BRC-20 tokens: essentials

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BRC-20 tokens_ essentials - blog-min

With the introduction of BRC-20, Bitcoin has obtained broader functionality outgrowing the mere medium of storage and exchange. BRC-20 tokens are a big step toward the adaptability of Bitcoin and Bitcoin blockchain for innovative blockchain ecosystems. It’s worth exploring what the BRC-20 standard is and how it can be useful.

What is BRC-20?

BRC-20 is an innovative fungible token standard allowing custom JSON scripts embedded directly into Bitcoin's smallest unit - satoshi. Such a mechanism enables BRC-20 tokens to be easily exchanged, traded, and used in applications built on the Bitcoin blockchain. Of course, the BRC-20 standard is in its experimental phase but with time it can be used to generate new layers of functionality, including dApp, DeFi, and NFT. etc, and tenfold expand the utility of the Bitcoin blockchain.

How does the BRC-20 standard differ from the ERC-20 standard?

At first glance, one may think that BRC-20 is similar to ERC-20 just for Bitcoin. But if we take into consideration that Bitcoin and Ethereum blockchains have different mechanisms of block verification and are built on different backgrounds, the standards should also differ.

The main three differences between BRC-20 and ERC-20 tokens are the following:

Minting and creation

ERC-20 tokens operation and creation relies on smart contracts and BRC-20 tokens feature JSON inscriptions on satoshis, the smallest Bitcoin fragment.

Platform type

BRC-20 tokens are not native to the Bitcoin blockchain but are used to operate. ERC-20 tokens are native to Ethereum and are used to operate.

Mode of operation

BRC-20 tokens operate on Bitcoin in parallel, making a network with its own settings. While all BRC-20 transactions can be accepted on the Bitcoin blockchain, some may be rejected if they don’t meet the conditions inscribed by the BRC-20 protocol.

Pros and cons of BRC-20 tokens

Pros

BRC-20 tokens increase the utility of the Bitcoin blockchain;
BRC-20 standard is compatible with Bitcoin, including its security standards and infrastructure;
the simplicity of BRC-20 tokens creation, no complicated smart contracts involved;
high level of security due to Bitcoin blockchain built-in properties;
BRC-20 could bring early investors the opportunity to earn when the BRC-20 tokens gain utility and traction;
BRC-20 standard has the potential to change the way the Bitcoin blockchain works.

Cons

unlike the ERC-20 standard, BRC-20 lacks smart contract functionality which significantly limits the scope of applications;
existence of Bitcoin blockchain limitations: slow transaction speed and low scalability;
low level of interoperability with other blockchains;
high level of technological complexity for those who are not very familiar with cryptocurrencies and blockchain.
BRC-20 standard requires many resources to inscribe data onto satoshis, which could lead to network congestion and higher transaction costs.

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