The Bitcoin blockchain is evolving beyond its original purpose as a peer-to-peer electronic cash system. With innovations like Ordinals and the experimental BRC-20 token standard, developers are exploring new ways to create and manage digital assets directly on Bitcoin. This article explores how BRC-20 works, its relationship with Ordinals, key differences from Ethereum’s ERC-20, market trends, and the broader implications for Bitcoin’s network performance and future scalability.
Understanding Ordinals: The Foundation of Bitcoin NFTs
At the heart of BRC-20 lies Ordinals, a protocol developed by former Bitcoin Core contributor Casey Rodarmor and launched in January 2023. Ordinals assign a unique identifier to each satoshi—the smallest unit of Bitcoin (1 BTC = 100 million satoshis)—enabling users to "inscribe" data such as text, images, or code directly onto individual satoshis.
This process leverages Segregated Witness (SegWit), which separates signature data from transaction data, and the Taproot upgrade introduced in November 2021. Taproot enhanced Bitcoin’s scripting capabilities, privacy, and efficiency—features that inadvertently enabled complex use cases like NFTs and tokenization.
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Each inscribed satoshi becomes a unique digital artifact that can be tracked, bought, sold, or transferred across the Bitcoin network. Wallets like Unisat and Ordinal Wallet allow users to view these inscriptions, displaying metadata such as name, rarity, creation date, and associated media.
What Is Inscription?
“Inscription” refers to the technical process of embedding data into Bitcoin’s witness field—a component introduced by SegWit to store signature information. Using JSON format, developers can encode small files (up to 4 MB) within this field, effectively attaching digital content to a specific satoshi.
Once inscribed, the satoshi retains all standard Bitcoin functionalities—it can be sent, received, or stored in any compatible wallet. However, tracking its movement requires adherence to the Ordinals protocol, ensuring the attached data remains linked to the correct satoshi through every transaction.
This innovation marks a shift: instead of relying on external storage systems like IPFS (commonly used in Ethereum NFTs), Ordinals store data directly on-chain, enhancing permanence and decentralization.
How BRC-20 Differs from Traditional NFTs
While both Ordinals and NFTs represent unique digital assets, their underlying mechanics differ significantly:
- Blockchain Platform: NFTs typically exist on smart contract-enabled chains like Ethereum (ERC-721/ERC-1155), Solana, or BNB Chain. BRC-20 tokens live natively on Bitcoin.
- Data Storage: Most NFTs reference off-chain data (e.g., an image hosted on IPFS). In contrast, BRC-20-related metadata is inscribed directly into Bitcoin transactions.
- Security Model: BRC-20 inherits Bitcoin’s robust security model—backed by the world’s most decentralized and battle-tested proof-of-work network.
Despite these advantages, BRC-20 lacks smart contract functionality. Unlike ERC-20 tokens, which automate transfers and balance tracking via code, BRC-20 relies on external indexing services to manage token ownership and transaction history.
Introducing BRC-20: Bitcoin’s Experimental Token Standard
Launched in March 2023 by pseudonymous developer Domo (@domodata), BRC-20 is an experimental fungible token standard built atop the Ordinals framework. Inspired by Ethereum’s ERC-20, it allows users to deploy tradable tokens on Bitcoin without requiring smart contracts.
Here’s how it works:
- A user creates a JSON inscription defining a new token (name, symbol, total supply).
- Additional inscriptions are used to mint or transfer tokens.
- Wallets like Unisat index these inscriptions to track balances and enable trading.
Because Bitcoin doesn’t natively support account-based models or state tracking, wallets must manually parse the blockchain to determine token holdings—an approach that introduces complexity but preserves decentralization.
BRC-20 vs. ERC-20: Key Differences
| Feature | BRC-20 | ERC-20 |
|---|---|---|
| Smart Contracts | No | Yes |
| Blockchain | Bitcoin | Ethereum |
| Token Management | Indexing by wallets | On-chain execution |
| Interoperability | Limited | High (with dApps, DeFi protocols) |
| Transaction Cost | High during congestion | Variable (gas-based) |
Due to the absence of smart contracts, BRC-20 tokens cannot interact with decentralized applications or lending platforms. There is no native DeFi ecosystem yet, limiting utility beyond speculation and collectibility.
However, this simplicity also reduces attack vectors. Without complex logic, BRC-20 avoids vulnerabilities common in poorly audited smart contracts—though it introduces new risks related to indexing accuracy and wallet compatibility.
How to Issue and Trade BRC-20 Tokens
Platforms like Unisat Wallet provide user-friendly interfaces for creating and trading BRC-20 tokens:
- Create a Wallet: Set up a non-custodial Unisat wallet to maintain full control over private keys.
- Deploy a Token: Use the “Issue Token” function to define your token’s name (e.g., “MYCOIN”), symbol (e.g., “MCN”), and maximum supply.
- Mint Tokens: Submit a transaction to inscribe the initial supply onto the blockchain.
- List for Sale: Navigate to the marketplace section, set price and quantity, and create a sell order.
- Transfer Tokens: Send tokens directly to another user using their Bitcoin address.
Unisat launched its marketplace in April 2023, enabling peer-to-peer trading. Orders are matched off-chain but settled on Bitcoin’s mainnet, ensuring finality and security.
⚠️ Note: In April 2023, Unisat suffered a vulnerability leading to double-spending incidents affecting 70 transactions. The team compensated affected users, highlighting ongoing technical challenges in this emerging space.
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Market Growth and Investment Outlook
Since its inception in March 2023, the BRC-20 ecosystem has grown rapidly:
- Over 14,000 BRC-20 tokens have been created.
- Total market capitalization peaked at $700 million USD.
- Daily inscriptions exceeded 300,000 at peak activity.
Notable tokens include:
- ORDI: The first BRC-20 token; surged 190x after listing on Gate.io.
- ELON, NALS, UTXO: Memecoins that saw exponential price increases amid speculative trading.
Despite enthusiasm, liquidity remains low compared to established ecosystems. Price volatility is extreme, and many projects lack clear utility or roadmap—raising concerns about long-term sustainability.
Impact on the Bitcoin Network
The rise of BRC-20 has sparked debate over Bitcoin’s intended role: as a store of value versus a platform for digital assets.
Rising Transaction Fees
In May 2023, average Bitcoin transaction fees spiked to $20–$30, levels not seen since mid-2021. This surge coincided with increased demand for block space from Ordinals and BRC-20 activity.
Over 500,000 unconfirmed transactions accumulated in the mempool, delaying standard transfers for users unwilling or unable to pay premium fees.
Developer Backlash and Proposed Restrictions
Some core Bitcoin developers have expressed concern:
- Ali Sherif proposed disabling non-standard Taproot transactions via a runtime flag.
- Luke Dashjr suggested using
OP_RETURNscripts to invalidate such outputs.
Both aim to preserve Bitcoin’s primary function by discouraging data-heavy use cases.
These proposals remain controversial. If adopted, they could render existing Ordinals and BRC-20 tokens unspendable—though implementation would require broad consensus across miners, nodes, and users.
Frequently Asked Questions (FAQ)
Q: Can BRC-20 tokens be used in DeFi protocols?
A: Not currently. Without smart contracts on Bitcoin, there's no native DeFi infrastructure for lending, staking, or swapping BRC-20 tokens.
Q: Are BRC-20 tokens secure?
A: The underlying Bitcoin blockchain is highly secure. However, risks arise from indexing errors, wallet bugs, and lack of standardized tooling.
Q: How do I buy BRC-20 tokens?
A: You can purchase them via marketplaces like Unisat or through peer-to-peer trades using compatible wallets that support inscription indexing.
Q: Could BRC-20 be banned on Bitcoin?
A: Technically yes—if major node operators adopt rules rejecting non-standard transactions. However, such changes face significant community resistance due to decentralization principles.
Q: Is BRC-20 environmentally harmful?
A: It uses the same proof-of-work mechanism as Bitcoin. Increased transaction volume raises energy consumption slightly but doesn’t alter the overall mining footprint significantly.
Q: What’s the future of BRC-20?
A: While speculative interest may fade, the innovation has demonstrated Bitcoin’s potential as a multi-use blockchain. Future upgrades could formalize token standards with better scalability solutions.
Bitcoin was never designed for tokenization—but human ingenuity found a way. BRC-20 represents a grassroots experiment pushing the boundaries of what’s possible on the world’s most secure blockchain. While fraught with technical limitations and community debate, it opens new doors for digital ownership and asset creation—all without compromising decentralization.