<p>BRC-20 is a new type of token standard designed to create and move fungible tokens using the <a href="https://listing.help/what-are-ordinals-bitcoin-nfts-explained/" rel="noopener noreferrer nofollow">Ordinals</a> protocol on the Bitcoin blockchain. Inspired by Ethereum&#39;s <a href="https://listing.help/what-are-erc-20-tokens-on-the-ethereum-network/" rel="noopener noreferrer nofollow">ERC-20</a> tokens,  BRC-20 tokens have their own set of mechanisms and features. Although  they became very popular in early 2023, BRC-20 tokens are still in the  experimental stage, and it&#39;s crucial for users to be very careful when  dealing with them.</p><h2 id="header-0">Understanding BRC-20 Tokens</h2><p>BRC-20 tokens are a type of fungible bitcoin asset created using the experimental BRC-20 protocol.</p><p>To put it simply, fungible tokens are digital assets that are  identical and can be exchanged for one another. Think of a physical  coin: if you trade it for another of the same kind, the value remains  unchanged, even though it&#39;s a different coin. This is what fungibility  means – the ability to swap one token for another identical one.</p><p>Fungible tokens are commonly used in decentralized applications. However, the Bitcoin network doesn&#39;t support the complex <a href="https://listing.help/what-are-smart-contracts-on-blockchain/" rel="noopener noreferrer nofollow">smart contracts</a> needed  for these applications. Consequently, Bitcoin lagged in developing an  ecosystem for alternative assets until the Ordinals protocol was  introduced.</p><h2 id="header-1">History of BRC-20 Tokens</h2><p>In November 2021, Bitcoin underwent an update called Taproot,  which increased the amount of data allowed in Bitcoin blocks, enabling  new capabilities. Although there were previous attempts to include  larger data amounts on the Bitcoin network, there was no standardized  method, making it uncommon.</p><p>In January 2023, Casey Rodarmor introduced the Bitcoin Ordinals  protocol, allowing the Bitcoin network to support something similar to  NFTs. This protocol enabled inscribing information, such as images or  text, onto individual Satoshis, the smallest units of Bitcoin.</p><p>Satoshis have a built-in rarity system, assigned a &#34;serial number&#34;  based on their mining order on the Bitcoin blockchain. This ordinal  number allows for tracking the history of each Satoshi. Satoshis mined  within the first 1000 blocks, or by Bitcoin&#39;s founder Satoshi Nakamoto,  hold inherent value and are quite scarce. Today, there is a market  dedicated to these rare sats, in addition to those with inscriptions.</p><p>This innovation attracted collectors to the Bitcoin network, eager  to inscribe ordinals and test the protocol&#39;s limits. This is where the  BRC-20 protocol comes into play.</p><p>Bitcoin developer Domo leveraged the ordinals protocol to create  the BRC-20 fungible token protocol. By using ordinals as the foundation,  the BRC-20 protocol allows the issuance of currencies on Bitcoin, the  first and most popular blockchain. Launched as a test protocol in March  2023, it has since gained significant traction.</p><h2 id="header-2">How Do BRC-20 Tokens Work?</h2><p>To grasp BRC-20s, it&#39;s essential to understand Bitcoin Ordinals.  The Ordinals protocol assigns a unique number to each satoshi and allows  users to add extra data to them through a process called &#34;inscription.&#34;</p><p>These tokens leverage Ordinals inscriptions by using JSON  (JavaScript Object Notation) data to deploy contracts, mint assets, and  transfer them. The current standard includes functions for creating  tokens with the deploy function, minting them with the mint function,  and transferring them with the transfer function.</p><p>However, this new concept is not user-friendly, and there are limited tools and services available to support it.</p><h2 id="header-3">Differences Between BRC-20 and ERC-20 Tokens</h2><p>While BRC-20 and ERC-20 share similar names, they differ  significantly. The former operates on the Bitcoin network, whereas the  latter is part of the Ethereum network. BRC-20 tokens do not use smart  contracts, limiting their functionality. In contrast, ERC-20 tokens can  interact with various protocols and applications, enabling a wide range  of services, such as borrowing and lending.</p><p>ERC-20 is a well-established standard, with numerous tokens  created and widely used since its inception in 2015 and official  recognition in 2017. These tokens have been thoroughly tested and proven  reliable. BRC-20s, on the other hand, are still experimental, and their  future remains uncertain.</p><h2 id="header-4">Risks of BRC-20 Tokens</h2><p>The BRC-20 standard is an ongoing experiment to enable fungibility  on the Bitcoin blockchain. As it is still in the testing phase, many  aspects could go wrong.</p><p>Despite the current excitement, these tokens offer little utility  at the moment, and their future is uncertain. The ease of minting  BRC-20s could lead to many of them becoming worthless. Users and  investors should exercise caution and conduct thorough research before  engaging with this new type of asset.</p><h2 id="header-5">The Future of Bitcoin Tokens</h2><p>BRC-20 tokens, though still experimental, have already influenced  the Bitcoin network and the broader DeFi market. They are becoming more  common, but BRC-20 is not the only protocol for creating fungible tokens  on Bitcoin. In 2023, the Stamps protocol emerged, along with its  fungible variant SRC-20. By 2024, Casey Rodarmor, the creator of Bitcoin  Ordinals, introduced an optimized fungible token protocol known as  Bitcoin Runes. These developments show that multiple protocols are now  utilizing Bitcoin to create alternative assets.</p><p>Before engaging with BRC-20 tokens, thorough research is  essential. While tools like Ledger can protect your private keys from  being exposed online, they cannot prevent mishandling of ordinals. It is  easy to mistakenly send your BRC-20 tokens, so it is crucial to review  support materials on managing ordinals beforehand.</p><p>If you choose to experiment with this protocol, proceed with  caution. Proper knowledge and tools can help you confidently navigate  the ecosystem of alternative Bitcoin assets. Remember, self-custody  comes with responsibility, but with the right preparation and a Ledger  device, you can manage these experimental assets securely.</p><p><img src="https://media.licdn.com/dms/image/D4E12AQHndJkFlhUS7Q/article-inline_image-shrink_1500_2232/0/1716487663933?e&#61;1721865600&amp;v&#61;beta&amp;t&#61;KFkkqVd6RTAIlxPsr5GhjjAxY1wYUYegYnmt9GAheAI" /></p><p>To explore more insights and discussions on the impact of blockchain and DeFi on various sectors, visit our blog at listing.help/blog. Here, you&#39;ll find a wealth of informative articles that delve deeper into these transformative technologies.</p>

What Are BRC-20 Tokens?

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Sergei Khitrov

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