TL;DR A new token standard on Bitcoin, BRC-20, has created a minting frenzy, driving up fees. A staggering 11 thousand+ new coins have come into existence. It has sparked fierce debate between Bitcoiners who believe their chain should be used for peer-to-peer cash transactions only – versus Bitcoiners who believe the new token standard can ensure a healthy fee market. Let’s explore and show you how to mint and trade your own BRC-20 tokens.
On May 7, 2023, something unprecedented happened: the first Bitcoin block ever was mined in which transaction fees in BTC exceeded the block reward (6.75 BTC versus 6.25 BTC)! Just five months ago, this would have been almost unthinkable. The reason? The frenzy of the past weeks to mint AND trade fungible tokens on the Bitcoin blockchain, using the Ordinals protocol.
To create, mint or trade this new type of BRC-20 token, users must inscribe satoshi’s. And that amounts to doing on-chain transactions. This explains why currently, there are over 400,000 transactions in the Bitcoin mempool.
Over 1,000 BTC has been paid in recent months purely for Ordinals fees. 750 BTC of which has come since May 1, after the BRC-20 token craze kicked off in earnest.
As all crypto aficionados know, there is no frenzy like meme coin frenzy. And meme coins are what these new BRC-20 tokens are. Why meme coins? Because, unlike ERC-20 tokens on Ethereum, they have no smart contract functionality. In the words of their inventor Domo: “These will be worthless. Use at your own risk.”.
Famous last words when he introduced the BRC-20 experiment, as these BRC-20 tokens have done pretty well for worthless tokens: the total market value of all new tokens has reached a billion dollars in recent days (leading up to May 8, 2023).
BRC-20 Tokens Are Not NFTs but Fungible Tokens
BRC-20 tokens are not to be confused with Ordinal NFTs on Bitcoin (also read this article on Ordinal NFT collections).
The foundation of both is the Ordinals protocol, launched in January 2023. This makes it possible to track each satoshi and inscribe ‘meta data’ to it. The first application was NFTs. In April 2023, mentioned developer Domo invented a way to create fungible tokens using the Ordinals protocol.
The consequence? It has become pretty easy to create your own token: give it a name using four characters and a total supply, and then start minting. That’s pretty much all, lol! It’s just a token, it doesn’t do anything.
What IS pretty cool is that these tokens are minted and stored on the Bitcoin blockchain. Also, trades of tokens happen on-chain. Setting aside for a moment the early-stage, experimental nature of the project, this is a way of trading without the usual counterparty risk of a decentralized or centralized exchange.
What is the Difference Between ERC-20 Tokens and BRC-20 Tokens?
ERC-20 tokens live on Ethereum, BRC-20’s obviously on Bitcoin. First, let’s start with a similarity. To trade ERC-20 tokens on a dex, you pay in ETH and you need to fund your wallet with a bit of ETH for that. The same for BRC-20 tokens, in which case you will need some BTC.
But most similarities end there. A difference between BRC-20 and ERC-20 is that the BRC-20 token can’t interact with smart contracts, which makes it less powerful. It gives it less…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
