Complete guide to BRC-20: What is it and how does it work?
The innovation of blockchain protocols enables many possibilities for tokenization. In this year of 2023, the BRC-20 standard has emerged as a groundbreaking development in the field of token minting, and stands out as a new milestone in the development path of the Bitcoin blockchain network.
In this comprehensive guide, we will delve into the details of BRC-20, exploring what it is and the mechanics behind its functionality.
What is BRC-20 standard?
The BRC-20 standard is a token issuance standard implemented on the Bitcoin network, proposed by Twitter user @domodata on March 8, 2023. The goal is to enable the issuance and transfer of fungible tokens on the Bitcoin blockchain.
The BRC-20 standard represents another important innovative breakthrough in the cryptocurrency space and is trending by far in the Bitcoin network. Inspired by the ERC-20 standard, BRC-20 allows users to enroll data in Satoshi (the smallest unit of Bitcoin, each consisting of 100 million satoshis), facilitating the minting and exchange of tokens or meme coins on the Bitcoin blockchain, thus introducing another use case on the blockchain in addition to non-fungible tokens (NFTs).
How does BRC-20 work?
To really understand the mechanics of BRC-20, it is crucial to delve into the foundational technology on which it is based: the Ordinal Protocol.
The Ordinal Protocol was introduced in January 2023. It assigns a unique identifier or "ordinal" to each Satoshi based on its mining order, enabling indexing of Satoshis across the entire Bitcoin network. Based on the Ordinal Protocol, BRC-20 makes it possible for users to directly record JSON data (which can be text, images, audio, etc.) on Satoshis, associating them with specific Satoshis and minting them into tokens.
In simple terms, tokens are like NFTs in Satoshi, which use ordinal theory to track and transfer, giving individuals identity and allowing them to participate in transactions. However, it is important to distinguish that while all BRC-20 tokens use ordinals, not all ordinals adhere to the BRC-20 standard. The difference lies in the specific JSON data written, which gives BRC-20 tokens their characteristics.
It's also worth noting that BRC-20 tokens coexist with Bitcoin on the blockchain, similar to how altcoins operate on the Ethereum blockchain. They are as persistent, immutable, secure and decentralized as Bitcoin.
BRC-20 was originally an experimental token standard on the Bitcoin blockchain, created to emulate Ethereum's ERC-20 token standard. Using this standard, programmers can create and send fungible tokens in the Ordinals protocol.
However, like any emerging technology, BRC-20 tokens face numerous challenges. Although the standard has promising prospects and is innovative, the ecosystem is susceptible to industry influence and the economic dynamics of tokens. It is advisable for everyone to investigate thoroughly before taking any further action.
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