Explaining BRC20: The New Standard for Fungible Tokens on Bitcoin
In the world of crypto, innovation and evolution are the rules of the game — and whilst many see the Bitcoin blockchain as a slow moving tanker in a sea of more nimble and inventive protocols, the spotlight has recently been shining on the number one blockchain with the introduction of non-fungible tokens — Ordinals. You can read my comprehensive explanation of Ordinals here: https://tara-annison.medium.com/a-comprehensive-explanation-of-ordinals-nfts-on-bitcoin-67b11868e74f. However, over the last few weeks, a new token type is in town and this BRC20 standard for fungible tokens is now a la mode. N.B Both Ordinals and the BRC20 standard were enabled by the Taproot upgrade, which you can learn more about here: https://tara-annison.medium.com/what-are-taproot-mast-and-schnorr-signatures-b737dae20681
But this isn’t the first time fungible assets have been built on top of Bitcoin. The Omni Layer was introduced way back in 2014 and supports non-native tokens on both Bitcoin and Litecoin, with over 888 Bitcoin properties, functioning like tokens (read more about the Omni Layer in my previous article: https://www.linkedin.com/pulse/omni-layer-explained-tara-annison/).
Another more recent development is Taro (Taproot Asset Representation Overlay), announced by Lightning Labs in April 2022, and which enables assets to be sent across both the Bitcoin base layer and the Lightning Network.
However it’s the new BRC20 standard which seems to have caught the attention and imagination of Bitcoiners and is now driving transaction fees even higher than the Ordinal boom to highs now seen since mid-2021!
Introducing BRC20s
The BRC20 standard was proposed in March 2023 by pseudonymous developer Domo, and aims to introduce a new method for creating fungible tokens on Bitcoin by leveraging Ordinal Theory — as used by Bitcoin’s digital artefacts. A TL;DR on Ordinal Theory is that it essentially gives a number to every sat (the smallest denomination of a bitcoin 0.00000001 BTC. This creates non-fungibility and means you can inscribe something to a sat e.g jpeg, text, URL etc and have this ‘thing’ transferred to other people by sending the specific sat to their address.
Currently the most common inscriptions are text and there’s been over 4.3m inscriptions made to date.
This Ordinal Theory is now being used to create tokens which are being inscribed to sats as text and the transfer of them is being tracked in a similar way (first in, first out approach).
The code behind them is elegantly simple with just three functions: deploy, mint and transfer.
Function 1: Deploy your BRC20 token
To create a BRC20 token, you need to specify the following parameters:
p = the protocol
op = the operation type (deploy, mint, or transfer)
tick = the ticker for the token
max = maximum supply of the token
lim = the limit that can be minted per ordinal
N.B Token tickers are not case-sensitive and are unique.
This is inscribed as text to the sat — hence all this BRC20 activity is pushing text-based inscriptions to be the most popular by a country mile!
Function 2: Mint your BRC20 token
Once the token is deployed, you need to use the mint function to generate some tokens. Each mint must be equal to or below the limit set out in the initial deploy function.
N.B If using an inscription service, they may mint tokens to their address first and then transfer the tokens (minus any fees) to your address.
It’s also possible to mint tokens which someone else has deployed, however before minting a token ensure you check that there’s some left — all of the top 50 BRC20 tokens are fully minted.
Function 3: Transfer your BRC20 token
The final function is the transfer, which allows a specific amount of tokens to be sent to an address. The inscription must include the following information but note that no ‘to’ address is required since this information would be inscribed to a sat that is being sent to an address — the receiving address.
It is important to note that BRC20 tokens can only be sent to Taproot-enabled addresses (those starting with the prefix bc1p…)
And it’s as simple as that!
However, as always, I like to get stuck in with new innovations in the space and so I wanted to mint my own BRC20 token ….
Creating my Own BRC20 token
Softening the bitcoin-as-digital-money maxi in me, I decided to test out the hype and go through the process of deploying, minting and transferring my very own BRC20 token. Annoyingly the ticker ‘TARA” was taken 😲so I decided to create the “T4R4” token.
I created a new funding wallet, added some BTC using MoonPay (N.B this was VERY quick and easy and required no KYC) and then using the inscribe functionality on https://unisat.io/inscribe I set the max amount of “T4R4” token as 1m with a limit per inscription of 100. You need to input the address for the inscription (a Taproot enabled address) and then you’re shown a UniSats address to pay the ‘invoice’ to for the deployment.
The Bitcoin network is congested (with people like me creating tokens, and sending jpegs) and so it cost a whopping $12.32 to process the deploy function for my new token and a modest $1.96 to UniSats as a service fee.
Breaking down the transactions for this deployment, there’s first a transaction paying the invoice (from my funding wallet) and then UniSats create a transaction paying from the invoice address to my receiving address and also paying to a new UniSats address which receives the service fee. Both transactions are processed in the same block.
Checking on https://brc-20.io I could confirm that my token had been deployed
So I now needed to mint some!
However due to SUPER high transaction fees (above $10!) my funding wallet already needed topping up 😅So after adding some more bitcoin and waiting for the necessary block confirmations I could then mint some new T4R4…
This involved going back to UniSats and this time using the ‘mint’ functionality. You need to specify the token ticker and amount to be minted — ensuring this is less than or equal to the limit specified within the deploy function for the token.
And after a block confirmation or two, the mint was confirmed and 99 T4R4 tokens were associated with the Taproot address in my receiving wallet.
There’s still 999,901 T4R4 tokens up for grabs but I’d warn against minting any since they’re almost certain to remain worthless! I also tried to mint some TARA tokens just for good measure but a $24 transaction fee put me off doing that!
So ~$50 in fees later and I have some worthless tokens but a better understanding of BRC20 tokens 💪.
The Future for BRC20 Tokens
Since the introduction of the BRC20 standard, there has been a surge of memecoins being created on the Bitcoin network, such as ‘PEPE’, ‘Meme’, ‘SHIB’, and ‘Elon’. There’s also been many copycat tokens which have the same name as other more established versions on other chains. However I think a fair question to be asking is how will these tokens maintain their value? Memecoins primarily rely on speculation and market hype, so once that fades and early gamblers find exit liquidity, these price of these tokens can drop quickly. It’s likely we’ll see a similar pattern with BRC20 memecoins. For the copycat tokens, it’s important to note that unlike their counterparts on other smart contract based networks, they have limited to no utility on Bitcoin. There’s no booming DEX ecosystem to use these as liquidity and generate a yield, or DAO infrastructure to make a copycat governance token valuable. In fact, the BRC20 standard’s creator even stated in their proposal and documentation, “These will be worthless. Use at your own risk.”
So whilst we’re seeing plenty of creativity and excitement around this new token standard — we’d also need to see the necessary infrastructure built in parallel to make use of these tokens. Whether that happens, remains to be seen.
Furthermore, as the BRC20 standard isn’t official, wallet providers and other infrastructure services need to make the decision of whether to support it or wait for a potentially new standard to emerge
Regardless of these challenges, the introduction of the BRC20 standard highlights the growing interest in expanding the capabilities of the Bitcoin network and presents an exciting development on the number one blockchain.
As the Bitcoin ecosystem continues to evolve, it will be interesting to see how the BRC20 standard shapes the landscape and whether it drives the creation of more utility-driven tokens and services. With the right infrastructure in place, the BRC20 standard could pave the way for a new era of innovation and development on the Bitcoin network, reminiscent of the ICO boom on Ethereum in 2017/18.
Originally published at https://www.linkedin.com.
