The dawn of cryptocurrencies has revolutionized people’s perception of wealth. As blockchain technology continues to introduce new innovations, one of the topics on everyone’s lips is the BRC-20. Like Ethereum’s ERC-20 token standard, the BRC-20 operates on the Binance Smart Chain (BSC) and has garnered much attention in the crypto world. This token standard boasts high utility and has rapidly become one of the most prominent on the Binance Smart Chain.
Furthermore, it has found use in several decentralized finance (DeFi) projects. This article provides insight into BRC-20’s history, tokens created on BRC-20, and prospects of this groundbreaking technology.
Table of Contents
Defining BRC-20
BRC-20 is an innovative token standard introduced on March 9, 2023, by an unknown developer named Domo. It is native to Bitcoin and employs an ordinal inscription. It does not utilize smart contracts and instead allows users to save a script file on Bitcoin and correlate tokens with certain satoshis. BRC-20 tokens, which integrate JSON data into ordinal inscriptions, can be used to launch, mint, and transfer tokens. Even though it is simply an experimental fungible token, BRC-20 has piqued the curiosity of the Bitcoin community. Conventional infrastructure providers have incorporated it to allow their customers to issue and trade BRC-20 tokens.
BRC-20 tokens best illustrate the strength of open-source communities. These tokens are non-fungible, meaning each ordinal has distinct features and is unique from the preceding one. However, smart contracts offer more use cases than ordinals, and the functionality of ordinals is confined to minting and transferring. The importance of BRC-20 tokens stems from their fungibility, which makes them interchangeable and of equal value.
Differentiating BRC-20 & ERC-20
There are noteworthy distinctions between the two tokens despite their similar names. BRC-20 tokens operate on the Bitcoin network, while ERC-20 is a standard utilized by the Ethereum network. BRC-20 tokens have limited functionality as they do not employ smart contracts. Conversely, ERC-20 tokens possess expanded functionality, being able to interact with various protocols and applications to enable a wider range of services that include borrowing and lending.
ERC-20 tokens are an established token standard widely used, with many ERC-20 tokens already created. The conception of ERC-20 tokens took place in 2015 and was officially recognized in 2017. They have been rigorously tested and proven to function reliably. This is not the case with BRC-20 tokens, where future developments are characterized by high uncertainty.
The Influence of BRC-20 Tokens on Bitcoin Network Congestion and Transaction Fees
The emergence of BRC-20 tokens has overloaded the Bitcoin network. These currencies are created on the Bitcoin blockchain by employing protocols such as the Omni Layer or RSK. While transmitting $BTC to or from a crypto wallet, no fees are charged, and network costs are regulated by the chain on which the token sits.
But how has the BRC-20 token affected the network’s congestion and fees?
Token Activity has Increased.
BRC-20 tokens’ launch and broad use have resulted in a considerable surge in token-related transactions on the Bitcoin network. As more projects and consumers embrace BRC-20 tokens, the Bitcoin network encounters increased load, worsening congestion.
Token Swaps and Exchanges
BRC-20 tokens sometimes demand users to exchange or swap their tokens on decentralized exchanges (DEXs). Interacting with smart contracts in these swap transactions generates additional on-chain activity. As a result, the exchanging and selling of BRC-20 tokens contribute to overall Bitcoin network congestion.
BRC-20 Token Scalability Solutions
Developing scaling solutions for BRC-20 tokens is critical, similar to the efforts to relieve congestion on the Bitcoin network. Layer-2 technologies, such as the Lightning Network, may also be used with BRC-20 tokens, allowing quicker and less expensive transactions. These alternatives can reduce the pressure on the Bitcoin network and reduce congestion by executing most token-related transactions off-chain.
The Significance of Effective Token Design
Token producers and projects that issue BRC-20 tokens help to reduce congestion on the Bitcoin network. They can assist in reducing overall network stress by introducing efficient token designs and considering factors like transaction fees, block space usage, and scalability. Prioritizing optimum token contracts and implementing scaling solutions can aid in the smooth and efficient operation of the token ecosystem. To properly control the impact of BRC-20 tokens on the Bitcoin network’s congestion, token creators, projects, and users must collaborate in applying efficient design principles and investigating scaling solutions as the ecosystem expands.
Possible Drawback Of BRC-20
Currently, the BRC-20 token standard is in its experimental phase as developers seek to enhance the functionality of the Bitcoin blockchain. However, since it’s still undergoing testing, unforeseen challenges can arise.
Despite the buzz surrounding BRC-20 tokens, their practicality is limited, and their future outlook is highly uncertain. Due to the ease of creating BRC-20 tokens, most of these tokens could potentially hold little to no value. As such, users and investors must exercise caution and conduct thorough research before engaging with this novel token type.
Prediction Of BRC-20
The BRC-20 market is expanding rapidly, with over 14,709 unique tokens created using this standard in the crypto world, and this number continues to grow. BRC-20 has become a ground-breaking technology, with tokens approaching a market cap of $1 billion. The BRC-20 team is continually advancing and aiming to improve features that will make it simpler for developers to create tokens using this technology. As the DeFi space expands, we expect to see even more tokens and financial products employing BRC-20.
Bottom Line
The blockchain industry has the potential to greatly increase the utility of the BRC-20 token standard, which has countless uses. Although any new technology is subject to vulnerabilities and fluctuations, the current trend suggests that the BRC-20 token standard is rising and will continue to grow.