BRC 20 bitcoin standard : Risks and opportunities and what are they?
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Overview
First used to register digital artifacts related (by pure convention) to a satoshi in the Bitcoin registry, the Ordinals protocol is primarily used today to anchor small JSON format text files. These lines of code indicate the creation (Deploy), distribution (Mint), or transfer (Transfer) of BRC 20 tokens, a standard inspired (loosely) by Ethereum’s ERC-20 tokens, although they do not share most of their characteristics. Like the “digital artifacts,” each of these files is linked to a satoshi according to the convention set by the Ordinals protocol, enabling their transfer.
Launched on March 9, 2023, the BRC 20 standard has quickly gained some success, and some of the most popular tokens created under this standard are already eligible for listing.
Understanding BRC 20: The Basics
BRC 20 tokens are a new class of tokens created on the Bitcoin blockchain using the Ordinals protocol. This concept, inspired by Ethereum’s ERC-20 tokens, allows for the registration of various elements (such as texts, images, videos, sounds, etc.) on the Bitcoin blockchain, paving the way for the creation of new tokens.
The role of Ordinals is crucial in the creation of these tokens. It anchors these registrations in the Bitcoin blockchain, ensuring their durability and security.
Code to Deploy BRC 20:
{
"p": "BRC 20",
"op": "deploy",
"tick": "ordi",
"max": "21000000",
"lim": "1000",
"dec": "10"
}
| code | obligation | description |
|---|---|---|
| p | yes | Protocol: Allows other systems to identify an event that adheres to the BRC 20 standard. |
| op | yes | Operation: Three instructions are possible: Deploy = creation of a new token, Mint = issuance of a certain number of tokens corresponding to an already deployed token, Transfer = transfer of a minted token. |
| tick | yes | Ticker: Four letters identifying the specific BRC 20 token. |
| max | yes | Max supply: Maximum amount of tokens that can be issued. |
| lim | no | Limit: Maximum limit of tokens that can be linked to an "ordinal." |
| dec | no | Decimal: Determination of the decimal place, defaulting to 18. |
Code for Mint BRC 20:
{
"p": "BRC 20",
"op": "mint",
"tick": "ordi",
"amt": "1000"
}
| code | obligation | description |
|---|---|---|
| p | yes | Protocol: Allows other systems to identify an event that adheres to the BRC 20 standard. |
| op | yes | Operation: Three instructions are possible: Deploy = creation of a new token, Mint = issuance of a certain number of tokens corresponding to an already deployed token, Transfer = transfer of a minted token. |
| tick | yes | Ticker: Four letters identifying the specific BRC 20 token. |
| amt | yes | Amount to mint: States the amount of the BRC 20 to mint. Has to be less than "lim" above if stated. |
Code to transfer to BRC 20
{
"p": "BRC 20",
"op": "deploy",
"tick": "ordi",
"max": "21000000",
"lim": "1000",
"dec": "10"
}
| code | obligation | description |
|---|---|---|
| p | yes | Protocol: Allows other systems to identify an event that adheres to the BRC 20 standard. |
| op | yes | Operation: Three instructions are possible: Deploy = creation of a new token, Mint = issuance of a certain number of tokens corresponding to an already deployed token, Transfer = transfer of a minted token. |
| tick | yes | Ticker: Four letters identifying the specific BRC 20 token. |
| amt | yes | Max supply: Maximum amount of tokens that can be issued. |
| to | no | Address to send to: States the receiving address. If left blank logic will presume that the receiver of the transfer is correct. |
| fee | no | Transfer fee: For tracking without taproot data purposes only. |
What are the risks associated with BRC 20 tokens?
In recent months, BRC 20 tokens have experienced a significant surge in popularity. Over 50% of transactions on the Bitcoin network are now associated with registrations based on the Ordinals protocol.
Despite their growing popularity, BRC 20 tokens are not without risks, both for investors and the ecosystem.
Here are some considerations one could have regarding the risks and threats of BRC 20 for Bitcoin:
Blockchain Bitcoin is congested, and gas fees are exorbitant.
On the other hand, the rise of BRC 20 has led to an increase in transaction fees on the Bitcoin blockchain. This surge is a result of the high demand for block space caused by the creation of these tokens.
Indeed, each registration of a BRC 20 token on the blockchain requires a transaction, which congests the network and drives up the fees.
The primary purpose of Bitcoin is to operate as a decentralized currency. If transaction fees become unmanageable, it can potentially harm the fundamentals of Bitcoin and cryptocurrencies in general.
Trading on centralized exchanges
One of the dangers lies in the fact that they encourage trading on centralized exchanges (CEX).
The management of BRC 20 tokens is indeed quite complex, which prompts users to turn to centralized platforms to carry out their transactions, thereby exposing their assets to the risk of hacking.
A paradise for scams
Another threat of BRC 20 tokens is their ease of creation.
While this may seem advantageous for the rapid development of new projects, it also means that the market is quickly flooded with low-quality tokens that bring no real value (shit-coin, meme-coin, etc).
Complicating the vision of Bitcoin for newcomers
BRC 20 tokens, presenting themselves as a solution based on Bitcoin, can deceive novice investors who might think they are as secure and reliable as Bitcoin itself.
This confusion is further reinforced by the large number of tokens and projects that exist today in the Bitcoin ecosystem.
BRC 20 regulation bypass for companies?
Finally, BRC 20 could facilitate the creation of a market for unregistered securities on the Bitcoin blockchain, allowing the issuance of tokens representing ownership in a project or company.
Since these tokens would not be registered as traditional securities, they would not be subject to the same regulation.
This could potentially enable fraudulent or manipulative activities, putting investors at risk.
What opportunities are offered by BRC 20?
Despite these risks, the emergence of BRC 20 brings forth opportunities. These tokens, capitalizing on the popularity and credibility of Bitcoin, have the potential to transform the cryptocurrency ecosystem.
Capitalizing on the popularity of Bitcoin
By associating the tokens with the first cryptocurrency, BRC 20 aims to attract investors who consider these tokens as secure and trustworthy, similar to Bitcoin.
However, it should be noted that this association can be misleading. BRC 20 tokens are far from offering the same level of security, decentralization, or widespread acceptance as Bitcoin.
Increased profitability for miners
This growing popularity has resulted in an increase in transaction fees on the Bitcoin blockchain.
As a reminder, transaction fees compensate miners, making them more profitable and numerous, which could potentially lead to greater network security. Therefore, it is both a threat and an opportunity.
Diversification of investments with BRC 20
The growing adoption of BRC 20 tokens could promote investment diversification in the Bitcoin ecosystem. Faced with an increasing number of tokens and projects, investors may be tempted to diversify their wallets, which can lead to greater resilience of the ecosystem as a whole.
Race for innovation
Lastly, the adoption of BRC 20 tokens could lead to new innovations. The ease of creating these tokens can stimulate innovation and enable the development of new applications and projects.
What are the future prospects of BRC 20?
So, what is the future of BRC 20? It’s a difficult question to answer with certainty. However, it is possible to provide some points of reflection.
Some believe that the future of BRC 20 could be threatened by intervention from Bitcoin developers to regulate these tokens.
Indeed, faced with rising transaction fees and the risk of market saturation, developers might be tempted to take measures to control the emergence of these tokens.
Others, however, are more optimistic. They see BRC 20 tokens as an opportunity to renew and energize the Bitcoin ecosystem.
They believe that these tokens, despite their flaws, have the potential to promote investment diversification and stimulate innovation.
Regardless of one’s opinion on the future of BRC 20, one thing is certain: before investing in these tokens, it is essential to do one’s own research. Understanding the risks and opportunities associated with these tokens is crucial for making intelligent investments.
To conclude on the risks and opportunities of BRC 20:
In conclusion, BRC 20 tokens represent both risks and opportunities for the Bitcoin ecosystem.
On one hand, they can contribute to market saturation, increase transaction fees, encourage trading on centralized platforms, and create confusion among newcomers.
On the other hand, they can capitalize on the popularity of Bitcoin, promote investment diversification, and stimulate innovation.
For investors, BRC 20 tokens offer a new investment opportunity, but with this opportunity comes increased responsibility. Before investing, it is important to thoroughly understand the mechanisms of these tokens, how they work, as well as the associated risks and opportunities.
The BRC 20 tokens, like all digital assets, should not be taken lightly, and investments should always be based on thorough analysis and a clear understanding of the asset in question.
The future of BRC 20, on the other hand, is still uncertain. Its future will depend on many factors, including acceptance by the Bitcoin community, potential regulation by Bitcoin developers, and the ability of BRC 20 to attract and retain investment.
It is also possible that the future of BRC 20 may be impacted by the emergence of new technologies or changes in the regulatory landscape.
Whether BRC 20 tokens become a sustainable and beneficial part of the Bitcoin ecosystem, or whether they end up being rejected or regulated out of existence, will depend on how they are adopted and used.
As is often the case in the world of cryptocurrencies, only time will tell which direction this new technology will take.
In any case, BRC 20 tokens have already made an indelible mark on the Bitcoin ecosystem. They have demonstrated the flexibility of Bitcoin, its potential for innovation, and its ability to adapt to new ideas and technologies.
Regardless of the future of BRC 20, their emergence has already had a major impact on the world of cryptocurrencies.