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What Is BRC-20: A New Way to Create Tokens on Bitcoin
Intermediate
2025-09-03 | 15m
The
Bitcoin blockchain
, long regarded primarily as a secure value transfer network, is experiencing a remarkable transformation through the emergence of
BRC-20 tokens
. This experimental token standard has opened unprecedented possibilities for
tokenization
on the world's most robust blockchain. While Ethereum-based ERC-20 tokens dominated the token landscape for years, BRC-20 represents a fundamentally different approach that leverages Bitcoin's inherent security without relying on smart contracts. The rapid adoption of BRC-20 tokens—with the market reaching
$216 million in 2024
and projected to grow to
$396 million by 2031
—demonstrates their significant impact on the cryptocurrency ecosystem. This article explores the technical foundations, mechanisms, applications, and future potential of BRC-20 tokens, providing a comprehensive understanding of this innovative approach to Bitcoin-based digital assets.
Overview of BRC-20
BRC-20 is an experimental token standard on the Bitcoin blockchain that enables the creation and transfer of
fungible tokens through the Ordinals protocol. Proposed in March 2023 by an anonymous developer known as
Domo(@domodata), BRC-20 tokens represent a significant departure from smart contract-based token systems like Ethereum's ERC-20 standard. Instead of relying on complex smart contract code, BRC-20 utilizes simple
JSON data inscriptions on individual satoshis (the smallest units of Bitcoin) to define token attributes and operations.
The protocol was designed as an experiment to explore Bitcoin's potential for
"fungibility" beyond its native cryptocurrency functionality. Despite its experimental nature, the standard quickly gained substantial traction, with over 30,000 inscriptions created in a single day at its peak popularity. The first BRC-20 token,
ORDI, launched with a maximum supply of 21 million tokens in homage to Bitcoin's limited supply, quickly achieved a market capitalization exceeding
$2 billion, demonstrating the significant interest in this new tokenization approach.
BRC-20 operates fundamentally differently from smart contract-based tokens. The standard uses three primary operations,
deploy, mint, and transfer, all executed through JSON inscriptions that are permanently recorded on the Bitcoin blockchain. This design choice leverages Bitcoin's unparalleled security and immutability while introducing token functionality that extends beyond simple value transfer.
Historical Background
The development of BRC-20 tokens did not occur in isolation but rather built upon several critical technological advancements within the Bitcoin ecosystem. The foundation was laid with the
Taproot upgrade implemented in November 2021, which enhanced Bitcoin's data capacity and privacy features, creating a more conducive environment for complex data inscriptions.
In January 2023, software engineer
Casey Rodarmor introduced the
Ordinals protocol, which enabled users to inscribe various types of content—including images, text, and videos—onto individual satoshis. This protocol implemented a numbering system that allowed tracking of satoshis through transactions, essentially creating Bitcoin's native equivalent of non-fungible tokens (NFTs).
The critical breakthrough came in March 2023 when Domo, an anonymous developer, recognized that the Ordinals protocol could be adapted for fungible tokens. By utilizing JSON inscriptions to define token parameters and operations, Domo created the BRC-20 standard as an experimental approach to tokenization on Bitcoin. The developer explicitly framed this innovation as an experiment and encouraged the Bitcoin community to refine and optimize the standard.
The initial response was overwhelmingly positive, with rapid adoption leading to unprecedented network activity. At the peak of the frenzy, most Bitcoin transactions were BRC-20 related, and for the first time since 2018,
transaction fee rewards temporarily exceeded block rewards. This surge demonstrated both the enormous interest in Bitcoin-based tokenization and the significant challenges the standard would face regarding network scalability.
How BRC-20 Works
BRC-20 tokens operate through the
Ordinals protocol, which allows data to be inscribed onto individual satoshis. Unlike smart contract-based systems that execute logic on-chain, BRC-20 uses
JSON-based text inscriptions to define token parameters and operations. These inscriptions are permanently recorded on the Bitcoin blockchain, leveraging its security and immutability while maintaining a relatively simple operational framework.
The process begins with
Taproot technology, which expanded Bitcoin's data capabilities through BIP-341 and BIP-342. These improvements enabled more efficient data storage in the witness section of transactions, allowing up to 4MB of arbitrary data to be stored, a significant increase from the previous 80-byte limit using OP_RETURN.
Three fundamental operations comprise the BRC-20 functionality:
Deployment: Token creators inscribe a JSON object that defines the token's parameters, including its ticker symbol (limited to 4 characters), maximum supply, minting limit per inscription, and optional decimal precision.
Minting: Users create inscriptions that reference a deployed token ticker and specify an amount to mint, up to the limit set during deployment. This process effectively claims tokens from the available supply.
Transferring: Token holders create transfer inscriptions that specify the amount to send and the recipient address. Unlike direct Bitcoin transfers, BRC-20 transfers require two steps: inscribing the transfer intent and then sending the inscribed satoshi to the recipient.
The entire system relies on
indexers—off-chain services that parse the Bitcoin blockchain to track BRC-20 token balances and transactions 2. These indexers maintain the state of all BRC-20 tokens by processing the JSON inscriptions and calculating current balances based on valid transactions.
Advantages of BRC-20
BRC-20 tokens offer several distinct advantages that contribute to their popularity and potential longevity. The most significant benefit is their
simplicity compared to smart contract-based alternatives. Without complex smart contract code, BRC-20 tokens reduce the attack surface for exploits and vulnerabilities. This simplicity makes token creation accessible to a broader range of users, not just those with smart contract development expertise.
The standard leverages Bitcoin's
unparalleled security infrastructure, including its decentralized consensus mechanism and proof-of-work security model. By building on Bitcoin, BRC-20 tokens inherit the most battle-tested security features in the cryptocurrency space, providing a level of assurance that newer blockchain networks cannot match.
Another advantage is the
immutability provided by Bitcoin's blockchain. Once inscribed, BRC-20 token operations cannot be altered or censored, creating a permanent record of all transactions. This characteristic contrasts with some smart contract implementations where admin keys or upgradeable contracts might introduce centralized control points.
BRC-20 tokens also facilitate
innovation within the Bitcoin ecosystem. They have created new use cases for Bitcoin beyond simple value transfer, potentially increasing utility and demand for block space. This innovation has provided Bitcoin miners with additional
transaction fee revenue, particularly during periods of high BRC-20 activity.
The standard's design also enables a
fair launch mechanism that contrasts with many token distribution models on other chains. Since tokens are minted through a transparent process with parameters set at deployment, BRC-20 projects typically avoid venture capital dominance or large pre-mines that concentrate tokens among a small group of insiders.
Limitations of BRC-20
Despite its advantages, the BRC-20 standard faces several significant limitations that impact its functionality and adoption. The most notable constraint is the
lack of smart contract functionality. Without programmable logic, BRC-20 tokens cannot support advanced features like automated market makers, lending protocols, or complex decentralized applications that define much of the Ethereum DeFi ecosystem.
Scalability concerns represent another major challenge. The Bitcoin blockchain was not designed to handle the transaction volume associated with intensive token operations. During peak BRC-20 activity, network fees have increased 10-20 times normal levels, making regular Bitcoin transactions prohibitively expensive. This congestion threatens to price out everyday Bitcoin users while privileging those with greater resources.
The
technical complexity of interacting with BRC-20 tokens presents a barrier for non-technical users. The process requires compatible wallets, understanding of JSON data, and navigation of multiple steps for basic operations, far from the seamless experience offered by modern Web3 applications on other chains.
BRC-20 tokens also suffer from
limited interoperability. Designed specifically for the Bitcoin ecosystem, they cannot natively interact with other blockchain environments without bridging solutions. This limitation restricts their utility in the increasingly multi-chain cryptocurrency landscape.
Another concern is the potential for
data truncation by Bitcoin nodes. If JSON data exceeds certain size limitations, nodes might truncate this information, potentially causing critical token management data to be lost. This vulnerability represents a systemic risk for the entire BRC-20 ecosystem.
Finally, the current
reliance on centralized indexers introduces potential points of failure. Since Bitcoin nodes do not natively track BRC-20 token balances, off-chain indexers must process this information. If these indexers disagree or experience downtime, users might receive inconsistent information about their token holdings.
What Does One Need to Play With BRC-20?
Interacting with BRC-20 tokens requires specific tools and resources that differ from standard Bitcoin operations. The first requirement is a
compatible wallet that supports the Ordinals protocol and BRC-20 operations. Popular options include
UniSat Wallet (unisat.io) and
Bitget Wallet, both of which provide user interfaces for minting, transferring, and managing BRC-20 tokens.
Users need
Bitcoin (BTC) to pay for transaction fees. The cost of BRC-20 operations varies significantly based on network congestion, with fees spiking during periods of high demand. During the peak of BRC-20 activity, users reported paying between $10-50 per transaction, making small-scale experimentation cost-prohibitive.
The process typically involves several steps:
Funding a wallet with sufficient Bitcoin to cover transaction fees
Navigating to the BRC-20 section within a compatible wallet
Selecting an operation (deploy, mint, or transfer)
Completing the required fields based on the desired operation
Paying the network fee and waiting for confirmation
For those interested in purchasing existing BRC-20 tokens rather than minting new ones, several
marketplaces and decentralized exchanges have emerged, though they remain less sophisticated than their Ethereum counterparts. These platforms facilitate peer-to-peer trading but often require trust in centralized intermediaries or escrow services due to the lack of native swap functionality.
It's crucial to recognize the
experimental nature of BRC-20 tokens and associated tools . The ecosystem has already experienced security incidents, including marketplace hacks. Users should only engage with BRC-20 tokens using funds they are willing to lose and should maintain heightened security practices, including verifying websites and transactions carefully.
Significance of BRC-20 and Key Tokens (ORDI & SATS)
BRC-20 tokens represent a significant development in the evolution of Bitcoin, potentially expanding its functionality beyond "digital gold" toward a more versatile blockchain platform. This expansion challenges long-held assumptions about Bitcoin's capabilities and limitations while creating new economic activity around the network.
The significance of BRC-20 extends beyond technical innovation to include
economic impacts on the Bitcoin ecosystem. The increased transaction fees generated by BRC-20 activity have substantially boosted miner revenues, potentially enhancing network security by increasing the economic incentives for miners to continue operating their equipment. During periods of intense BRC-20 activity, fee rewards temporarily exceeded block rewards for the first time since 2018.
Two tokens particularly exemplify the BRC-20 ecosystem:
ORDI and
SATS. ORDI was the first BRC-20 token deployed, with a maximum supply of 21 million tokens in homage to Bitcoin's supply limit. It quickly achieved a market capitalization exceeding $2 billion, demonstrating the substantial demand for Bitcoin-based tokens. SATS (1000SATS) represents another prominent BRC-20 token, named in reference to satoshis (the smallest units of Bitcoin). Both tokens have been listed on major cryptocurrency exchanges, providing increased liquidity and legitimacy to the BRC-20 standard.
The emergence of these tokens has also sparked philosophical debates within the Bitcoin community. "Bitcoin maximalists" argue that BRC-20 tokens deviate from Bitcoin's original purpose as a peer-to-peer electronic cash system and create unnecessary congestion. Others view BRC-20 as a natural evolution that expands Bitcoin's utility and introduces new use cases without compromising its core security properties.
Comparison with ERC-20 Tokens
While BRC-20 and ERC-20 tokens both serve as fungible token standards on their respective blockchains, they differ fundamentally in design, functionality, and underlying philosophy. Understanding these differences is essential for evaluating their respective strengths and weaknesses.
ERC-20 tokens operate on the Ethereum blockchain using
smart contracts to define token behavior and manage operations. This approach enables complex functionality, including integration with decentralized applications, automated market makers, lending protocols, and other DeFi primitives. The ERC-20 standard has matured since its creation in 2015, with widespread adoption across thousands of tokens and applications.
In contrast,
BRC-20 tokens utilize the
Ordinals protocol to inscribe JSON data on individual satoshis, avoiding smart contracts entirely. This design choice prioritizes simplicity and security over functionality, resulting in a token standard with more limited capabilities but potentially greater security assurances thanks to Bitcoin's robust consensus mechanism.
The table below highlights key differences between the two standards:
| Characteristic | BRC-20 | ERC-20 |
| Underlying Blockchain | Bitcoin | Ethereum |
| Technical Foundation | Ordinals protocol & JSON inscriptions | Smart contracts |
| Programmability | Limited | Extensive |
| Transaction Speed | Subject to Bitcoin block times (10 min avg) | Subject to Ethereum block times (12 sec avg) |
| Transaction Costs | Variable, often high during congestion | Variable, often high during congestion |
| Security Model | Bitcoin's proof-of-work | Ethereum's proof-of-stake |
| Interoperability | Limited to Bitcoin ecosystem | Extensive within Ethereum ecosystem |
| Maturity | Experimental (2023) | Established (2015) |
The choice between BRC-20 and ERC-20 ultimately depends on priorities. BRC-20 offers greater security and simplicity at the cost of functionality, while ERC-20 provides richer functionality within a more complex security environment.
Applications of BRC-20
Despite its limitations, BRC-20 has found several practical applications within the cryptocurrency ecosystem. The most prominent use case to date has been
memecoins and speculative assets. Tokens like ORDI, PEPE, and MUNI have primarily been used for speculation rather than utility-driven applications. This trend reflects broader patterns in the cryptocurrency space where speculative activity often precedes practical utility.
Beyond speculation, BRC-20 tokens show potential for
loyalty programs and reward systems. Businesses could create branded tokens to incentivize customer engagement, with the Bitcoin blockchain providing transparent and secure record-keeping. The simplicity of BRC-20 tokens makes them particularly suitable for straightforward point systems without complex mechanics.
Community tokens represent another potential application. Organizations and online communities could develop tokens to coordinate member activities, reward contributions, or facilitate governance decisions. The fair launch mechanism inherent in BRC-20 tokens aligns well with community-focused projects that prioritize broad distribution over venture funding.
Some projects explore BRC-20 for
asset tokenization. While the lack of smart functionality limits complexity, simple real-world assets could potentially be represented as BRC-20 tokens, leveraging Bitcoin's security for ownership verification. This application remains largely theoretical but represents an interesting direction for future development.
BRC-20 tokens also serve educational purposes within the
Bitcoin developer community. By providing a relatively simple token standard, BRC-20 has introduced developers to Bitcoin-based tokenization concepts, potentially paving the way for more sophisticated implementations in the future.
Challenges and Criticisms
The BRC-20 standard faces several significant challenges and criticisms that could impact its long-term viability. The most persistent criticism concerns
network congestion and
high transaction fees. During periods of intense BRC-20 activity, Bitcoin transaction fees have increased 10-20 times, making routine Bitcoin transactions economically impractical for regular users. This congestion threatens to undermine Bitcoin's primary use case as a peer-to-peer electronic cash system.
The
experimental nature of BRC-20 tokens introduces additional risks. As an unofficial standard without formal specification or audit processes, BRC-20 tokens may contain unforeseen vulnerabilities or design flaws. The anonymous nature of the protocol's creator further complicates the development and standardization process.
Technical limitations present another challenge. The lack of smart contract functionality restricts BRC-20 tokens to basic operations, preventing their use in sophisticated DeFi applications that drive significant value on other chains. This limitation could relegate BRC-20 tokens to primarily speculative rather than utility-driven applications.
The
environmental impact of increased Bitcoin transactions represents another concern. While Bitcoin's energy consumption is largely independent of transaction volume (as it's primarily determined by mining difficulty), increased fee competition could potentially extend the economic viability of older, less efficient mining equipment.
Some Bitcoin proponents offer
philosophical objections to BRC-20 tokens. They argue that Bitcoin should remain focused on its core mission as decentralized digital cash rather than expanding into tokenization, which they view as unnecessary complexity that could compromise network stability and decentralization.
Finally, the
regulatory uncertainty surrounding BRC-20 tokens presents risks for participants. As securities regulators worldwide increase their scrutiny of cryptocurrency tokens, BRC-20 tokens could face legal challenges depending on how they are marketed and distributed.
Future of BRC-20
The future development of BRC-20 tokens likely involves addressing current limitations while expanding functionality. Several development efforts are already underway to enhance the capabilities of Bitcoin-based tokens without compromising network security or decentralization.
The most promising development is
BRC-2.0, an ambitious upgrade that aims to introduce
programmability to BRC-20 tokens while maintaining backward compatibility. This upgrade, developed by Binari (@0xBinari) of Best in Slot (@bestinslotxyz) in collaboration with Domo's Layer 1 Foundation (@L1Fxyz), could enable smart contract-like functionality without requiring changes to Bitcoin's core protocol. Key features include single-step transfers (scheduled for Q1 2025 on Fractal mainnet), programmable modules (Q3 2025 on Bitcoin mainnet), and exchange modules.
Sidechains and layer-2 solutions represent another direction for BRC-20 development. By moving some operations off the main Bitcoin chain, these solutions could reduce congestion while enabling more complex functionality. Projects like Rootstock (RSK) and the Lightning Network could potentially integrate with BRC-20 tokens to enhance their capabilities.
The
Runes protocol, developed by Casey Rodarmor (creator of Ordinals), offers an alternative approach to Bitcoin tokenization. Unlike BRC-20's JSON-based approach, Runes utilizes Bitcoin's UTXO model and the OP_RETURN opcode to create tokens more efficiently while avoiding the creation of "junk" UTXOs that plague some BRC-20 implementations.
Despite these technical developments, the ultimate future of BRC-20 tokens will depend on
market adoption and
regulatory clarity. If developers continue building and users continue engaging with BRC-20 tokens, they could become a permanent fixture in the cryptocurrency landscape. However, if regulatory challenges emerge or if more efficient alternatives gain traction, BRC-20 may remain a niche experiment rather than a widely adopted standard.
Conclusion
BRC-20 tokens represent a fascinating innovation in the Bitcoin ecosystem, demonstrating that even well-established blockchain networks can support unexpected use cases. By leveraging the Ordinals protocol and JSON inscriptions, BRC-20 enables token creation on Bitcoin without smart contracts, offering a unique blend of simplicity and security.
While the standard faces significant challenges—including network congestion, limited functionality, and philosophical objections—it has undoubtedly expanded the conversation about what's possible on the Bitcoin blockchain. The rapid adoption and substantial market value achieved by tokens like ORDI demonstrate significant interest in Bitcoin-based tokenization, even in its experimental form.
The future of BRC-20 will likely depend on continued technical development, particularly around programmability and scalability. Projects like BRC-2.0 and alternative approaches like the Runes protocol suggest that Bitcoin tokenization is still in its early stages, with considerable innovation expected in the coming years.
Regardless of its ultimate fate, BRC-20 has already made an important contribution to the cryptocurrency space by challenging assumptions, driving innovation, and expanding the possibilities of what can be built on Bitcoin's secure foundation. As the standard continues to evolve, it will remain a significant area to watch for anyone interested in the future of Bitcoin and blockchain tokenization more broadly.
CoinCatch Team
Disclaimer:
Digital asset prices carry high market risk and price volatility. You should carefully consider your investment experience, financial situation, investment objectives, and risk tolerance. CoinCatch is not responsible for any losses that may occur. This article should not be considered financial advice.
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