Why has BRC-20 become popular? A brief analysis of the token experiment on Bitcoin.

At the beginning of 2023, the Bitcoin ecosystem stirred up quite a commotion. After the Ordinals protocol went live in January, it made people ponder: since we can inscribe NFTs on Bitcoin, can we also issue regular tokens?

This idea was implemented in March by a developer nicknamed Domo. The BRC-20 standard he designed allows users to issue and transfer fungible tokens on the Bitcoin blockchain through the Ordinals protocol. The first project to take the plunge was called “ordi”, and subsequently, various BRC-20 tokens surged like a geyser, with many wallets quickly following up to add support features.

By May, things started to spiral out of control. BRC-20 Tokens experienced a crazy surge in prices and huge market capitalization inflation, and the on-chain heat reached unprecedented levels. But this also brought side effects - the transaction fees on the Bitcoin network skyrocketed, and network congestion became the norm.

How does BRC-20 actually work?

To understand BRC-20, you must first understand Ordinals. This protocol can assign a number and label to each satoshi (the smallest unit of Bitcoin). Users can attach additional data to satoshis through “Inscription,” which includes information in JSON format.

BRC-20 utilizes this mechanism to deploy Token contracts, issue Tokens, and execute transfers using JSON data. The process is divided into three steps: deploy to determine the total Token supply, mint to activate Token generation, and transfer to complete the transaction. It sounds simple in theory, but the actual operation is quite complex, and the supporting tools are not rich enough.

Why can't it be like Ethereum?

If you are clearer about BRC-20 compared to ERC-20, you will understand its limitations. ERC-20 is a token standard on Ethereum, which was conceptualized in 2015 and officially recognized in 2017. It relies on smart contracts, is feature-rich, and can interconnect with other protocol ecosystems, giving rise to various applications such as lending and exchanges. After years of development, ERC-20 has become very mature and stable.

In contrast, BRC-20 lacks support from smart contracts, has limited functionality, and weak ecological interoperability; it is essentially still an experimental product. Although their names sound like twin brothers, the differences are actually huge.

Are these tokens really worth playing with?

To be honest, the practical value of BRC-20 is currently negligible, and its prospects are equally unclear. Due to the extremely low issuance threshold, a large number of BRC-20 tokens may ultimately become worthless coins. Moreover, as it is still in the testing phase, various risks may occur—such as code vulnerabilities, changes to standards, and lack of application scenarios…

For those who want to participate, it is essential to do thorough research and understand what risks they are taking on. This is not traditional investing; this is gambling in a still-maturing experimental field.