BRC-20 - DeFi on top of Bitcoin
BRC-20 tokens
It wouldn’t be an exaggeration to say that since the day Bitcoin was created, people wanted to represent assets on it. But due to the first blockchain network’s intended limited programmability, it was hard to do. That’s why Bitcoin hasn’t been active in the space of decentralized finance (DeFi). There were several attempts to issue assets on the Bitcoin blockchain, such as Colored Coins and Taproot Assets, but they failed to gain traction. DeFi has been mostly built on blockchains with smart contract capabilities. Things seem to change. Bitcoin can enter DeFi, and who knows, maybe its first-mover advantage combined with its true decentralization will pave the way of its dominance in the space. The trigger of this change can be BRC-20 tokens.
BRC-20 is an experimental fungible token standard designed for the Bitcoin blockchain. It enables minting and transferring of fungible tokens though the Ordinals protocol. What is the Ordinals protocol? In a nutshell, ordinals are Bitcoin NFTs. Ordinals are means allowing one to attach data, such as images, video, audio, or text among others, to individual satoshis. They give each satoshi a unique number. The process of attaching data to a satoshi is known as “inscription”. Note that though they may be used interchangeably, ordinals and inscriptions are not the same thing. Ordinal is a serial number assigned to an individual satoshi. Inscriptions are ordinal NTF’s contents or data, which can vary from images to text.
This is definitely not the first example of NFTs on Bitcoin; layer 2 networks built on Bitcoin, such as Stacks and Counterparty realized the concept of Bitcoin NFTs. Ordinal inscriptions differ from these NFTs in that they are built on top of the Bitcoin network itself, and as such they don’t require any layer 2 solution. And they are backward compatible with the Bitcoin network.
BRC-20 tokens followed ordinals. Once Bitcoin NFTs were issued, the next question would be whether it is possible to issue fungible tokens on top of the Bitcoin network. BRC-20 token standard created by an anonymous developer Domo enabled it.
BRC-20 tokens are simpler and have much less functionality and utility than their ERC-20 counterparts due to the fact they don’t use smart contracts. Therefore, you cannot do many DeFi services, such as borrowing and lending with them at the moment. It is not surprising that most of the BRC-20 tokens are meme tokens.
The first and largest at the time of writing BRC-20 token is ORDI. Another popular token is SATS named after the smallest denomination of bitcoin, satoshi.
One token which can have real utility is .COM. It was issued by the team behind BRC20.com which aims to lead the BRC-20 ecosystem. Staking .COM you can participate in subsequent BRC20 launches through the first Bitcoin based Initial Farming Offering (IFO) platform and earn fees generated from the BRC-20 ecosystem.
Though they are in an experimental phase right now, I believe BRC-20 tokens are not going anywhere. They will enable Bitcoin DeFi, and will make the first cryptocurrency the medium of DeFi as well.
