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What are BRC 20 tokens? How BRC 20 VS ERC 20 can bring a new dimension to the blockchain landscape?

Webllisto

|

March 20, 2024

Introduction:

In a landscape where Bitcoin has primarily been esteemed as digital gold, a new realm of opportunities is unfolding. The emergence of ordinal NFTs has sparked fresh interest within the Bitcoin community, triggering investigations into the network’s potential beyond its traditional scope. One particularly captivating experiment is the inception of BRC-20 tokens, an innovative endeavor to embed fungibility directly into Bitcoin’s structure. BRC-20 tokens serve as an inventive workaround to Bitcoin’s inherent constraints in programmability, employing ordinal inscriptions to create semi-fungible assets within the Bitcoin blockchain. With the introduction of the Bitcoin Ordinals protocol, facilitating the inscription of NFTs on satoshis, curiosity naturally arose regarding the viability of establishing fungible tokens on the Bitcoin network. Stemming from this inquisitiveness, the BRC-20 token standards were established in March 2023 by a pseudonymous programmer named Domo, signifying a pivotal juncture in Bitcoin’s evolution.

Origin of BRC 20:

The deployment of the first BRC-20 token, aptly named “ordi,” swiftly followed, sparking a cascade of token launches, including numerous meme tokens, in the months to come. As these tokens gained traction, driving up demand and subsequently Bitcoin transaction fees, the landscape of blockchain technology began to shift. This blog aims to dissect the nuances of BRC-20 tokens and their potential to revolutionize the blockchain landscape, particularly in comparison to Ethereum’s ERC-20 standard, ushering in a new era of possibilities for decentralized finance and beyond.

What are Bitcoin Ordinals:

Bitcoin Ordinals are not only revolutionary in their indexing and inscription capabilities but also introduce the concept of rare satoshis. These rare satoshis, classified into categories such as Common, Uncommon, Rare, Epic, Legendary, and Mythic, mark significant milestones in Bitcoin’s history. For example, Uncommon satoshis are the first satoshis of each block, while Mythic satoshis are those originating from the genesis block. This categorization adds a layer of historical significance and scarcity to individual satoshis, akin to collectible items within the cryptocurrency realm.

 

Furthermore, Bitcoin Ordinals leverage the Taproot upgrade to ensure the seamless integration of Inscriptions into transactions. Taproot enhances privacy and flexibility by enabling complex scripts to be replaced with a single public key or script hash. This simplification reduces transaction sizes and enhances scalability while preserving privacy. Inscriptions, embedded within Taproot-enabled outputs using the Pay-To-Taproot (P2TR) script type, are stored in the segregated witness (SegWit) section of transactions. This section, with a storage capacity of around 3–4 MB, accommodates various forms of data, from text to multimedia files, paving the way for diverse applications of Bitcoin Ordinals beyond simple text inscriptions.

 

Bitcoin Ordinals represent a groundbreaking innovation within the Bitcoin ecosystem, revolutionizing the concept of data inscription and tokenization on the blockchain. The fundamental principle underlying Bitcoin Ordinals lies in achieving field uniqueness, accomplished by indexing each satoshi based on its mining order. This indexing system provides versatility through multiple representation formats, including integer, decimal, degree, percentile notations, and even encoded names such as “satoshi.” For instance, the first-ever mined satoshi in the genesis block is indexed as 0. These ordinals serve as the foundation for embedding personalized content into each unique satoshi, a concept known as Inscriptions.

 

Leveraging the Ordinals protocol, Inscriptions enable the direct embedding of JSON-formatted content into satoshis, effectively transforming them into Non-Fungible Tokens (NFTs). With Bitcoin Ordinals, each satoshi becomes a vessel for arbitrary data, ranging from text, images, audio, to even highly compressed video files. This transformation is facilitated by the Taproot upgrade to Bitcoin, which ensures privacy and flexibility in transactions through the Pay-To-Taproot (P2TR) script type assigned to outputs designated for inscription storage. In essence, Bitcoin Ordinals represent a paradigm shift in blockchain technology, unlocking new possibilities for tokenization, data storage, and decentralized applications within the Bitcoin network

BRC 20 Vs. ERC 20:

 

Although their names may appear similar, the two tokens exhibit significant differences. Let’s explore these distinctions in the table below:

 

Feature BRC-20 Tokens ERC-20 Tokens
Blockchain Platform Bitcoin Ethereum
Creation Method JSON files inscribed on satoshis Smart contract code
Operational Mode Operate parallel to Bitcoin’s blockchain Operate within Ethereum’s blockchain
Programmability Limited due to Bitcoin’s constraints Extensive smart contract functionality
Interoperability Limited interaction with other protocols Wide range of services through interoperability
Adoption and Stability Uncertain future; less mature and tested Mature standard with widespread adoption

 

In summary, while BRC-20 tokens leverage ordinal inscriptions on the Bitcoin blockchain and offer simplicity, they lack the extensive functionality and stability provided by ERC-20 tokens, which operate within the Ethereum ecosystem and utilize smart contracts for various functionalities.

Can BRC 20 to be added in Ethereum network:

Several studies have indicated the potential integration of BRC-20 tokens into the Ethereum network. These investigations propose the development of an innovative lightweight middleware protocol aimed at bridging the gap between Bitcoin and Ethereum. Leveraging the BRC-20 standard for digital tokens on the Bitcoin network, analogous to Ethereum’s ERC-20, this middleware interprets BRC-20 operations inscribed on Bitcoin’s blockchain and mirrors them on the Ethereum network. This approach extends Bitcoin’s functionalities within Ethereum’s EVM, enabling the integration of Bitcoin assets into DeFi applications.

 

To achieve this objective, the proposed solution involves the creation of a lightweight middleware named MIDASTOUCH, facilitating seamless communication between the Bitcoin and Ethereum networks, predominantly from Bitcoin to Ethereum. MIDASTOUCH empowers users to interact with Ethereum smart contracts through Bitcoin inscriptions specified in the BRC-20 standard. The researchers have developed a preliminary version of MIDASTOUCH to showcase its functionality, implementing functional methods on both the Bitcoin and Ethereum sides, along with featured events in the intermediate middleware. Additionally, a partial evaluation has been conducted to assess MIDASTOUCH’s effectiveness and efficiency, focusing on smart contract-related operations on the Ethereum testnet.

 

This evaluation considers scalability and performance with varying committee sizes, gas usage for different contract functionalities, and the frequency of validator processing for requests, providing valuable insights into the system’s behavior under diverse scenarios.

Advantages of BRC-20 Tokens

  • Utilization of Bitcoin Compatibility: Harnessing the existing infrastructure and security provided by the Bitcoin network.
  • Streamlined Creation Process: Simplified token creation compared to alternative standards that necessitate intricate smart contracts.
  • Heightened Security: Enhanced security measures attributed to the robust nature of the Bitcoin blockchain​​.

Limitations of BRC-20 Tokens

  • Absence of Smart Contract Features: Restricts the range of applications in comparison to token standards offering sophisticated smart contract capabilities.
  • Reliance on the Bitcoin Blockchain: Vulnerable to the inherent constraints of the Bitcoin network such as limited scalability and slower transaction speeds.
  • Constrained Interoperability and Utility: Encounters difficulties in interacting with other blockchain systems and faces limitations in meeting complex tokenization requirements​​.

Conclusion:

Drawing inspiration from Ethereum’s ERC-20 tokens, BRC-20 tokens exhibit distinct mechanisms and functionalities. Despite experiencing significant popularity in the first half of 2023, BRC-20 tokens remain experimental, urging users to proceed with utmost caution.

 

Despite BRC’s notable achievements within a short span, its awareness remains surprisingly limited. Even among experienced blockchain researchers and developers, as evidenced by informal random surveys with unrecorded responses, familiarity with BRC, Bitcoin token standards, or Bitcoin NFTs is scarce. Additionally, our investigations revealed insufficient resources available for newcomers. While introductory materials exist, they predominantly offer a surface-level understanding without delving into the intricacies involved. This realization motivates our endeavor to comprehend this intriguing yet “enigmatic” term, discerning its essence as either a beacon of hope or a product of hype.

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