Bitcoin (BTC), the first blockchain and cryptocurrency, paved the way for everything that came after it, including non-fungible tokens (NFTs), smart contracts, tokenization, layer 2 solutions, and more. With Bitcoin’s value against cryptocurrencies forming the foundation that supports the rest of the market, its protocol rarely changes. With hundreds of billions of dollars of money and global trust in decentralized networks at stake, it makes no sense to intervene.f
The ossification of the Bitcoin codebase has brought stability and reliability, but it has also made Bitcoin a little… Well, I made it boring. Once the Bitcoin ecosystem formed a hub of innovation and a hub of activity, the momentum shifted to second- and third-generation chains, which have architectures better suited to supporting multiple use cases and applications. At least that was the case until the advent of Ordinals, a technology that sparked a new wave of innovation in Bitcoin.
Throughout 2023, the Bitcoin ecosystem developed rapidly. Emerging asset types such as Ordinals NFTs and BRC-20 tokens have sparked widespread enthusiasm in the community, resulting in a significant increase in BTC miners’ income.
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It is now possible to issue tokens on the Bitcoin network through projects whose security is anchored on the Bitcoin blockchain. And the best part? Ordinal numbers don’t require you to change a single line in your Bitcoin code. Additionally, the BRC-20 standard is evolving rapidly and could become an indispensable new element within the BTC ecosystem in the future.
One coin generates many tokens
Ordinals is a protocol built on top of the Bitcoin blockchain. Each Bitcoin is divisible into 100 million units, known as sats. Each of these sats is given a unique identifier using an ordinal number and this data can be transmitted over the Bitcoin network to which it is attached. The Ordinals concept developed by Casey Rodarmor has been an incredible success. This opened the floodgates to a wave of Bitcoin-based NFTs. Because of this, a virtually infinite number of tokens can now be traded on Bitcoin.
Initially, Ordinals was captured by technology-oriented Bitcoiners who could meet the high standards for issuance and trading. Ultimately, this process requires sending Sat to a Taproot-compatible wallet and recording metadata in the transaction. Initially, it required running a Bitcoin node and familiarity with the command-line interface, but since then, no-code solutions have emerged and have been responsible for mainstreaming Ordinal, especially 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 supported by Ethereum. In fact, the token standard that has emerged for these Bitcoin-based assets has the same naming structure: BRC-20.
Already, the BRC-20 project based on Bitcoin-based tokens has emerged, forming a nascent tokenization ecosystem that integrates around Bitcoin and Ordinals. Some of these tokens have captured the market’s imagination, making their way onto Tier-1 exchanges and spreading the word about the BRC-20 acquisition in the process.
From SAT to SATS
Ordinals and many of the communities that have formed around Bitcoin are focused on fun above all else. Gaming, collecting, guessing, socializing and interacting before serious tasks such as corporate or institutional use. $SATS is a perfect example. SATS, Bitcoin’s own memecoin, is of course a BRC-20 token, but it is much more than that.
A total supply of 2,100,000,000,000,000 means $SATS is literally the Bitcoin supply multiplied by 100 million. That means there’s an SAT every Saturday. Projects like this may not change the world, but they are making Bitcoin fun again, and in the process, educating new users about key characteristics inherent to Bitcoin architecture.
Other BRC-20 tokens have also gained market share, strengthening Ordinals’ case in Bitcoin. The total market cap of all BRC-20 tokens is slightly above $1.4 billion as of December 7, most of which can be attributed to ORDI, meaning there is still plenty of room for growth.
Taproot made tokens possible
The idea of issuing tokens on the Bitcoin network is not found in the Bitcoin whitepaper. That use case wasn’t conceived in 2008. In fact, it wasn’t even possible to do that at the time. It wasn’t until the Taproot upgrade applied to the Bitcoin network in November 2021 that this became possible. Three months later, Ordinals appeared, and the NFTs it created were followed by various BRC-20 token projects.
Taproot allows you to mint tokens in Bitcoin by adding data to the block space. A single satoshi is issued and information about the entire set of fungible tokens is attached. This is done using JSON data with the token’s name, ticker, supply and similar qualities appended to it. Despite sharing the same naming structure as ERC-20, it is clear that BRC-20 tokens behave very differently. This is not surprising, considering that it is a workaround for a network that was not technically designed to support tokens.
The architecture may be unorthodox, but the end result is the same. Just as communities have formed around shared tokens and common interests following the launch of Ethereum’s ERC-20 token standard, something similar is happening with Bitcoin. BRC-20 is not loved by all Bitcoin users. One thing to be aware of is that some take exception to the block space occupied by the tokens, which can cause fees to skyrocket. Others don’t care about anything that isn’t pure BTC.
look to the future
When Ethereum launched, it had the ability to support a rich and diverse ecosystem of token-based projects, and it eventually did. However, it took time for the community to form and the tools to be built. Bitcoin and the BRC-20 standard are now where Ethereum was in 2017. It’s full of unrealized potential.
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The main infrastructure linking Bitcoin tokenization to the EVM chain is being completed, with MultiBit becoming the latest project to make progress here with the launch of a two-way bridge for BRC-20 and ERC-20 transfers. What will the BRC-20 landscape look like 12 months from now, and what opportunities will it provide to those who dare to take on the challenge early on? As ERC-20 tokens and ICOs surged in 2017, the price of Ether (ETH) rose 30 times in one year. Although current market dynamics are different, the prospect of Bitcoin replicating Ethereum’s success remains promising.
For the growing number of supporters who are tired of the perceived stagnation of Ethereum and don’t sit well with Bitcoin maximalists, Ordinals and the BRC-20 token have made cryptocurrency fun again. For them, this movement represents a return to Bitcoin’s experimental and creative roots. Even better is the opportunity to make money while increasing your understanding of Bitcoin and spreading memes.
Gracie Chen As managing director of Bitget, a cryptocurrency derivatives exchange, he oversees market expansion, business strategy, and corporate development. Prior to Bitget, he held executive positions at Accumulus, a Fortune 500 unicorn company, and XRSPACE and ReigVR, venture-backed VR startups. She was also an early investor in BitKeep, Asia’s leading decentralized wallet. She was named a Global Shaper by the World Economic Forum in 2015. She graduated from the National University of Singapore and is currently pursuing an MBA degree from MIT.
This article is written for general information purposes and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.