Jul 27, 2023 | Updated Aug 4, 2023

Bitcoin is the first and most popular Blockchain in existence. The primary purpose of the Bitcoin network has always been a decentralized, peer-to-peer money transfer system at its core, However, it’s also often compared to digital gold, offering crypto users a secure store of value.

In short, it offered consumers a way to be their own banks. Sticking true to its purpose, most Bitcoin users were happy with its security and didn’t want to use Bitcoin for much else than those core values.

Meanwhile, other blockchains evolved, adding more use cases than just transferring value. For example, tokenization on other networks led to innovations like DeFi and NFTs. With Bitcoin being this popular, some users were pushing for more capabilities on BTC. And who blames them? Why not adapt and expand when possible?

Well, the Taproot upgrade and the following innovation of the Bitcoin Ordinals protocol created a whole new world of opportunities on Bitcoin. Now, tokens on BTC are not only possible, they have become a whole movement. Naturally, new ideas attract further innovation and one such innovation is the BRC-20 token standard.

To explain, the BRC-20 standard is an experiment, primarily about exploring the possibilities Bitcoin could offer apart from its classic field of application. In other words, you can now issue tokens on the Bitcoin blockchain. 

But before we go into the specifics, let’s unpack the basics: What are BRC-20 tokens exactly? Let’s dive in and find out.

What Are BRC-20 Tokens?

BRC-20 tokens are the first, yet experimental, standard for fungible tokens on the Bitcoin blockchain. 

If that sounds confusing—fear not! Put simply, fungible tokens are digital assets that are identical and interchangeable with one another. For example, let’s imagine you have a physical coin. If you exchange this coin with another of the same kind, the value of your asset remains the same, even though it’s not the same coin. This is the essence of fungibility; it means the tokens are interchangeable with each other.

In the crypto sphere, these fungible tokens are commonly used in applications like cryptocurrencies or decentralized finance (DeFi). Many platforms and applications on the Ethereum network require fungible tokens simply in order to operate. However, this was not previously possible on the Bitcoin network. Now, with the introduction of the BRC-20 standard, the Bitcoin network is entering a new age of utility.

But how did these new tokens come about, and why didn’t they exist until now? Let’s explore their origin:

History of BRC-20 Tokens

To understand the history of the BRC-20 standard, let’s go back to the very beginning.

In November 2021 Bitcoin underwent an update named Taproot. This increased the amount of data allowed in Bitcoin blocks and thus opened the door to new capabilities like Ordinals. While there were several attempts to include larger amounts of data on the bitcoin network, there was no set method, and doing so was not commonplace.

A couple of years later, in January 2023, Casey Rodarmor brought the Bitcoin Ordinals protocol to life. With the entirely new protocol, the Bitcoin blockchain  (for the first time) tapped into the opportunity of being able to support something close to NFTs. To explain, the protocol allows users to inscribe information onto individual Satoshis (the smallest denominations of Bitcoin possible).

In the first few weeks since the protocol’s inception, it was mainly used to create non-fungible Bitcoin tokens. For example, NFT giants Yuga Labs and DeGods both dropped Bitcoin Ordinals collections which immediately sold out. A lot of new collections also saw huge volumes, such as Taproot Wizards and BitcoinFrogs. One of the reasons ordinals rose to fame was the simple fact Satoshis essentially have a built-in rarity system. To explain, each Satoshi has a history. Satoshis mined within the first 1000 blocks, or even mined by Bitcoin founder Satoshi Nakamoto himself, have an inherent value. Plus, since he’s been long inactive, these satoshis are also quite scarce.

As a result, Bitcoin attracted a whole new audience: Collectors. But it didn’t come without a price. Active Bitcoin wallets increased dramatically, which backed up transactions in the mempool. This made Bitcoin network fees skyrocket. Despite that, it also opened the door to new innovations. Quickly, people started to inscribe new and interesting ordinals, and that’s where the BRC-20 standard comes in.

In short, Ethereum developer Domo (@domodata) used the ordinals protocol to build the groundwork for a new token standard, BRC-20. He launched the standard as a test in March 2023, and since then, it’s sparked a wave of new Bitcoin network tokens.

But how does it work exactly?

How Do BRC-20 Tokens Work?

Before we explain how BRC-20 tokens work, it’s important to understand their underlying technology: The Ordinals protocol. To clarify, Sats are assigned a “serial number” based on the order in which they are mined on the Bitcoin blockchain. This gives an ordinal number for each Satoshi, which is also how the protocol got its name.

In short, the ordinals protocol made it much easier to attach additional data (such as text, images or audio) to a single Satoshi, a process known as inscription. Essentially just satoshis inscribed with information. And that’s exactly what BRC-20 tokens are: a type of ordinals Inscription.

However, not all ordinals are BRC-20 tokens. Standard bitcoin ordinals can be inscribed with any information, but BRC-20 tokens are always inscribed with JSON  (JavaScript Object Notation) data. It’s this code that gives the ordinal extra functionality. While the BRC-20 standard is still limited, this small amount of code allows you to deploy, mint and transfer tokens on the Bitcoin network.

Top BRC-20 Tokens

So now you know how they work, you might be wondering which BRC-20 tokens you may already know about. Today, two of the most held BRC-20 tokens are: ORDI and WOJAK. Keep in mind that most of these tokens have been created for educational or entertainment purposes and may not hold any future value. 

ORDI 

The most popular BRC-20 token to date is ORDI. Short for Ordinals. Not to be confused with the protocol Bitcoin Ordinals, which is the eponym. ORDI is the first ever fungible token that applies to the BRC-20 standard and was created during the described experiment by @domodata. It has been listed by several big exchanges. 

WOJAK

Just by its name, users should be able to guess that the WOJAK token is a memecoin. The name of the token goes back to the internet meme called “Wojak” (polish for soldier or warrior). It’s a simple black-and-white cartoon drawing of a bald man with a wistful expression. This particular token is a memecoin and to learn more about these types of assets, check out the full article on what a memecoin is.

BRC-20 vs ERC-20 Tokens: What’s the Difference?

Simply put, we are comparing a Bitcoin asset to an Ethereum asset. But of course, there’s more to it. 

For starters, BRC-20 tokens are much more limited than their Ethereum token counterparts. To explain, many blockchains have their own virtual machine that has the power to execute smart contracts. For Ethereum and Solana, that’s EVM, the Ethereum virtual machine. These virtual machines can read and execute code which allows for more complex assets and conditions relating to those assets. 

But here’s where the big difference is: Bitcoin does not use a virtual machine, and this poses some limitations. For example, BRC-20 tokens are not interoperable – you can’t easily transfer them to other chains. Additionally, Bitcoin cannot handle complex tokens or store extra information outside of the blockchain, unlike Ethereum which can use EVM to find files stored on IPFS and other decentralized storage protocols.

Then, since the Bitcoin network uses a proof-of-work consensus, it is much slower, more expensive and energy-consuming than Ethereum, which uses proof of stake. That means creating BRC-20 tokens requires more time, money and funds than just releasing an ERC-20 token. However, this same PoW mechanism means that Bitcoin tokens are much more secure and much more immutable than ERC-20 tokens.

Pros and Cons of BRC-20 Tokens

So, now you know what BRC-20 tokens are all about and how they work. But what about some of the main advantages and disadvantages of this new standard?

Pros:

• BRC-20 tokens allow for new capabilities and use cases on the Bitcoin network like DeFi
• The Bitcoin network is more secure than Ethereum since it uses a proof-of-work consensus mechanism
• BRC-20 tokens are FULLY on chain – no additional file systems like IPFS are needed. This means BRC-20 tokens are more immutable than their counterparts on other chains

Cons:

• Due to Bitcoin’s PoW mechanism, deploying, minting, and transferring tokens costs a lot of energy
• BRC-20 offers very limited functionality (as of now) compared to tokens on other chains
• BRC-20 is entirely experimental: They are high-risk assets with limited supporting tools and have an uncertain future

The Future of Bitcoin Tokens

Although only experimental, BRC-20 tokens have already had an impact on the Bitcoin network and the DeFi market as a whole.

To explain, for the majority of Bitcoin users, the single purpose for BTC has always been the decentralization of value storage, thus BTCs nickname “digital gold”. Naturally, the Bitcoin white paper by Satoshi Nakamoto envisions BTC as a “peer-to-peer electronic cash system”. It’s no surprise that the Ordinals protocol and its possibilities led to heated debates within the Bitcoin community about Bitcoin’s true use case. While some argue that Bitcoin should remain a pretty simple, decentralized way to exchange value, others are looking forward to pushing boundaries to expand the use cases for the Bitcoin blockchain.

As exciting as all these innovations sound, please always be aware that experiments, such as the BRC-20 standard, may put you at risk. Interacting with Bitcoin ordinals, including BRC-20 tokens, involves a sophisticated understanding of the Bitcoin network, such as managing UTXOs and third-party wallets. To clarify, you can’t just use a standard bitcoin account for interacting with these types of assets. 

So, before you go diving into BRC-20, make sure you do your research. While Ledger can protect you from exposing your private key on the internet, it can’t prevent you from mismanaging your ordinals—You can’t yet manage BRC-20 tokens directly with your Ledger device. However, you can start to store other types of ordinals using Sparrow wallet and a Ledger device. For more information, make sure you check out the support article on how to manage ordinals.

So, if you do decide to experiment with this new protocol, you should always do so with caution and with the necessary knowledge. Only then can you interact with experimental assets in confidence.