BRC-20 Tokens Explained

Key Takeaways

• “Bitcoin Request for Comment” (BRC-20) is a new, experimental token standard being used to issue and transfer fungible tokens on the Bitcoin blockchain.
• BRC-20 was first detailed in March 2023 and uses the Ordinals protocol.
• The market cap of all BRC-20 tokens stood at ~$750M as of 5/8/2023. That’s up ~44x from ~$17.5M as of 4/24/2023.

What is a BRC-20 Token?

In January 2023, non-fungible tokens (NFTs) made their debut on the Bitcoin blockchain with the launch of the Ordinals protocol. Historically, the Ordinals protocol has been used to issue and transfer ownership of digital assets such as images, video, and audio - all of which come with their own verifiably unique characteristics and are not interchangeable on a 1:1 basis.

But the technology underpinning Ordinals also enables developers to inscribe text directly on the Bitcoin blockchain. And with BRC-20, this text is being used to represent fungible tokens which are, for all intents and purposes, identical and interchangeable on a 1:1 basis.

Take a look at the screenshot below. It shows the text included in the transaction to create the “ordi” BRC-20 token (which is the top BRC-20 token by market capitalization at ~$400M as of 5/8/2023).

As can be seen above, there is not much to a BRC-20 inscription.

• “p”:the tokens are being issued under the BRC-20 token standard.
• “op”:the operation invoked in this transaction is to deploy or initialize the “ordi” tokens.
• “tick”:the ticker of the tokens will be “ordi.”
• “max”: the maximum supply of “ordi” is 21,000,000 tokens.
• “lim”: the maximum amount of “ordi” that could (theoretically) be minted in one transaction was capped at 1,000.

BRC-20 Tokens vs. ERC-20 Tokens

Bitcoin-based BRC-20 tokens may sound a lot like Ethereum-based ERC-20 tokens. But they are not to be confused.

For starters, BRC-20 tokens are issued on the Bitcoin blockchain and not Ethereum. That means that they are secured by Bitcoin’s proof-of-work security mechanism rather than Ethereum’s proof-of-stake security mechanism. To mint and trade them, you will need a Bitcoin wallet such as UniSat Wallet.

Secondly, they have fewer “bells and whistles” compared to ERC-20 tokens. Bitcoin’s base layer is inherently limited - it does not support smart contracts. So, BRC-20 tokens can’t be deployed in other applications such as decentralized exchanges, borrowing and lending protocols, etc.

What do BRC-20 Tokens Represent?

The lion’s share of BRC-20 tokens minted to date can be classified as “memecoins.”

Take a look at the table below. It shows the price, market capitalization, and circulating supply of top BRC-20 tokens created since the token standard went live ~2 months ago.

To date, ~14,200 different BRC-20 tokens (each with their own supply, which can total in the tens of millions, billions, or trillions) have been minted. The total market capitalization of all of these tokens was ~$750M as of 5/8/2023.

The top 3 coins minted using BRC-20 to date are “ordi,” “pepe,” and “meme.” “ordi” is short for “Ordinals.” “pepe” refers to the Pepe the Frog meme, which was first popularized in the Bitcoin community as early as 2016. And “meme” is just what it sounds like.

Notably, the price of these tokens has appreciated meaningfully over a short term horizon. Take a look at the table below. It shows the total market capitalization of these tokens just 2 weeks ago.

As of April 24th 2023, the total market capitalization of all BRC-20 tokens stood at just $17.5M. So, from a market cap perspective, the value of BRC-20 tokens has appreciated by a factor of ~44x in just two weeks.

Tracking The Adoption of BRC-20 Tokens

The chart below shows the percentage breakdown of Bitcoin transactions by transaction type.

The light gray portions on top represent standard Bitcoin transactions (e.g., transfers of BTC from one address to another), the pink portions in the middle represent BRC-20 transactions (e.g., mints and transfers of BRC-20 tokens), and the dark gray portions on the bottom represent Bitcoin Ordinals transactions (e.g., mints and transfers of Ordinals NFTs).

As a percentage of total Bitcoin transactions, BRC-20 transactions accounted for ~60% of all Bitcoin transactions (as of 5/7/2023). The surge in activity surrounding BRC-20 has resulted in meaningful congestion on the Bitcoin network and forced the largest centralized crypto exchange, Binance, to temporarily halt withdrawals of BTC on 5/7/2023.

Market Size: BRC-20 vs. ERC-20

Despite this growth, the number of BRC-20 tokens in circulation on Bitcoin still pales in comparison to the number of ERC-20 tokens issued on Ethereum.

• Estimates for the number of ERC-20 tokens on Ethereum range as high as ~400,000 vs. just 14,200 for BRC-20s.
• The total market capitalization of ERC-20 tokens issued on top of Ethereum is in the hundreds of billions compared to just ~$750M for BRC-20s (as of 5/8/2023).

That’s not all that surprising given that Ethereum’s ERC-20 standard was proposed as early as 2015, while BRC-20 was proposed just last month.

The Outlook for BRC-20 Tokens

This is not the first time that we have seen developers (attempt to) use Bitcoin’s base layer as a platform for fungible token issuance. As early as 2012, the Colored Coins protocol (which also aimed to introduce fungible token issuance on Bitcoin) was introduced. But it failed to gain traction as high transaction fees on Bitcoin and limits on programmability drove users to explore Ethereum.

But similar to how Ordinal NFTs have spurred new interest in using Bitcoin as a development platform, BRC-20 tokens are ushering in a new era of experimentation as it relates to fungible tokens on Bitcoin. And to date, the level of interest surrounding BRC-20 tokens has been staggering.

Like most “experimental” projects, the tooling around BRC-20 tokens is still primitive, to say the least. Unisat, one of the most popular wallets for minting, storing, and transferring these BRC-20 tokens, experienced an exploit on 4/23/2023. The team has indicated that it is working on getting impacted users their funds back.

Examples like the UniSat exploit showcase the fundamental technical risks currently associated with these early stage BRC-20 tokens - which are irrespective of the high price risk that many of the “memecoins” issued using BRC-20 come with.

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