There is a new hype in Bitcoinland - so called
BRC-20 tokens. They are advertised by some of their holders as "the equivalent in Bitcoin for the Ethereum-based ERC-20 tokens". They were created in March 2023, are fungible (so they are no NFTs) and based on the so-called "Ordinals" technology introduced in late 2022.
You may be interested to invest in this tech, maybe even create a token yourself. But I think this is a
bad idea - these tokens have
a lot of disadvantages. It is possible, and in my opinion likely, that they will not have a very long life.
First of all:
BRC-20 is, by far(!), not the only way to create tokens on the Bitcoin blockchain. There are more than a dozen token standards for Bitcoin
since at least 2013/14. Some are quite popular and have a long history, with years of improvements, like Counterparty and Omni, and some offer advanced features like compatibility with Lightning Network (RGB, Taproot Assets [1]).
Now to the disadvantages:
1) BRC-20 tokens are extremely limited in their functionality. Not only don't they support smart contracts (like ERC-20 tokens do), nor DeFi [2], nor even Lightning Network. Due to their technical conception it is very difficult that they will support these things in the future.
2) The creator itself, @Domodata, has described them as an "
experiment", and has warned that they may not be worth anything.
3) They may have undiscovered flaws. They're only 2 months old. Software often has bugs, and so may have Ordinals and BRC-20.
4)
They are extremely inefficient. This is, in my opinion, the most important disadvantage. Not only BRC-20 token creations, but also
all transfers of tokens cost two transactions, because they need to be "inscribed" as an Ordinal in the blockchain. All other token protocols I mentioned above need only one. That's
not something only of importance for
some maxis or nerds.
It will
cost holders money, because the more space a token transfer needs, the
more fees you will have to pay in each transfer. For a simple BRC-20 transfer you will have to pay about two times the fee of that to transfer any other Bitcoin-based token. And additionally, the way the parameters of the coin are stored is very inefficient.[3]
5)
(new and important!): They very likely will
not be stored permanently on the blockchain, so eventually they will be unavailable or only kept by "archival nodes" which will charge access for it. See
this post from gmaxwell for more details. So BRC-20 tokens will eventually "disappear". They are
doomed in the long term.
The
only advantage they have is actually: They are "new and hot". There's currently a "fad" around them, so very, very fast early adopters could still earn money with them, e.g. with a meme coin. But don't wait too long. You may be holding a very annoying (due to the fees to transfer them) and costly, but potentially worthless bag.
Still like the idea of tokens and meme coins on Bitcoin?There are a lots of alternatives, but for new users I recommend two, and there is one more for advanced users:
-
Counterparty - developed since 2014, has lots of features, supports also NFTs, even meme tokens have already been created there, some long times ago ("Rare Pepes", one of the first NFT collections ever). Lightning and smart contract features are in development.
-
Omni - developed since 2013 (originally as Mastercoin), best known because the stablecoin TetherUSD (USDT) is based originally on this technology. Lightning support is in development.
-
RGB - one of the most modern and efficient token protocols, developed since 2017 (whitepaper was published in 2016). It is not only compatible with the Lightning network, it was specifically designed for off-chain transfers. This may be a very interesting technology once fees become higher in the long term. It is however still in its initial stages.
-
Taproot Assets (formerly known as Taro). Another modern standard which support Lightning, now being tested on mainnet. They have some similarities with RGB in that the tokens rules can be set off-chain, but there are also some differences in the way the tokens are stored and transferred.
And there are also altcoin platforms with much less congested blockchains you can use.
PS: This is
no investment advice. Do your own research. But my personal opinion about BRC-20 tokens is that their future looks very, very bleak. It is also not against the technology itself - it may be an interesting tech test. But IMO it has come way too far, and I fear many will lose lots of money with it.
[1] There was a trademark lawsuit regarding the name of this protocol, called initially "Taro". The name was now officially changed to Taproot Assets.
[2] Contrary to popular belief some DeFi applications can be implemented in Bitcoin, but not with the BRC-20 standard and in a different way than with ETH. Counterparty for example has an experimental implementation, but it is not usable still for production. RGB may be eventually a better alternative.
[3] BRC-20 inscriptions are JSON texts. This means that not only the metadata itself is inscribed, but also the names of the parameters to store, even the special characters. Other token protocols don't do that, so the metadata only occupies half to two thirds of the space required by BRC-20.
