BRC-20 and ERC-20: What are they?
Key outtakes:
] BRC-20 is a fresh token standard on the Bitcoin blockchain. It aims to solve “1-asset-blockchain” system which has governed Bitcoin for a very long time.
] BRC-20 makes possible the creation of new tokens within the Bitcoin blockchain.
] BRC-20 standard has a lot of potential, but also presents some serious issues.
] ERC-20 is a token standard on the Ethereum blockchain. It aims to standartise assets built on Ethereum, so that they could be interchangeable.
] ERC-20 has driven the development of cryptocurrencies for years, as it has allowed for wide usage of smart contracts and fast creation of new assets on Ethereum.
] ERC-20 standard has mitigated Ethereum’s inherent issues, but has spawned new ones itself.
Important notice: this article does not provide any financial advice. Before investing into anything, conduct a thorough research.
In the current moment, market seems to be giving us time to kick sand and breathe air. Crypto community is bored, nothing much is happening. I believe it is the perfect time to up your knowledge about technological innovations which are taking place. Learning is always beneficial, and when there is time for it – you should do it.
What is BRC-20?
BRC-20 is a token standard on the bitcoin blockchain. It was introduced just around 3 months ago by “domo”, an anonymous Twitter user. BRC-20 significantly differs from Bitcoin and improves it’s ecosystem in a way that was not anticipated by the majority of it’s users. In simple words, BRC-20 allows new tokens to be implemented into it’s mother blockchain, a breakthrough which should not be underestimated. Before domo’s invention, Bitcoin was an “1-asset” ecosystem, but this new token standard has turned the game around.
We will not delve into technical details in this overview, but one thing should be mentioned before we go forward. BRC-20 tokens function due to Bitcoin Ordinals protocol. It is a system which was developed in January 2023 and it, just as BRC-20, caused quakes inside the bitcoin community. Ordinals has brought into the ecosystem what many users believed Blockchain lacks: NFTs and DeFi features, akin to those that Ethereum has utilised for quite some time now. These 2 innovations bring new, clear image of Bitcoin’s future, one that is not staying, but evolving.
What are the main features of BRC-20 tokens?
Interchangeability: BRC-20 tokens are fungible, which means that 1 token could be exchanged for another, on CEX or DEX. This feature allows users to interact with the bitcoin blockchain without having to hold BTC.
Security and trust: BRC-20 tokens operate within the Bitcoin blockchain, which grants them security measures that Bitcoin enjoys itself. Bitcoin is known to be a very secure system, due to the underlying “Proof of Work” protocol.
Reputation: BRC-20 assets are inseparable from the Bitcoin. It allows them to have a shadow of Bitcoin’s reputation over them. That is great for new tokens which are going to be minted via Ordinals protocol, as it allows for almost default trust towards them by the general audience. “New token on the Bitcoin blockchain” sounds far more trustworthy than just “New token on the blockchain”, doesn’t it?
Fast adoption: As of early June 2023, almost 3 months since the introduction of BRC-20 standard, brc-20.io provides the following data:
total number of brc-20 tokens: 24,500
total market capitalisation: $475 mil.
volume last 24 hours: $207 mil.
(numbers are approximate)
These numbers are staggering for a system this fresh. It clearly shows the trend of adoption and increased interest in Bitcoin innovations.
However, not everything is green with BRC-20, so what are their main downsides?
Lack of utility for some tokens. At the time of writing, 2 out of 3 brc-20 tokens holding the most market cap were meme tokens with no real utility. Investing into these tokens is highly speculative and requires users to take on additional risks. This situation also marks the early stage of the system. BRC-20 is not a developed standard yet, so there are not as many projects with use cases aside from speculative.
Technological infancy. BRC-20 tokens are a fairly recent addition to the Bitcoin ecosystem. Technical issues may arise, and they should be expected. However, there is a lot of potential for BRC-20 assets, and everyone is interested in coping with arising problems as soon as possible.
Rise of fees on the blockchain. The invention has caused Bitcoin fees to rise up to 40%, and has also caused congestion on the network, which has slowed down the transaction time.
Lack of diversity. At the time of writing, BRC-20 token standard is not as versatile as ERC-20, as it does not allow for usage of smart contracts. This severely restricts the number of potential use cases.
Examples of BRC-20 tokens
$PEPE
The most prominent and loud example of BRC-20 token so far is $PEPE. It is a memecoin, based on the popular internet character of “Pepe The Frog”. $PEPE had a dramatic surge in price in May, and back then it shook the whole community. The increase in price which the token has enjoyed was not expected on the bear market.
While $PEPE holds no real utility, and according to it’s roadmap, doesn’t really plan to, such “stories” are important to the market. They show that you should always be educated. And in the cryptocurrency world, educated means ready.
ORDI
According to the data on brc-20.io, the BRC-20 asset which enjoys the biggest capitalisation (at the time of writing) is ORDI. May has gifted it’s holders with a significant surge in price (hello from $PEPE). Sadly, there isn’t much information abailable about the asset, people behind the project or roadmap.
$meme
The second BRC-20 asset by market cap is $meme. As evident from the name, it a memecoin. It’s market cap as of early June 2023 was around 6 mil. Just as with ORDI, the people behind the asset didn’t provide enough information about the project yet.
As evident from the provided information, BRC-20 is a recent addition to the Bitcoin blockchain, which promises to drive the first cryptocurrency forth with it’s improvements. Nevertheless, drawbacks are also present, and unless they are dealt with, BRC-20 standard will struggle to gain mass adoption within the cryptosphere.
Now, let’s have a look at the Bitcoin’s younger sibling, which has introduced it’s own innovative token standard earlier.
What is ERC-20?
Artwork by @,pdr,prtgs,
ERC-20 is a token standard on Ethereum blockchain. It was implemented into the system in 2017, 2 years since it was originally proposed by Fabian Vogelsteller. ERC-20 solved the main issue of Ethereum-based tokens – lack of standartisation. Back then there was no universal standard for new tokens, and it meant that they were not interchangeable. This was a huge issue, because in those realities, new systems were obliged to develop their own tokens. ERC-20 made tokens that comply with the standard fungible, hence speeding up the development of the cryptocurrency world.
What are the main features of ERC-20 tokens?
Interoperability is the main feature of ERC-20 compliant assets. ERC-20 tokens are interchangeable, as they follow the same set of rules.
Security. ERC-20 standard operates within Ethereum blockchain, which benefits it by providing outstanding security that Ethereum itself possesses. It also makes tokens based on it transparent and immutable.
Use cases are hundreds and are not limited to highly speculative. Using ERC-20, developers can grasp the power of smart contracts to craft an asset that would suit them and the community.
Wide adoption. ERC-20 standard has been implemented for quite some time now, and since it’s inception, it has stimulated thousands of projects to develop their products. ERC-20 assets are in general very liquid, meaning that they can be freely traded on most of exchanges and held within most popular wallets.
But as always, nothing on Earth is perfect and understanding disadvantages is as important as ever.
While ERC-20 has fostered growth in the past, currently it may limit developers. The set of rules within the system is finite, at the same it restrains some developers from developing their own smart contracts or solutions which could be feasible for their own individual needs. Hence the talk about improving ERC-20 standard is constant in the cryptosphere.
Gas fees. Ethereum is known for it’s high fees, and ERC-20 tokens are not the last thing responsible for that. They create congestion on the network, in turn surging the fees higher. This causes investors to be unsure of their expenses, as gas fees may change very often.
Low threshold for entering the market is certainly beneficial on the big scale. But it also presents dangers such as risk of scam, lack of transparency and ponzi schemes. It doesn’t take a lot to launch a token on Ethereum network, and many individuals use this to get users into assets with no utility or use cases, benefiting from lack of knowledge of some people. DYOR before investments.
Examples of ERC-20 tokens
There are hundreds of very well-known tokens that utilise ERC-20 standard. We won’t touch on their use cases and history, as these cryptocurrencies are old. For example:
Binance (BNB)
Tether (USDT)
Chainlink (LINK)
Uniswap (UNI)
Conclusion
BRC-20 and ERC-20 token standards were incepted to solve issues inherent to their mother blockchains. For Bitcoin the main issue for a long time was the “1-asset-blockchain” scheme, which has governed it until very recently. On the other hand, Ethereum has suffered from lack of standartisation and chaos within itself, and ERC-20 has been successful at mitigating this problem.
However, both token standards are not ideal. BRC-20 is a very fresh technology, and lacks versatility and diversity of use cases for tokens compliant with it. ERC-20, evidently, limits possible use cases and increases fees on the network.
Important notice: information presented in the article is author’s outlook and is not universally true. You are free to discard author’s claims, if any of them compromise the reality or your point of view.
