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Everything you need to know about “Bitcoin NFTs”

By Amber Group 05/25/2023, 17 min read time

#BRC20 #BRC_20 #BRC-20 #Ordinals #bitcoin #BTC 

 

 

 

A new hype in the crypto and NFT communities is taking the industry by storm for it is fundamentally transforming the application of Bitcoin: BRC-20 tokens.

 

With a nearly $1 billion market cap on May 8, 2023, and a last 24-hour trading volume of $207,446,993 (almost 100 times the BAYC market volume at the time of writing), there are currently 24,677 BRC-20 tokens in circulation (at the time of writing), with a total transaction number amounting to 2.36 million. During the May 1- peak alone, the volume of BRC-20 tokens reached 366,000 transactions (CoinMarketCap)

 

Why? Why have BRC-20 tokens become so popular? 

 

The article will explore the sudden hype of BRC-20 tokens and the reasons behind it:

  • What are BRC-20 tokens, and why are they so popular?

  • How do BRC-20 tokens work?

  • Which BRC-20 tokens are most profitable?

  • What are some of the upsides and concerns of investing in BRC-20?

  • What do industry leaders think of BRC-20 tokens?

If you want to dig deeper into our research and insights, you can contact us at [email protected] to learn more about our exclusive offline events.

 

Key Takeaways

  • BRC-20 is an experimental token standard that uses the Ordinal platform to enable NFT-like fungible tokens on the Bitcoin network.
  • Bitcoin Ordinals are digital assets using the Ordinal protocol to inscribe Bitcoins with new information, including text, JPEG images, videos, and audio. Simply put, Bitcoin Ordinals are NFTs minted directly onto the Bitcoin blockchain.
  • Currently, the most popular BRC-20 tokens are ordi, meme, punk, and pepe.
  • BRC-20 proponents say that BRC-20 tokens contribute to innovating the Bitcoin network, and they also ensure extra incentives to Bitcoin miners as block rewards decrease over time. As a result, the Bitcoin network is more secure.
  • BRC-20 detractors and purists cite network congestion, higher fees, Bitcoin blockchain size increase, and blockspace availability decrease.
    As a matter of fact, recent spikes in token minting have led to an increase in network fees and network congestion. Fees to execute transactions have jumped more than tenfold at times, resulting in costs exceeding the value of some smaller transactions.
  • Given that BRC-20 tokens are still in the experimental phase, investing in them carries some risks, and users are encouraged to DYOR and delve deeper into the topic first.
  • On May 14, 2023, Huobi announced a partnership with UniSat to develop industry standards for BRC-20, showing that some key industry voices are willing to invest in the healthy development of BRC-20.
  • For some, Ordinals and Inscriptions may be here to stay, while BRC-20 may be simply a passing fad.

 

The Revolution of Bitcoin Ordinals and BRC-20

 

If you are familiar with NFTs, you may know that most NFT types are not stored on a blockchain. They simply represent a ‘proof of ownership’ of a given NFT, a shell of the Ntfs they are identified with. The actual nonfungible token is stored elsewhere, usually on a centralized or decentralized server through self-executing smart contracts (e.g., the Ethereum Virtual Machine). 

 

You may also know that the Bitcoin protocol is a relatively rigid one for it does not allow the minting of nonfungible tokens. This changed in 2016, though, as the Counterparty protocol worked around the issue by enabling the creation of the first-ever kind of Bitcoin NFTs, starting with the Rare Pepes. In the past few months, the Bitcoin Ordinal protocol further revolutionized the Bitcoin NFT space by allowing the storage, minting, and transferring of Bitcoin NFTs directly on the Bitcoin network without relying on other platforms, apps, or servers.

 

 

What are Ordinals? 

 

Bitcoin Ordinals are digital assets enabled by the Ordinal protocol which allows the inscription of Bitcoin with new information (the corresponding ordinal number). Simply put, Bitcoin Ordinals are NFTs minted directly onto the Bitcoin blockchain. The daily trading volume in the Ordinals market is currently around $3.42 million.

 

Similar to NFTs, Bitcoin Ordinals store data in the form of text, JPEG images, PDFs, videos, and audio. Nonetheless, they differ from traditional NFTs for they do not rely on a separate blockchain or token standard. Instead, they inscribe the smallest unit of Bitcoin currency, satoshi (‘sat’, corresponding to 0.00000001 BTC), with information to track and assign ownership of the content stored on the blockchain. When satoshis are inscribed with information, these inscriptions are attached to transactions, without involving miners.

 

The inscriptions are as durable, immutable, secure, and decentralized as Bitcoin itself. Thus, the resulting assets are unique Bitcoin-native digital artifacts that users can hold in their Bitcoin wallets and swap using Bitcoins ( Ordinals.com). 

 

 

How does it work?

 

Bitcoin Ordinals bear this name for they reflect the ordinal number that is assigned to a Bitcoin transaction according to the transactions’ execution sequence. In simple words, ordinal number 1 precedes ordinal number 2 for the transaction that ordinal number 1 is embedded into was executed before the transaction of ordinal number 2.

 

In order to better understand the concept, it may be useful to take a look at how Bitcoin transactions work:

 

1.    When Person A sends Bitcoin to Person B, the transaction between A and B is recorded on the Bitcoin blockchain. Each transaction is unique and can be tracked through the transaction’s unique identifier, called transaction ID or TXID;

2.    By assigning a specific ordinal number to a transaction according to the sequence of transactions, we can track the order in which a block’s transactions are executed;

3.    The ordinal number can be inscribed on the Bitcoin transaction by using the OP_RETURN function. This results in the creation of a Bitcoin ordinal by simply adding a piece of information to the transaction, without affecting the relationship between A and B.

 

 

Is BRC-20 the same as Bitcoin Ordinals?

 

No, it is not.

 

BRC-20, which stands for “Bitcoin request for comment” in coder parlance, is a token standard – a set of rules that specifies how fungible and non-fungible tokens should be built, stored, and used – that enables experimental fungible tokens, interchangeable and of equal worth, built on the Bitcoin blockchain. The BRC-20 token standard utilizes ordinal inscriptions to deploy contracts, mint, and transfer tokens. In other words, the BRC-20 token standard uses the Ordinal platform to enable BRC-20 fungible tokens.

   

The top 3 most valuable BRC-20 tokens today are ordi (with a time-high price of over $17 on May 15), meme, and punk.

Source: brc-20.io

 

The BRC-20 tokens took inspiration from the more well-known Ethereum’s ERC-20 tokens.

 

 

What is the difference between BRC-20 and ERC20?

 

While ERC-20 tokens employ Ethereum’s smart contracts, BRC-20 tokens operate on Ordinals and Inscriptions. Furthermore, BRC-20 tokens actually require a Bitcoin wallet to mint and trade.

 

Second, as Ordinals are inscribed on the transactions, Ordinal NFTs are stored directly on the blockchain and they do not require any extra layer or side blockchain to store data.

 

Third, ordinal NFTs and BRC-20 are fungible tokens, i.e., they are interchangeable and of equal value. This marks a striking difference from NFTs, which are unique and nonfungible tokens hosted somewhere other than the blockchain.

 

 

Are Ordinals new?

 

Quite. BRC-20 tokens even more.

 

Bitcoin-based NFTs can be traced all the way back to 2016 and the Counterparty Bitcoin protocol, which facilitated the development of Bitcoin NFTs such as Spells of Genesis and Rare Pepes. At first, many raised concerns about the storage space used up by these digital artifacts and the corresponding costs, but the issues were partially solved through the SegWit upgrade in 2017 to prevent transaction malleability and the Taproot soft fork in 2021. Thanks to the two upgrades, nowadays anyone can pay to store unlimited amounts of data on the chain provided the total block size is lower than 4 MB. 

 

Things started to change again in early 2023. In January 2023, network developer Casey Rodarmor launched the Ordinals protocol, which allowed NFT-like inscriptions to be carried on the blockchain for the first time. Then, on March 8, 2023, BRC-20 were announced in a tweet sent by a Twitter user called @domodata.