What is the BRC20 token? A look at Bitcoin memecoins

The BRC20 Token Standard is the name of the standard that is supposed to play the role of Bitcoin memecoins. Although the Bitcoin blockchain cannot currently host smart contracts and decentralized applications that create asynchronous tokens or memecoins, each Bitcoin is still made up of 100 million satoshis, and each satoshi can be unique and distinct. Therefore, perhaps each satoshi can be converted into a non-monogamous token or memecoin.

Satoshi Nakamoto probably had no dream in 2008 when he was writing the Bitcoin whitepaper that “Mimecoin” would one day be released on the Bitcoin blockchain. But now this has happened. NFT or Mimcoin offering may be what Bitcoin needs for widespread and public adoption.

BRC20 tokens work on the basic idea of ​​giving each satoshi a new color and turning it into a memecoin. In this article, we take a look at BRC20 tokens and some of the views of users on social networks using an article from the Coinmarketcap website. If you are interested in the idea of ​​Bitcoin memecoins after Bitcoin tokens, we suggest you stay with us until the end of the article.

token BRC20What is it and how does it work?

In the midst of the memecoin craze and the tsunami of attention to these funny coins on Twitter, BRC20 tokens emerged as the new “standard token” on the Bitcoin blockchain to act as Bitcoin’s memecoins. BRC20 tokens, like the Bitcoin Ordinals protocol, came to life with the idea that each satoshi could have a unique property.

For more explanation, it is not a bad idea to take a look at the basis of the Ordinals protocol. Bitcoin’s Cardinals protocol, which caused a stir in the relatively conservative Bitcoin community a few months ago, works on the basic idea that each satoshi is uniquely marked and known; Just like the serial number printed on each dollar bill, which makes it unique.

Read more: Ordinals protocol; The entry of NFTs into the Bitcoin network

In the text of the proposal of the Ordinals protocol, the working method of this protocol is explained with an example:

Imagine two one dollar bills. Both bills are completely identical (exchangeable). However, each has a serial number that makes them unique and identifiable. If (two famous boxers), Muhammad Ali Kelly and George Foreman, sign one of these two bills, it will somehow become a non-exchangeable one dollar bill. You can still spend this one dollar bill as a regular dollar; But these signatures make the value of this banknote skyrocket.

The Ordinals protocol works similarly to this example. Each satoshi (similar to a dollar bill) can be uniquely marked. Now, if we go back to BRC20 tokens, we are faced with a relatively similar concept, except that the Cardinals protocol marks each satoshi to act as a non-reciprocal token; While BRC20 tokens basically involve “minting” satoshis that contain specific information about a set of tokens.

How is the BRC20 token created?

For example, imagine that you plan to create a set of 100 hypothetical tokens called RANDO with the BRC20 standard. Before doing anything, you need to enter the information of your desired token set on a satoshi.

For this purpose, JSON data is used, which can contain the token’s name, symbol, supply, and other attributes. Additionally, users can use Jason data to create new tokens or transfer existing tokens to other addresses.

Let’s go back to the one dollar bill analogy. To create BRC20 tokens, you stick a sticker of, say, 20 of your hypothetical RANDO tokens on a dollar bill; But these stickers are not equal to one dollar. You will always need your $1 bill to transfer the stickers; But this one-dollar bill does not support the stickers themselves, and the stickers do not have a special function.

If you are a little confused up to this point and with these explanations, you are right; Because Bitcoin is basically not built for these changes and innovations. Many Twitter users, including ChainLinkGod.eth, have called BRC20 tokens “strange” and “inefficient” that cannot compete with other token standards such as ERC20.

Read more: What is ERC20 token and standard?

The story of tokens BRC20 Where did it start?

Taproot’s upgrade made such innovations feasible on the Bitcoin network. It goes without saying that the season of memecoins was not without influence in the formation of this idea.

Read more: What is taproot? Everything Investors Need to Know About Bitcoin Taproot Promotion

Eric Wall, a famous cryptocurrency researcher and investor, wrote on his Twitter account that the idea of ​​the BRC20 token is an imitation of the XEN token on the Ethereum network. Wall explained that BRC20 tokens, like XEN tokens, are completely useless and only increase the fees of blockchains like Bitcoin and Ethereum.

Eric Wall compares BRC20 tokens with Shatcoins and considers the main factor of their creation to be the changes in Teprot in the field of increasing the block space. According to Wall, BRC20 tokens cannot compete with Ethereum’s ERC20 tokens and their features, and are simply born of more empty space on the Bitcoin blockchain.

This thirst for free block space surprised the Bitcoin community and had a significant impact on the increase in transaction fees.

Impact of BRC20 on Bitcoin Transaction Fees

Just as the dust settles on the Cardinals protocol, BRC20 tokens once again set off a storm in increasing the number of Bitcoin transactions. Currently, the transactions of these tokens constitute a very large part of Bitcoin transactions. Thus, Bitcoin transaction fees increased to a level that was unimaginable before.

In fact, the transaction fee exceeded the block reward and made up a large part of the miners’ income. In the tweet below, you can see the comparison of transaction fees with block rewards.

This was especially pleasing to people who believed that widespread adoption could prove the effectiveness of Bitcoin’s security model. For example, Alex Gladstein mentioned in a tweet that in the future miners’ main income will be from transaction fees and not block rewards.

However, not everyone was happy about this surprising spike in Bitcoin activity.

Consequences of token offering BRC20 In the Bitcoin community

The reception of BRC20 tokens made centralized exchanges to think of listing these tokens and smart developers are looking for setting up liquidity pools of these tokens. For example, in the image below you can see a tweet announcing the launch of UniSwap liquidity pools for BRC20 Bitcoin tokens:

However, the launch of the BRC20 token was met with criticism and numerous positive and negative comments in the Bitcoin community. Some agreed with the release of these tokens, and some criticized strongly against BRC20 tokens.

Eric Wall and Udi Wertheimer, activists and experts in the Bitcoin community, despite criticizing the efficiency of BRC20 tokens, support the secondary effects of the Bitcoin community’s strong thirst to increase the block space and consider it a positive thing.

Lightning Network profits from BRC20 token noise

It should be mentioned that the hype of BRC20 token is over in favor of Lightning Network and the increase of Bitcoin fees caused Lightning Network to finally face massive demand. However, the increase in fees is not so favorable for people who were more comfortable with the low fees of Bitcoin.

For example, a user named Marce Romero (Marce Romero) from El Salvador wrote in a tweet that he witnessed someone paying a fee of $20 to withdraw $100, which is a very high cost in a country where the average salary is between $300 and $350. Are.

This was also the opinion of Anita, a Bitcoin educator. The said user is trying to introduce Bitcoin to areas of the world that are not financially developed. He tweeted:

Can someone explain to me how I can get people to come into the Bitcoin space with these fees? With this amount of fee, it is not possible to make an intra-chain transaction or even open a channel (Lightning). The only available option is to use the Lightning network as a trust.

Read more: How to use Lightning network?

This may not be the acceptance Bitcoin holders were hoping for; However, perhaps BRC20 tokens with a total value of $1 billion are worthy of the Bitcoin community.

The need for a solution to solve the problem of scalability of Bitcoin

Nic Carter is the co-founder of Castle Island Ventures, which invests specifically in public blockchains. Carter previously said that Bitcoin is more like the Fedwire payment network than the Visa payment network, and its design is not suitable for fast payments and settlements.

It should be noted that Fedwire is an American payment network for large transactions, which sometimes sacrifices speed for the accuracy and security of transactions. However, Nick Carter recently pointed out that burning a portion of the transaction fees on the Ethereum network seems like a smart move, criticizing the fact that Bitcoin transaction fees only go into the miners’ pockets and have no other benefit for Bitcoin holders:

Also, some community members realized that BRC20 tokens could provide the necessary incentive for the community to work on improving the infrastructure needed to increase scalability. Referring to this point, Tuur Demeester tweeted:

Bitcoin developers knew from the beginning about the limited on-chain capacity of the network; For this reason, they invented second-layer scaling solutions such as the Lightning Network and sidechains.

The main solution to deal with high fees is to move micro-transactions to the second layer of Bitcoin. According to Demeester, in the current situation, developers should think about developing new solutions and the second layer to improve the scalability of Bitcoin.

TotalTheclassification

Similar to the Cardinals protocol, the main question is whether BRC20 tokens can be considered a new and lasting asset class or group, or are they just a fleeting spark that will shine and fade away after the inevitable subsidence of memecoin madness?

Regardless of the future of the BRC20 token standard, the release of these tokens demonstrated the weakness of the network’s scalability and the lack of Bitcoin’s second-layer infrastructure. Undoubtedly, the Bitcoin community should think about fixing these shortcomings and face the basic question of “how much and what kind of widespread and public acceptance is desirable for the Bitcoin network?”