BRC-20 tokens inherit the security and decentralized nature of the Bitcoin network while taking advantage of the popularity and prestige of Bitcoin. These tokens can also be transferred between users just like any other cryptocurrency.
Three types of BRC-20 functions are as follows:
Deploy: Creating a token with specific parameters
Mint: Generating a certain number of tokens from the deployed token
Transfer: Sending tokens from one wallet to another
To mint or transfer BRC-20 tokens, a user needs a Bitcoin wallet. UniSat Wallet, an open-source Chrome extension for Bitcoin Ordinals and BRC-20, can be used for these purposes.
How to create BRC-20 Tokens
An experiment into "brc-20's" and fungibility on bitcoin with ordinals 1/x pic.twitter.com/9khKLbEPk6— domo (@domodata) March 9, 2023
Use Cases of BRC-20 Tokens
P2P transfers: Just like Bitcoin, BRC-20 tokens can be transferred between wallets on the network. Since these tokens are run on the Bitcoin network, transaction fees are paid in Bitcoin.
Tokenization: With further development, BRC-20 tokens can be used to create crypto assets pegged to fiat currencies, gold, or other commodities. Using the JSON code, users can define token properties such as procurement and issuance mechanism in sequential records.
DeFi: Bitcoin’s fixed and plain design poses a disadvantage to its network that limits the development of decentralized protocols and applications. BRC-20 tokens can lead to an innovative future that can spur growth and bring liquidity to the Bitcoin network. With enhancements, these tokens can be integrated with DeFi products, liquidity mining protocols and GameFi, and used to build decentralized apps (DApps). Therefore, ERC-20 tokens can provide a means to extend the functionality of the Bitcoin network.
Differences Between BRC-20 and ERC-20
Although the BRC-20 standard is thought to be similar to the ERC-20 standard, it is different. One of the key differences between these two token standards is that BRC-20 tokens don’t require a smart contract, additional layer or platform, while ERC-20 tokens use smart contracts.
BRC-20 tokens run on the Bitcoin network, while ERC-20 tokens run on the Ethereum network. BRC-20 is based on the Proof of Work (PoW) algorithm, while ERC-20 is based on the Proof of Stake (PoS) algorithm.
ERC-20 tokens are created with a smart contract code written in an EVM-compatible programming language such as Solidity. The smart contract code is deployed on the state machine to generate the tokens. On the other hand, BRC-20 tokens are created with sequential inscriptions on satoshis using JSON.
BRC-20 tokens are parallel to Bitcoin, which means that activities on the BRC-20 protocol don’t affect Bitcoin. Even if a problem occurs with BRC-20 tokens or protocol functionality, the Bitcoin network will not be affected.
BRC-20 transactions can be accepted on the Bitcoin network but rejected by the BRC-20 protocol. For example, if an Ordinals wallet with 20 ORDI tries to send 40 ORDI, the transaction is accepted on the Bitcoin network (as it appears to be a normal transaction), but it is rejected by the BRC-20 protocol since the wallet is unable to make such a transaction. As a result, the user receives a message saying that there isn’t enough ORDI balance in his wallet. Since the ERC-20 protocol is in resonance with the Ethereum network, this doesn’t apply to ERC-20 tokens.
The popularity of BRC-20 tokens, which started as an experiment, is growing significantly. The fact that BRC-20 operates on the Bitcoin network can be considered as one of the most important factors affecting its popularity. Users who like to experiment with new ideas, technologies, and memes will inevitably adopt the BRC-20 standard and token creation process.