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Gate.io Research: BRC-20 — A Fun Experimental Standard for Bitcoin

2023-05-17 09:47:00 UTC 17560 Lido

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#1.The BRC-20 Standard

**Creation**
Published by @ domodata in Mar. 2023, the BRC-20 is a token protocol based on the Bitcoin network, similar to the ERC-20 standard on the Ethereum network. The BRC-20 protocol relies on the ordinal inscriptions of the JSON data to deploy, mint, and transact tokens. It is a fun experimental standard, as @ domodata said in the document, users can create off-chain balance stats utilizing inscriptions. But the creator also stated “This is an extremely dynamic experiment to be made”, and advised not to make any financial decisions based on the design. It is meant to encourage the Bitcoin community to tinker with the design to determine if it can be a good practice or a bad idea after all.

**Core Ideas**
The experiment is designed to test if the ordinals theory can facilitate fungibility on Bitcoin. The primary goal of the experiment is as follows according to the creator:

-Create a BRC-20 with the deploy function
-Mint an amount of BRC-20’s with the mint function
-Transfer an amount of BRC-20’s with the transfer function.

The BRC-20’s balance state can be easily calculated by aggregating all the function’s activity. This is a simple and highly efficient solution. Upon deployment, the BRC-20 will be initialized but will not affect the state. Mints will provide a balance to the first owner of the mint function inscription only. When transfers happen, the balance will be deducted from the sender’s balance and added to the receiver’s balance, but only upon the first transfer of the transfer function. Step 1 in the graph below shows the inscribe transfer function to the sender’s address, and Step 2 shows the sender transfer’s transfer function.
![](https://gimg2.gateimg.com/image/article/16843152361.png)

For more details please visit: https://domo-2.gitbook.io/brc-20-experiment/

**BRC-21 Proposal**
The BRC-21 proposal is for minting and redeeming fully decentralized, cross-chain BRC-20 tokens. The BRC-21 proposal outlines a standard to mint as well as redeem BRC-20 tokens to or from Bitcoin that were first created on other source chains, like Ethereum and so on.

Technically, the protocol requires three elements as foundations. The first is the custom indexer,  which is crucial to validate BRC-21 mint, transfer, and redeem operations on Bitcoin and the contract state on the source chain. The second requirement is a source chain contract, which will handle the contract state on the source chain. Finally, the last requirement is a BTC-relay. It is a BTC-light client implemented as a smart contract on the source chain, which can verify the inclusion of BTC transactions and parse them.

The BRC-21 standard allows ETH, DOT, or SOL to be represented as BRC-21 assets on Bitcoin, but the main application of this standard is to create decentralized stablecoins that can work on the Lightning Network or similar payment protocols. Decentralized stablecoins need complex mechanisms to mint, redeem, and liquidate them to maintain their value, which cannot be done directly on the Bitcoin blockchain because it is not very programmable.

For more details please visit: https://interlay-labs.gitbook.io/brc-21/

**ORC-20 Standard**
ORC-20 is an experimental standard for ordinals protocol tokens on Bitcoin that improves on BRC-20 standard, a currently popular ordinals token standard. It is backward compatible with BRC-20 but offers better speed, security, and scalability, and avoids double-spending. However, ORC-20 does not ensure that its tokens will be valuable or useful, just as the BRC-20 standard mentioned above. Users should use ORC-20 with caution and research any underlying risk before proceeding.

The limitations of the current BRC-20 standard are the supply and max per mint are immutable after the first deployment, naming space limitations, and are heavily reliant on external centralized indexers. To improve on the limitations, the ORC-20 design is aimed for wider adoption:

-Create a new ORC-20 token or convert an existing BRC-20 token by triggering the deploy event
-Generate new ORC-20 tokens by triggering the mint event
-Transfer ORC-20 tokens to another address by triggering the send event
-Revoke an incomplete ORC-20 transaction by triggering the cancel event
-Modify an existing ORC-20 token by triggering the upgrade event

BRC-20 and any ordinals tokens can migrate to ORC-20 by inscribing a deploy event. But do note that the migration is immutable and irreversible. Once the migration is complete, tokens will be transferred to the ORC-20 standard and all the operations in the future must be in line with the ORC-20 standard. Same as the BRC-20 standard, the ORC-20 standard is highly experimental, please proceed with caution.

For more details please visit: https://docs.orc20.org/

**Popular BRC-20 Tokens**
![](https://gimg2.gateimg.com/image/article/16843154192.png)

*Data snapped at 2023-05-17 08:53 CST on https://unisat.io/brc20

For trading popular BRC-20 Tokens on Gate.io:

VMPX: https://www.gate.io/trade/VMPX_USDT 
ORDI: https://www.gate.io/trade/ORDI_USDT 
BANK: https://www.gate.io/trade/BANKBRC_USDT
MEME: https://www.gate.io/trade/MEME_USDT 
PEPE: https://www.gate.io/trade/PEPEBRC_USDT

#2.Ordinals Protocol
![](https://gimg2.gateimg.com/image/article/16843154913.png)

**Bitcoin Ordinals**

The  Bitcoin ordinals protocol is a simple system to number satoshis, which is the smallest denomination of Bitcoin, named after Bitcoin’s creator Satoshi Nakamoto. Each Bitcoin can be divided into 100M satoshis. The ordinals protocol gives each satoshi a serial number and tracks them across through transactions. In essence, the ordinals protocol allows users to make each satoshi unique by attaching extra data to them.

The order of mining and transferring satoshis determines their numbering. Mining order is used for the numbering scheme, while transaction inputs and outputs are used for the transfer scheme. This is why they are called "ordinals".

Ordinals and traditional NFTs have some similarities, but also some important differences. Traditional NFTs use smart contracts on blockchains like Ethereum, Solana, or the BNB Smart Chain, and sometimes their assets are not on the blockchain. Ordinals, on the other hand, are written on satoshis that are part of Bitcoin blocks. Ordinals are fully on the blockchain and do not need a sidechain or a separate token. This means they share the same qualities of simplicity, immutability, security, and durability as Bitcoin.

**Ordinals and Inscriptions**

Ordinals Theory is a way of giving each satoshi a serial number and tracking them in the Bitcoin coin supply, from when they are first created to when they are used in transactions. This is called "inscription". Ordinal inscriptions are like NFTs, but they are written on a satoshi in the Bitcoin network. The Taproot upgrade, which started on November 14, 2021, made this possible. Ordinal inscriptions do not need a sidechain or a separate token because of this.

**Pros and Cons**

Ordinals add another way to use the Bitcoin network besides simple value transfers. But the Ordinals protocol has caused some debate as it brings up a basic issue among the Bitcoin community. Some people think that Bitcoin should keep its relative simplicity in only storing and transferring value. Others think that Bitcoin should change to include new features and use cases.

Inscribed satoshis take up block space that regular BTC transactions could use, which makes network fees go up. This has sparked some debate in the Bitcoin community, but some Ordinals fans say that this could be good as fees are an important reward for miners to protect the blockchain. In the future, as block rewards get smaller over time, network fees will be the main reward for giving hash power to Bitcoin. The crypto community is split on the topic, but the project brought some new ideas to the Bitcoin space.

For more details please visit: https://docs.ordinals.com/

#3.BRC-20 and ERC-20
![](https://gimg2.gateimg.com/image/article/16843156854.png)

**ERC-20 Standard**

The ERC-20 is a standard that defines how Tokens that have the property of Fungibility should work, which means that every Token has the same characteristics (in type and value) as any other Token of the same kind. For example, an ERC-20 Token follows the same rules as the ETH, so 1 Token can be exchanged for any other Token and they will always have the same value.

For more details please visit: https://ethereum.org/en/developers/docs/standards/tokens/erc-20/

**BRC-20 and ERC-20 Comparison**

BRC-20 and ERC-20 tokens are two types of tokens that are built on different blockchains. BRC-20 tokens are created on the Bitcoin blockchain, which does not support smart contracts. ERC-20 tokens are created on the Ethereum blockchain, which does support smart contracts. To mint and trade these tokens, users need different wallets. A Bitcoin wallet is required for BRC-20 tokens, while an Ethereum wallet is required for ERC-20 tokens.

#4.Bitcoin Stamps - Another Bitcoin NFT Possibility

Bitcoin Stamps are like ERC-1155 semi-fungible tokens or digital collectibles. But they are kept on Bitcoin's unspent transaction outputs (UTXOs) – which are records of leftover Bitcoin when two addresses send money to each other – instead of in the witness data like Ordinals.

To know how Bitcoin Stamps are created, we also need to know the Counterparty protocol.

Counterparty is a messaging protocol that anyone can use and change that is built on the Bitcoin blockchain. It has its decentralized exchange (DEX) and token (XCP), which lets users create and trade digital assets. When the token started in 2014, the token creation event used Proof-of-Burn (PoB). Users could send BTC to an address that destroys them in return for XCP tokens to make sure the token distribution was fair and decentralized.

Bitcoin Stamps is arriving at a good time as Ordinals has attracted much attention from the Bitcoin and broader NFT community. Whether builders rely on existing software or develop new applications, it's obvious there has been a lot of movement related to digital artwork and collectibles on Bitcoin.

The enthusiasm around Bitcoin Stamps is another illustration of what the Bitcoin blockchain can achieve. Builders will continue to focus on creating new tools and bringing innovative solutions to improve the user experience in the community.

For more details please visit: https://trustmachines.co/blog/bitcoin-stamps-and-how-they-work/

#5.Bitcoin Scalability - An Urgent Matter
![](https://gimg2.gateimg.com/image/article/16843159455.png)

Bitcoin scalability problem is a significant problem for many years now. It limits the processing power of the entire Bitcoin network. Currently, there are a couple of areas that people are working in, hoping to solve or improve on the matter. The areas are: non-upgrade, side-chain, state channel, off-chain and rollup.

![](https://gimg2.gateimg.com/image/article/16843161226.png)
**Lightning Network**

The Lightning Network is a layer 2 scaling solution that makes Bitcoin micropayments and daily transactions faster and cheaper. It uses smart contracts and payment channels to let two parties send BTC quickly and with almost no cost. Payment channels start and end with a Bitcoin transaction, but can have a very large number of Lightning transactions in between. The Lightning Network can also connect two users through channels they have with others.

**Stacks**

Stacks is an independent blockchain that brings smart contracts to Bitcoin. It uses the same Bitcoin mining energy, making it very sustainable. It uses Proof-of-Transfer (PoX) to link Stacks of blocks to Bitcoin blocks. It also uses anchor blocks and microblocks to connect Stacks to Bitcoin for security and scalability.

**RSK**

RSK (Rootstock) is a sidechain that enables smart contracts for Bitcoin transactions. It is compatible with the Ethereum Virtual Machine (EVM). It has a 30-second confirmation time and can handle 10-20 transactions per second. It can scale more than Bitcoin, with smaller RSK payments.

**Liquid Network**

Liquid Network is a sidechain that speeds up settlement for Bitcoin transactions. It uses a similar consensus to Bitcoin's but has a centralized governance structure. It sacrifices some decentralization for performance. It cuts down block time to 60 seconds and reduces transaction fees to one-tenth of Bitcoin's.

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Gate.io Team
May 17th, 2023

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