Bitfinex Report Highlights Pros and Cons of BRC-20 Token Standard

The cryptocurrency world is abuzz with the new Bitcoin token standard which was introduced just recently. Also known as the BRC-20 token standard, it has garnered attention from the crypto community owing to the recent meme coin craze. Additionally, a recent report released by Bitfinex has highlighted the importance of identifying more use cases for the token standard to increase its adoption. 

Also read: Non-Fungible Token (NFT): What It Means and How It Works?

Explaining the BRC-20 Token Standard for Bitcoin

Created by anonymous on-chain analyst Domo in March 2023, the BRC-20 token standard is a newly introduced token standard that allows users to create fungible tokens on the BTC blockchain and transfer them. The concept was inspired by the ERC-20 token standard on the Ethereum blockchain. 

With BRC-20 tokens, developers can create tokens using the Ordinals protocol. Instead of using smart contracts, the BRC-20 token standard uses Ordinals inscriptions of JSON data to deploy, transfer and mint tokens. There are more than 14,000 different tokens that have been minted using this token standard. 

The BRC-20 token standard was originally designed to help in the creation of Bitcoin NFTs by inscribing data such as text, codes, videos and images into the witness portion of Bitcoin transactions. However, it has since facilitated the distinctive transfer of fungible tokens. 

Bitfinex Highlights Pros and Cons of the BRC-20 Token Standard

As mentioned before, Bitfinex recently released a report highlighting the pros and cons of the BRC-20 token standard. According to data from relevant sources, the market cap of BRC-20 tokens had almost reached the $1 billion mark at its peak with more than 14,000 tokens issued. However, it has since declined to less than $600 million at the time of writing. 

Since Bitcoin-based fungible assets were introduced, transactions on the network have increased exponentially. According to data from Dune Analytics, BRC-20 Ordinals transactions outweigh non-BRC-20 transactions by over 4 million. ORDI, MEME, PEPE, PIZA and NALS are some of the most in-demand BRC-20 tokens. 

Pros of BRC-20

BRC-20 as a token standard is still in its infancy. Bitfinex has highlighted some of the pros of the token standard. 

Security

BRC-20 tokens have a high level of security provided by the BTC protocol. Since BTC uses the PoW (Proof of Work) consensus mechanism and has one of the highest numbers of miners in a network, it is one of the most secure blockchains available. 

Compatibility

It goes without saying that the BRC-20 token standard is natively compatible with the BTC blockchain. This makes it easier to integrate into the BTC ecosystem, and developers can easily build BRC-20 tokens. 

Fungibility

BRC-20 tokens are fungible, allowing them to be easily traded on a number of different venues. This offers a simple alternative to new traders who are engaging in BTC trading. 

Cons of BRC-20

The Bitfinex report has also highlighted some limitations related to the BRC-20 token standard. 

Ecosystem Is Limited

While BRC-20 is slowly gaining popularity, it is still in a fledgling stage, with a smaller ecosystem compared to that of ERC-20. As a result, there are fewer tools, developers and resources available for building and managing BRC-20 tokens. 

High Transaction Fees

Transaction fees on the BTC blockchain have increased due to a surge in BRC-20 token activity and the growth of BRC-20 transactions. 

Limitations of EVM Compatibility

One of the biggest disadvantages of this token standard is its lack of EVM compatibility. It does not support smart contracts, which limit access to resources on the network. 

Consumption of Block Space

BRC-20 tokens consume a lot of valuable blockchain which causes network congestion. This can result in increased gas fees on the network, making token transfers more expensive. 

Future Predictions for BRC-20

Many believe that the introduction of the BRC-20 token standard and Ordinals will increase the possibilities of the Layer-1 blockchain technology. The lack of these developments makes it challenging for analysts to judge whether the BRC-20 rally will be sustained. 

Conclusion 

Unless there is further development and more use cases for the protocol, mainstream adoption for BRC-20 is challenging. At the current stage, the BRC-20 token standard has a long way to go to be considered equal to other protocols such as BSC BEP-20 and ERC-20. 

Frequently Asked Questions 

Who Created the BRC-20 Token Standard?

BRC-20 was created by an anonymous on-chain analyst called Domo. The identity and background of Domo are unknown. Domo is considered a pioneer and innovator for creating the first fungible token standard for BTC. 

What Is the Current Market Cap of BRC-20 Tokens?

The combined market cap of BRC-20 tokens is $438 million, with a 2.8% change in the last 24 hours. Since launching, the BRC-20 token market has grown rapidly, reaching a peak of almost $1 billion in May 2023. The largest BRC-20 token in terms of value is ORDI at $300 million. 

What Are Some of the Biggest BRC-20 Tokens?

The combined BRC-20 market cap has decreased a lot since reaching its peak. Some of the biggest BRC-20 tokens are PepeCoin (Market cap – $597,917,376), Ordinals (Market cap – $308,431,560), VMPX (Market cap – $15,411,243), and NALS (Market cap – $6,535,505).