BRC-20 Token: A Beginner's Guide

What are Ordinals and Inscriptions?

Ordinal is an open-source software that can run on any Bitcoin full node, which tracks individual satoshis according to the "Ordinal Theory." A satoshi is the smallest unit of the Bitcoin network, with 1 Bitcoin = 100 million satoshis. The Ordinal Theory assigns a unique identifier to each satoshi on Bitcoin. Additionally, these individual satoshis can be "inscribed" with any content, such as text, images, videos, to create "inscriptions," which are Bitcoin-native digital artifacts, also known as NFTs.

Which fields are BRC-20 Tokens applicable to?

BRC-20 is an experimental Token standard that supports the deployment, minting, and transfer of fungible Tokens on the Bitcoin blockchain. The idea is to inscribe JSON data onto a single satoshi through ordinals to deploy, mint, and transfer fungible BRC-20 Tokens. JSON is essentially a text-based data format, so fundamentally, this method involves writing text onto satoshis to create fungible Tokens. The initial design only allowed for three distinct operations: deploying Tokens, minting Tokens, and transferring Tokens.

The first token contract to be deployed is the $ORDI Token, with a minting limit of 1000 tokens and a maximum supply of 21 million (, paying homage to Bitcoin's maximum supply of ). This release caused quite a stir in a niche of the Bitcoin community, with all 21 million ORDI tokens being minted in less than a day. Soon after, other tokens emerged, such as $MEME, $PEPE, and $PUNK.

What is the market for BRC-20 like?

BRC-20 was conceptualized just a few months ago, and it can be fairly said that this market is still in its infancy. Nevertheless, developers and enthusiasts have been experimenting day and night. As of May 16, 2023, there are over 18,000 BRC-20 tokens with a total market capitalization of $500 million. This market cap was close to $1 billion in the early days of May, but as is expected with any such frenzy, the market is self-correcting to find a more stable equilibrium.

The ordinal ($ORDI) Token is the first BRC-20 Token and has remained the market leader to date. This is evident in both market capitalization and trading volume, and its recent listings on several different exchanges may have contributed to this.

How does using BRC-20 Token compare to using tokens of other standards?

Although the name "BRC-20" is an imitation of the "ERC-20" Token standard, there are significant differences between them:

• Different blockchains: BRC-20 Tokens exist on the Bitcoin blockchain, while ERC-20 exists on the Ethereum blockchain, BEP-20 exists on the BNB Smart Chain, etc.

• Lack of smart contract functionality: ERC-20 tokens and BEP-20 tokens are created using smart contracts on the Ethereum and BNB smart chain blockchains, respectively. Therefore, they have a high degree of programmability and the ability to perform various operations and rules. This is very different from the relatively simple BRC-20 tokens, which are not based on smart contracts and have quite limited functionality.

• Market Infrastructure: ERC-20 Tokens and BEP-20 Tokens are much more mature than BRC-20 Tokens. While the former have been around for years and have led to the establishment of various types of infrastructure, this is not the case for BRC-20 Tokens.

The Impact of BRC-20 on the Bitcoin Market

( Homogeneous and Non-Homogeneous

First, let's quickly understand how the entire inscription market has changed since the emergence of BRC-20 tokens. In February, images were the main type of inscriptions used in the market. This was the time when the ordinal craze began, and Bitcoin NFT series started to emerge. Even from February to early April, although text inscriptions became more common, there were still some days when images were the most widely used type of inscription.

Now, if we look at the second half of April to May, we will see a significant change. The text-based inscription ) is primarily related to BRC-20 Tokens (, which has been dominant, essentially pushing out any other media types. Moreover, the daily number of inscriptions is several times that of the amount we saw from January to early April. This proves that BRC-20 Tokens have been able to generate huge popularity and momentum since the concept was born.

![Binance Research Institute Long Article: Bitcoin BRC-20 Principles, Current Status, and Future])https://img-cdn.gateio.im/webp-social/moments-7545bdcd8581886e2e3e17e7913f5b03.webp###

( Memory Pool

So far, the total number of unconfirmed Bitcoin transactions ), that is, the number of mempool transactions ( has been rising in 2023. Recently, the interest generated by inscriptions and BRC-20 has led to a significant surge in the number of mempool transactions ) compared to last year ###. This, in turn, affects the cost of executing transactions on the Bitcoin blockchain.

( transaction fee

As a metric that may spark the most discussion in the Bitcoin community, fees have been a focal point of debate, tracing back to the block size wars from 2015 to 2017.

As a brief overview of this situation, let us revisit the model of Bitcoin that incentivizes miners to secure the network through two economic incentives: block rewards and transaction fees. The block reward halves approximately every four years, ultimately reducing to zero in the long run. Therefore, eventually, transaction fees will be the only compensation for miners, that is, the security budget for the chain. Given that until this year the use cases of Bitcoin have been relatively limited, primarily for asset transfers ), these fees have historically accounted for only a small portion of miners' income, which has been a concern for many in the Bitcoin community.

However, a careful examination of last year's latest data reveals that transaction fees increased from 1-2% of the total miner rewards to 2-3% at the beginning of the year, and soared to over 20% in May. While we cannot conclude that this is solely due to inscriptions and BRC-20, we have relatively ample reason to believe that a significant part of this initiative is attributed to these innovations within Bitcoin.

Of course, not everyone is happy about the rising transaction fees on the Bitcoin blockchain. Another effect of this is the corresponding increase in the fees required to send Bitcoin to another party. Many people consider this to be the "true" utility of Bitcoin.

Bitcoin transaction fees had previously surged, especially in December 2017 and April 2021. However, both instances occurred during strong bull markets for Bitcoin and the crypto space. This is the first time that fees have significantly spiked during what many consider to be the mid-phase of a bear market.

However, it is worth remembering that Bitcoin transaction fees have previously skyrocketed; this is not a unique or extreme event. The recent surge can even be seen as a kind of warning, indicating that Bitcoin needs innovation to prepare for further increases in the future.

Ultimately, ordinal inscriptions and BRC-20 Tokens have helped unleash a significant demand for the Bitcoin blockchain. They have created a demand for block space, which hasn't been seen for Bitcoin in quite some time. Many people believe that Bitcoin has lost its attention game to Ethereum and the like, but the creation of inscriptions and BRC-20 seems to be changing that narrative.

Community Response

The initial innovation of using ordinal theory to track individual satoshis and further inscribing them with data has sparked a heated debate within the Bitcoin community. As you might imagine, BRC-20 Tokens have taken this debate to a new level.

"Qin Fei" group

As we discussed above, the sustainability of Bitcoin's security model has been a major concern for many in the community. With block rewards continuously decreasing, how will miners be compensated in the future? If miners do not receive sufficient compensation to secure the chain, what does this mean for Bitcoin's long-term outlook? It is unavoidable that miners need to be compensated for providing security, and for this reason, Bitcoin transaction fees need to be higher. For this reason, many in the community are surprised by the level of attention given to ordinals and BRC-20, and the impact this has on the relatively stagnant Bitcoin fee market.

The fact that miners need to be compensated for providing security is unavoidable, and for this reason, Bitcoin transaction fees need to be higher.

A specific sub-sector of the community that has particularly benefited from the recent developments in Bitcoin is the mining community. To provide more background for our discussion above, please refer to the Bitcoin block reward halving cycle.

Although the price of Bitcoin has risen significantly since the 50 BTC block reward era, this table illustrates the tricky nature of the Bitcoin miner business model. As transaction fees supplement their income and potentially signal a bright outlook for block space demand, this equation appears more favorable for miners and may attract more people to join the network. Keep in mind, the more independent miners there are, the better the decentralization, and ultimately, the greater the security of the Bitcoin blockchain.

It is worth noting that at the beginning of May, there were even Bitcoin blocks with transaction fees exceeding 6.25 BTC block rewards. This is an impressive achievement, considering that for most of 2022, transaction fees averaged 1-2% of miner income, and did not rise much in earlier years. This demonstrates that ordinals and BRC-20 have contributed to the increasing demand for block space, even without the backdrop of a major bull market.

( "Low Fee" camp

While many people are excited about the increased activity and buzz around the Bitcoin ecosystem and are encouraged by the rising fees from a sustainability perspective, others are more critical. This camp is more interested in the "true purpose" of Bitcoin as a hard currency and non-fiat currency, and that the chain should be exclusively used to facilitate peer-to-peer transactions. The organization believes that data-intensive transactions related to ordinals, namely inscriptions and BRC-20, primarily cause congestion on the Bitcoin network and drive up fees, ultimately hindering peer-to-peer transactions.

Although some people believe that the increase in fees has led to user pricing in countries relying on Bitcoin as an alternative to the local legal system, others hold a more extreme view, even considering ordinals and BRC-20 as an attack on the chain.

Some people in the community even suggest that Bitcoin core developers should review transactions related to ordinals. We need not explain why such a review would completely contradict the spirit of Bitcoin, as its focus on decentralization is truly incredible.

Although the transaction fees on the Bitcoin network are indeed rising, which will inevitably cost some consumers around the world, is this really a problem? The question we need to ask is, if a user wants to transfer $10 to their friend, do they have to use the underlying Bitcoin L1 to do so?