BRC-20 tokens are presenting new opportunities for Bitcoin

While the ossification of Bitcoin’s codebase has brought stability and reliability, it’s made Bitcoin a little… well, boring. Where once the Bitcoin ecosystem formed a hub of innovation and a hive of activity, that momentum has shifted to second- and third-generation chains whose architecture is better suited to supporting multiple use cases and applications. At least that was the case until the emergence of Ordinals, a technology that has sparked a new wave of innovation on Bitcoin.

Throughout 2023, Bitcoin’s ecosystem developed rapidly. Emerging asset types, exemplified by Ordinals NFTs and BRC-20 tokens, have sparked widespread community enthusiasm, leading to a substantial increase in BTC miners’ earnings.

Related: Expect some crypto companies to fail in the wake of Bitcoin’s halving

Now, tokens can be issued on the Bitcoin network by projects whose very security is anchored to the Bitcoin blockchain. And the best part? Ordinals haven’t required changing a single line in Bitcoin’s code. Furthermore, the BRC-20 standards are evolving rapidly, positioning them to become an indispensable new element within the BTC ecosystem in the future.

One coin spawns many tokens

Ordinals is a protocol built on top of the Bitcoin blockchain. Each Bitcoin can be broken down into 100 million units, known as sats. Each of these sats can be given a unique identifier using Ordinals and transferred over the Bitcoin network with this data attached. The Ordinals concept, developed by Casey Rodarmor, has proven phenomenally successful. It’s opened the floodgates to a wave of Bitcoin-based NFTs. Because of it, a virtually infinite number of tokens can now be traded on Bitcoin.

At first, Ordinals were latched onto by tech-minded Bitcoiners who could meet the high bar for minting and trading them. The process, after all, requires sending a sat to a Taproot-compatible wallet and inscribing metadata with the transaction. Initially, this required running a Bitcoin node and having familiarity with a command line interface, but code-free solutions have since emerged and have been responsible for mainstreaming Ordinals, particularly for the benefit of the Ethereum community.

NFTs were the first use case for the Ordinals protocol, but the same technology can be used to issue fungible tokens, similar to the ERC-20 tokens that Ethereum supports. In fact, the token standard that’s emerged for these Bitcoin-native assets even bears the same naming structure: BRC-20.

Already, there are BRC-20 projects springing up with Bitcoin-based tokens, forming a fledgling tokenized ecosystem that’s coalescing around Bitcoin and Ordinals. Several of these tokens have captured the market’s imagination, finding their way to tier-1 exchanges and spreading the word about the BRC-20 takeover in the process.

From sats to SATS

Many of the communities that have formed around Ordinals and Bitcoin are focused on fun, first and foremost. Gaming, collecting, speculating, socializing and interacting ahead of serious stuff like enterprise or institutional usage. $SATS is the perfect case in point. Bitcoin’s very own memecoin, SATS is naturally a BRC-20 token, but it’s also so much more.

A total supply of 2,100,000,000,000,000 means $SATS is literally the Bitcoin supply times 100 million. In other words, there’s a SAT for every sat. Projects like this may not be changing the world, but they’re making Bitcoin fun again, and in the process, educating newcomers on key characteristics that are enshrined in Bitcoin’s architecture.

Other BRC-20 tokens have also carved out market share while bolstering the case for Ordinals on Bitcoin. Combined, the market cap of all BRC-20 tokens is more than $1 billion (as of Dec. 7), most of which can be credited to ORDI, which suggests there is still plenty of room for growth.

Taproot made tokens possible

The idea of issuing tokens on the Bitcoin network can’t be found in the Bitcoin whitepaper: that use case hadn’t been envisioned in 2008. In fact, it wasn’t even possible to do so back then. It was not until the Taproot upgrade, which went live on the Bitcoin network in November 2021, that this became possible. Ordinals sprung up three months later, and the NFTs it spawned have been followed by an assortment of BRC-20 token projects.

Taproot allows data to be added to block space, providing a means of minting tokens on Bitcoin. A single satoshi is minted and information concerning an entire set of fungible tokens is attached. This is done using JSON data where the token’s name, ticker, supply and suchlike can be entered. Despite sharing the same naming structure as ERC-20, it’s clear that BRC-20 tokens work very differently. This isn’t surprising given that they are, technically, a workaround for a network that…