and BEP-20 is on the BNB chain. This means that the transaction speed and fees of BRC-20 differ from those of other standards.

• BRC-20 lacks smart contract functionality, while ERC-20 and BEP-20 are created based on smart contracts and have more programmable features.

• The market infrastructure for BRC-20 is far less mature than that of ERC-20 and BEP-20. The latter two have been around for years and have various infrastructure support, such as DEX, exchange compatibility, and fiat channels, for ). BRC-20 is still in a very early stage.

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

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

) Homogeneous and Non-Homogeneous

Since the emergence of BRC-20, the entire inscription market has undergone significant changes:

• In February, the main focus was on image-based inscriptions, following the rise of the Bitcoin NFT series.

• From late April to May, text-based inscriptions ( are primarily related to BRC-20, ) dominating the market, with a significant increase in the daily number of inscriptions.

• From March 30 to May 13, the total number of inscriptions increased from about 650,000 to over 6.1 million, a nearly 10-fold growth. The proportion of text-based inscriptions rose from 38% to 77%, while image-based inscriptions fell from 59% to 11%.

![Binance Research Institute Long Article: Bitcoin BRC-20 Principles, Status, and Future]###https://img-cdn.gateio.im/webp-social/moments-962c5af8d1167a5db86c63c4f60b6660.webp(

) Memory Pool

The total number of unconfirmed Bitcoin transactions ( in the mempool ) has been rising throughout 2023, recently spiking significantly due to interest in inscriptions and BRC-20. This, in turn, has impacted the cost of Bitcoin transactions.

![Binance Research Institute's Extensive Article: The Principles, Current Status, and Future of Bitcoin BRC-20]###https://img-cdn.gateio.im/webp-social/moments-79bf9fd470942fa78c6d8fac4708d29b.webp(

) transaction fee

Fees have always been a focal point of debate within the Bitcoin community. Bitcoin's security model incentivizes miners through block rewards and transaction fees. As block rewards gradually decrease, transaction fees will ultimately become the sole source of income for miners.

Recently, transaction fees have increased from 1-2% of total miner revenue to over 20% in May. This is likely due to the influence of inscriptions and BRC-20.

Some people welcome the increase in fees, believing it will contribute to the long-term sustainability of Bitcoin. However, others are concerned about its impact on users in price-sensitive regions. It is worth noting that this is the first significant increase in Bitcoin fees during the mid-bear market.

5. Community Response

supports the high fee camp

Some people are excited about the increased activity in the Bitcoin ecosystem and believe that the rising fees are beneficial for long-term sustainability. They think:

• Miners need to receive adequate compensation to protect network security.

• Higher fees may attract more miners to join, increasing the level of decentralization.

• Ordinals and BRC-20 prove the demand for block space, which is crucial for the long-term development of Bitcoin.

( supports the low fee camp

Others, however, hold a critical attitude, believing that:

• The "real purpose" of Bitcoin is to serve as a peer-to-peer transaction system, and high fees would hinder this use.

• Concern that high fees may exclude some users from certain countries.

• Some even believe that ordinals and BRC-20 are an "attack" on Bitcoin.

) Developer

Some key developers and projects are building infrastructure for the BRC-20 ecosystem:

• UniSat wallet provides ordinal and BRC-20 wallet functions, and has launched an experimental BRC-20 trading market.

• ALEX is developing a BRC-20 DEX on the Bitcoin Layer 2 network Stacks.

• The Rare Satoshi Society ### focuses on collecting rare Bitcoins.

![Binance Research Institute's lengthy article: Principles, current status, and future of Bitcoin BRC-20]###https://img-cdn.gateio.im/webp-social/moments-864d52b7b549a067d93ec44914cee494.webp###

6. Risks and Challenges

( Lack of infrastructure

BRC-20 is still in a very early experimental stage, lacking mature infrastructure:

• Most trades are still conducted over-the-counter on the Discord server.

• The lack of a well-developed indexer makes it difficult to track tokens and their holders.

• Centralized indexing brings risks, as different exchanges may not recognize the same Token.

) actual utility is insufficient

Currently, most BRC-20 tokens are purely Meme tokens, lacking actual utility:

• Without a serious holder base, the price may suddenly collapse.

• The utility claimed by the new token may just be a marketing gimmick.

( High risk of fraud

Due to the fact that the entire ecosystem is very new, the risk of scams is high:

• Over-the-counter trading on Discord is prone to scams.

• New projects may have security risks.

![Binance Research Institute's extensive article: Principles, Current Status, and Future of Bitcoin BRC-20])https://img-cdn.gateio.im/webp-social/moments-6422fd82ddd2bb2d1630abfbd935ceaf.webp###

7. Future Outlook

Bitcoin Layer 2 Network

The BRC-20 craze indicates that Bitcoin needs scalability solutions:

• The usage of the Lightning Network continues to grow, and large exchanges like Binance are considering integration.

• The sBTC project of Stacks may offer a more decentralized way to use BTC on the second layer.

• Other Layer 2 solutions such as Rootstock, Liquid Network, etc. are also under development.

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

) Infrastructure

BRC-20 urgently needs more infrastructure support:

• Need to deploy features