Comprehensive Interpretation of BRC-20: New Narrative or Bubble Feast?

Author: Waterdrip Capital

As of 17:59 on May 31, more than 24,000 BRC-20 tokens have been deployed, with a total market value of more than $400 million, among which $ordi still ranks first. Undoubtedly, BRC-20 is an important recent innovation of the Bitcoin network. However, we believe that as the popularity of BRC-20 dissipates and people no longer FOMOBRC-20, the prices of various BRC-20 tokens will definitely drop significantly.

What is BRC-20?

BRC-20 is a standard that can mark the state of the ledger with an inscription. Ordinals are a numbering scheme that allows for the tracking and trading of each individual Satoshi. Bitcoin is a homogeneous token, there is no difference between each bitcoin. However, BRC-20 numbers each basic unit "Satoshi" of Bitcoin in order, making "Satoshi" non-homogeneous. It should be noted that BRC-20 is not an alternative to Bitcoin, but a solution that is still based on the Bitcoin network.

Mint and Transfer functions of BRC-20, source:

BRC-20 issued tokens achieved the original idea of the encryption industry - everyone can simply issue tokens, the greatest value is that it is on Bitcoin, which occupies a part of "Satoshi", these BRC-20 tokens are like Bitcoin The clone of the currency, Bitcoin gives it value. Of course, it can also be compared to issuing currency on RMB, which is similar to the RMB limited edition, and each BRC-20 is a bitcoin limited edition and has a basic bitcoin value.

Its essence is NFT, which is no different from the ERC-20 standard token in terms of expression, making up for the missing part of the Bitcoin ecology compared to the Ethereum ecology.

The first BRC-20 token "Ordi" deployed by @domodata, source:

BRC-20 mainly provides three implementation standards for the issuance of tokens on the Bitcoin network, including the deployment of BRC-20 tokens, mint mint, and transfer. Developers can complete the creation and issuance of BRC-20 tokens by following this standard.

The user can change the field after "op" to represent the operation performed. deploy represents the deployment of tokens, mint represents the casting of tokens, and transfer represents the transfer of tokens; tick represents the name of the token being executed. Users can Enter the name of the token being executed.

Both the market value and the total number of users of Bitcoin are higher than that of Ethereum, but the establishment of the ecosystem is relatively backward compared with that of Ethereum. After the release of the 20 standard, it may change the ecological situation of Bitcoin in the future, so the currency circle calls domo "the creator of BRC-20, the V God of Bitcoin ecology domo".

BRC-20 generates background

Since the release of the Ordinals protocol, domo has cast his Twitter avatar into an NFT on BTC.

Domo then made statistics on the trading volume of the Ordinals market, and found that as of March 6 this year, its NFT has reached a market trading volume of 6 million US dollars and 10,000 unique users, while the same product Opensea took 14 months to achieve With this goal in mind, domo concluded that the Ordinals protocol will definitely be preserved, which also allowed him to discover the huge potential of the Ordinals Market.

Twitter user @satsnames introduced the .sats namespace built on Bitcoin at the end of February this year. Its goal is to build a name ecosystem for Bitcoin, and it is built by Bitcoin users and completely developed based on Bitcoin. All names The state all lives on Bitcoin, and no one person is privileged. The general default is that the writer of the first name on Bitcoin owns that name, but anyone else may have a duplicate name (i.e. naming collisions), so the "first is first" rule is used to resolve this. Since the introduction of the naming system, minted .sats accounted for 45% of minted Ordinals.

Twitter user @redphonecrypto explained the NFT on Bitcoin, and believes that it cannot be called NFT, but can be called digital artifacts. And gave negative reasons for the misunderstanding of "Bitcoin inscriptions are just JPG on Bitcoin, no innovation, no programmability, and will definitely die soon": ①Inscriptions can contain almost any content that modern web browsers can display. Media, such as: movies, games, web pages, etc., and JPG; ②The biggest use case is to simply publish text on Bitcoin, which can be copied and pasted, which makes this function a service similar to "IPFS" in the encrypted world③ Bitcoin inscriptions are similarly a database of immutable timestamps tx, they are numbered sequentially, the first inscription is always the first inscription, and it is associated with an immutable timestamp. Previously Bitcoin only stored timestamped tx, now it can store anything its users collectively imagine.

At the same time, it is believed that the NFT on Bitcoin is better than that on Ethereum in at least two aspects: (1) it is truly scarce (it cannot be minted infinitely like Ethereum) (2) it is guaranteed by the Bitcoin security mechanism POW. (3) Engraving on the chain (instead of linking to IPFS/Arweave/centralized servers). @redphonecrypto drew an inspiration from the sats file system, and looked forward to who would create a standard similar to "BRC-20" to allow token issuance on Ordinals, and gave his own assumptions, as shown below:

So domo released the BRC-20 experiment, through this logic, anyone can use the Ordinals inscription to deploy, cast or transfer, and the "first is first" rule applies.

Comparison between BRC-20 and ERC-20

BRC-20 is more like a special NFT, which states how many homogeneous tokens this NFT represents.

Advantages of BRC-20 compared to ERC-20:

1. A fairer distribution method. This is mainly due to the low programmability of the Bitcoin chain. The low programmability itself is the disadvantage of the Bitcoin chain, which cannot compare with Ethereum, which is Turing complete and capable of carrying smart contracts. However, this "disadvantage" makes it possible for the issuance of BRC-20 to not reserve tokens, while erc-20 can be reserved for tokens at the time of issuance.

2. Has fundamental value. BRC-20 is attached to "Satoshi", so the minimum value of BRC-20 tokens can be considered as the value of a "Satoshi", but erc-20 does not have the support of minimum value.

Disadvantages of BRC20 compared to ERC20:

1. The programmability is not high, and the original lack of smart contract support on the Bitcoin chain makes the defi scalability of BRC-20 not high.

2. BTC cannot reject invalid inscriptions. Inscriptions are data in json format, and Bitcoin nodes will not parse the data.

3. UniSat has a dominant position in determining the legitimacy of inscriptions and is not decentralized enough. UniSat has already occupied a dominant position in the BRC-20 market. Since the content of BRC-20 is json data, tools are needed to interpret the data. UniSat plays the role of this interpreter, which is a manifestation of BRC-20's lack of decentralization.

In fact, two technical upgrades to the Bitcoin protocol in 2017 and 2021: Segregated Witness (SegWit) and Taproot increased the amount of stored data in a block, which provided the possibility for the emergence of Ordinals NFT, but they did not Not an upgrade to create Bitcoin NFTs.

Segregated witness is to take the script signature (Sig) information out of the basic structure (base block) and put it in a new data structure. Nodes and miners doing verification work will also verify the script signature in this new data structure to ensure that the transaction is valid [4] . Segregated Witness relaxes the limit on signature size, essentially increasing the effective capacity of Bitcoin blocks.

Schematic diagram of serialization of new and old transactions posted by David A. Harding, data source:

The soft fork Taproot upgrade implemented in 2021 includes three BIPs: Schnorr Signatures, Taproot, and Tap. Their goal is to enhance the privacy and efficiency of transactions on the Bitcoin network, and to address security concerns. Schnorr Signature is a digital signature algorithm proposed by Claus Schnorr. They can aggregate multiple signatures into one, increasing efficiency and privacy. Taproot is a scheme that uses Merkle abstract syntax trees to hide complex transactions under common public keys, also improving efficiency and privacy. And Tap is a new scripting language for writing conditional branching logic in Taproot. It optimizes Schnorr signatures and adds some new opcodes. The core of this upgrade is the Schnorr signature. Signature algorithms can bring higher performance and better use cases to Bitcoin. The size of a Bitcoin block is limited to 1MB, but since each transaction included in a block on the Bitcoin network can add additional data, each block can store up to 4MB of data [5] 。

In the end, the composition of Ordinal theory + Segregated Witness + Taproot created Bitcoin NFT, so that each sat can have a special meaning.

Bitcoin Punks(Inion 34400)

As the potential of the Ordinal theory was tapped, BRC-20 came, and as we write, the latest inscriptions are all BRC-20.

Inscription at 1:00 on 5/6/2023

Situation Analysis

According to the BRC-20 website, sentiment towards BRC-20 is still very high right now, with more than 24,000 BRC-20 tokens deployed, with a total market capitalization of over $400 million. Among them, $ordi still ranks first, with a market cap of $230 million, accounting for 53% of the total market cap of BRC-20. (Data as of 17:25 on May 31, 2023)

The trading volume of BRC-20 tokens remains high, and the BRC-20 market continues to be active. At present, the total number of BRC-20 transactions exceeds 8.43 million, and the total transaction fee exceeds 1280 BTC. (Data as of 17:27, May 31, 2023)

Now the daily trading volume continues to exceed 10w.

Judging from the mining pool data of mempool, in less than a month in early May, the gas fee increased by 40 times from less than 10 sats/vb, and even reached 600 sats/vb at a high point. The number of users of UniSat, a centralized brokerage and trading platform, increased to hundreds of thousands in just a few weeks, and the servers were overwhelmed for maintenance every once in a while. However, when the UniSat platform first came out in March, there were only 50 active users on the platform.

The time of the above three graphs is April 30, May 8, and May 31, 2023, respectively. The mempool transaction fee graph

Data Sources:

UniSat Market Crash Chart

Data Sources:

At present, BRC-20 has directly ignited Bitcoin transactions, and it still maintains a very hot momentum.

The high number of transactions caused the Bitcoin network to become congested, and gas fees skyrocketed rapidly, but have fallen back sharply in recent days.

At present, many users have poured into the BRC-20 market. The most mainstream ordi holders have exceeded 11,000, and meme and pepe holders have exceeded 4,000.

brc20

Most of the people who take over are from an investment perspective and mentality, with expectations of rising currency prices and fantasies of getting rich overnight. The increase in currency prices is often based on the consensus of the community and the fantasy of a group of people who want to get rich. Therefore, when BRC-20 is listed on the exchange, vested interests expect that more people will be able to participate in the sale and take over the BRC-20 tokens in their hands. But actually:

1. It is impossible for the number of people entering the BRC-20 market to maintain a long-term substantial increase

2. Most of the people who participate in the BRC-20 market transaction also have a lot of chips waiting to be sold, and they are more inclined to play new coins in the market rather than take over worthless old coins.

So when BRC-20 was listed on the exchange, dealers sold it in large quantities, but no one took it up. When expectations did not match this reality, the bubble burst step by step, and this panic would cause more people to sell at lower prices. , Ushering in a round of declines in currency prices. Many MEME coins such as bank, vmpx, etc. directly dropped by more than 90%.

(Figure 8: VMPX market trend chart) Data source:

The above picture - VMPX market trend chart is an example. Before VMPX was listed on the gate.io exchange, the price of VMPX rose steadily due to the consensus of the community, and the price reached 0.8 US dollars. When the news of the listing came out but before it was officially listed, the transaction price on the chain reached $2, and then some people sold it in large quantities. One hour before the listing, the price had dropped to about 0.3. After being listed on the exchange, the highest point was only 0.3, and then continued to fluctuate and fall. The price can be regarded as retreating step by step, and there is not much left.

Currently, BRC-20 tokens are just tokens, and we don’t know where they will go or what their future applications will be; since BRC20 is currently mostly a local dog project without any value or application scenarios, some Bitcoin community The original users are against BRC20 because they think it will only increase the congestion of the Bitcoin network, which is not good for Bitcoin. However, some users believe that because users need to use Satoshi to pay for any BRC20 Token on the blockchain, this adds new application scenarios to the Bitcoin network and attracts a new wave of enthusiastic users and developers to the Bitcoin community. They believe this will increase the demand for BTC, which will benefit the price of BTC.

As stated on pepe's official website, the value of pepe is only entertainment value (

BRC-20 Ecosystem

When it comes to BRC-20, one cannot but mention UniSat. It is undeniable that BRC-20 was born with its own narrative, but UniSat can be said to have contributed a lot to the fire of BRC-20.

What did UniSat do right?

UniSat is first of all a browser plug-in wallet. Its installation and usage habits are very close to Metamask. Given the huge user base of Metamask, users who often use compatible evm chains can quickly adapt to Bitcoin on-chain operations. In addition to the wallet function, UniSat also provides services including inscription, retrieval, and market. UniSat has become a one-stop service application of BRC-20.

UniSat service

With one-stop service, UniSat solves various needs and pain points of BRC-20 users. Users only need one tool to complete all BRC-20-related services such as casting, selling, and searching.

Why did UniSat add fire to the BRC-20 market?

Excluding the one-stop service mentioned above, when UniSat launches the Marketplace function, users need to have certain points, and to obtain points, users need to use UniSat’s casting tools, which makes users buy their favorite BRC-20 tokens in a fomo mood Before, it was necessary to quickly mint some new project tokens. For the project party, this is obviously in line with their interests. Not only that, but UniSat gives BRC-20 Inscription deployers a 0.2% transaction royalty. Therefore, in a short period of time, a large number of projects have been launched together, making this market even more intense. Until May 11, according to the official Twitter, the BRC-20 trading market UniSat Marketplace did not cancel the access threshold, that is, UniSat points are no longer required for use.

What did UniSat gain in the BRC-20 frenzy?

We believe that UniSat has cultivated user habits first. If users want to enter the world of BRC-20, the first thing that comes to mind is UniSat. Just like when a user wants to enter the world of Ethereum, the first thing that comes to mind must be metamask. Secondly, UniSat also gained real money in this frenzy. Taking the purchase of Beng as an example, in addition to paying the total value and network fee of the BRC-20 token, the user also needs to pay a 1.6% platform fee [2] 。

Purchase Beng token confirmation (source:

What does the UniSat team want to do in the future?

According to an interview with Lorenzo of the UniSat team, the UniSat team has financing plans in the near future. In terms of products, Lorenzo only revealed that UniSat will improve the user experience of the entire platform, safely save the user's inscriptions in the wallet, improve the access experience of mobile phone users, and optimize the casting process.

In addition to UniSat, quite a few ecological projects have emerged around the Ordinals and BRC-20 narratives, and we will briefly review them here.

Ordswap

Ordswap is also working as a one-stop tool, users can mint, buy and sell Ordinals inscriptions on Ordswap. However, Ordswap is not particularly friendly to the inscriptions of BRC-20. The market is not specially optimized for BRC-20. The sorting of inscriptions in the market only supports four methods (Recent, Number, Price ASC, Price DESC). Obviously, BRC-20 Enthusiasts do not regard Ordswap as the preferred trading market.

Ordswap market interface

But what is interesting is that Ordswap provides an interface to inscribe orc-20 (an upgrade protocol compatible with BRC-20), which facilitates related operations for users.

inscribe orc-20

Ordmint

Ordmint is currently primarily a minting tool that supports payment of BTC via the Lightning Network to mint inscriptions. It also has some search functions, but it is not very complete. It currently allows users to see if a .sat domain has been minted, although it has added other lookup options to the front end, but as of now this is not available.

Ordmint Minting Features

It currently allows users to see if a .sat domain has been minted, although it has added other lookup options to the front end, but as of now this is not available.

Ordmint lookup function

Ordinals wallet

Ordinals wallet is a web wallet and inscription browser specially developed for Ordinals. It currently provides functions such as casting and trading, and is very friendly to BRC-20. Currently, the project has airdropped Pixel Pepes NFTs to early users.

BRC-20 Kanban in Ordinals wallet

In addition to some other Ordinals/BRC-20 ecological part of the infrastructure.

BRC-20 Dex

The script of Bitcoin is not Turing-complete, and the inscription of BRC-20 needs to be analyzed by tools. The former makes Bitcoin’s DeFi scalability not high, and the latter makes BRC-20 assets too dependent on centralized interpretation tools. These two reasons make it not easy to build a DEX that trades BRC-20. Most of the BRC-20 trading markets such as UniSat adopt the form of pending orders, which require artificial market makers to match transactions.

BisoSwap announced on May 9 the deployment of the first AMM DEX in the BRC20 ecosystem. BisoSwap describes the workflow of adding liquidity, swapping tokens, and removing liquidity in the official documentation.

According to the workflow description of increasing liquidity, users need to send BRC-20 and BRC-21 transaction pairs to BisoSwap, and BisoSwap will deploy the inscription of LP Token on the chain, and transfer it to the user after mint.

Increase fluidity workflow (source:

The description of the token exchange function in the document is that the user sends the BRC-20 TokenA transfer inscription to BisoSwap, and BisoSwap reads the deployed LP Token "contract", calculates and updates the latest values of TokenA and TokenB in the pool, and transfers the transfer inscription of TokenB Sent to users, users can redeem locked assets on the target chain according to their own needs.

Swap Token Workflow (Source:

Workflow for removing liquidity

To remove liquidity, the user transfers the mint inscription of LP Token to BisoSwap, and BisoSwap reads the deployed LP Token "contract", calculates and updates the latest values of TokenA and TokenB in the pool, and sends the transfer inscription of TokenA and TokenB to user.

Remove liquidity workflow (source:

We have seen that although BisoSwap claims to be a DEX, it actually still relies heavily on tools for parsing inscription content. Secondly, BisoSwap currently does not implement these three functions, but only launched a stake function that is not a core requirement. We believe that due to the characteristics of the Bitcoin network and BRC-20 itself, it is very difficult to implement an AMM DEX based only on the Bitcoin network. It may be necessary to focus on the Lightning Network and some Bitcoin sidechains.

Future Outlook

BRC-20 is a major innovation of domo on the Bitcoin network, which has re-ignited the ecology and narrative of the Bitcoin network, and brought back the long-lost Lightning Network to people's vision. As the potential of BRC-20 is gradually tapped by people, more and more people start to FOMO BRC-20. BRC-20 has also gradually formed an ecosystem. However, the various tokens of BRC-20 are still mainly local dogs, and most of them have entertainment value. dramatically drop.