BRC-20
What Is BRC-20
BRC-20 is an experimental and unofficial token standard for the Bitcoin blockchain, inspired by Ethereum's ERC-20 standard. It allows for the creation and management of fungible tokens directly on the Bitcoin network, meaning each token is identical and can be exchanged for another of the same type. BRC-20 tokens are created using the Ordinals protocol, which enables the inscription of data onto individual satoshis, the smallest unit of Bitcoin.
Designed to be compatible with Bitcoin's existing infrastructure, BRC-20 tokens leverage Bitcoin's security and network while introducing new features. However, due to Bitcoin's limited scripting capabilities, BRC-20 tokens have more constraints compared to their Ethereum counterparts.
How Does BRC-20 Work
BRC-20 utilizes the Ordinals protocol, which builds on the features introduced by Bitcoin's Taproot upgrade. The Ordinals protocol allows data to be inscribed onto individual satoshis. This inscribed data becomes the token, containing important information like total supply and ownership.
Unlike Ethereum's ERC-20, BRC-20 doesn't use smart contracts for token functionality. Instead, it uses JSON data inscribed on satoshis to define and control token transfers. While this makes the design simpler, it also significantly limits the potential for complex financial tools and interactions compared to ERC-20 tokens.
BRC-20 vs ERC-20 Tokens
BRC-20 and ERC-20 are standards for creating and managing fungible tokens on the Bitcoin and Ethereum blockchains, respectively. BRC-20 is a newer, experimental standard that operates on the Bitcoin blockchain, taking advantage of Bitcoin's strong security features but facing significant limitations because Bitcoin wasn't designed for token creation or complex interactions. As a result, BRC-20 has a smaller ecosystem with less adoption and faces scalability challenges.
In contrast, ERC-20 operates on the Ethereum blockchain and benefits from Ethereum's built-in support for complex smart contracts, making it ideal for decentralized applications (dApps) and decentralized finance (DeFi). ERC-20 is secured by Ethereum's proof-of-stake consensus mechanism but faces challenges with scalability and gas fees, which are being addressed by Ethereum 2.0 and layer-2 solutions. ERC-20 has a large, well-established ecosystem with widespread adoption across DeFi applications, dApps, and exchanges, and it works well with other Ethereum-based standards and interoperable blockchains.