What Are BRC-20 Tokens?

Bitcoin is the first and most popular Blockchain in existence. The primary purpose of the Bitcoin network has always been a decentralized, peer-to-peer money transfer system at its core, However, it’s also often compared to digital gold, offering crypto users a secure store of value.

In short, it offered consumers a way to be their own banks. Sticking true to its purpose, most Bitcoin users were happy with its security and didn’t want to use Bitcoin for much else than those core values.

Meanwhile, other blockchains evolved. For example, tokenization on other networks led to innovations like DeFi and NFTs. With Bitcoin being this popular, some users were pushing for more capabilities. Who blames them? Why not adapt and expand when possible?

Well, the Taproot upgrade and the following innovation of the Bitcoin Ordinals protocol created a whole new world of opportunities on Bitcoin. Now, alternative assets have become a whole movement. New ideas attract further innovation and one such innovation is the BRC-20 protocol.

But what are BRC-20 tokens exactly? Let’s dive in and find out.

What Are BRC-20 Tokens?

BRC-20 tokens are fungible bitcoin assets created via the experimental BRC-20 protocol.

If that sounds confusing—fear not! Put simply, fungible tokens are digital assets that are identical and interchangeable. For example, let’s imagine you have a physical coin. If you exchange this coin with another of the same kind, the value of your asset remains the same, even though it’s not the same coin. This is the essence of fungibility; it means you can swap one with another identical version.

Commonly, you will encounter fungible tokens using decentralized applications. However, the Bitcoin network doesn’t support complex smart contracts that enable this sort of application. As a result, Bitcoin was slower to evolve an ecosystem of alternative assets until the launch of the Ordinals protocol.  

To understand how ordinals relate to the BR-20 protocol, let’s go back to the very beginning.

History of BRC-20 Tokens

In November 2021 Bitcoin underwent an update named Taproot. This increased the amount of data allowed in Bitcoin blocks and thus opened the door to new capabilities. While there were several attempts to include larger amounts of data on the Bitcoin network, there was no set method, and doing so was not commonplace.

A couple of years later, in January 2023, Casey Rodarmor brought the Bitcoin Ordinals protocol to life. Essentially it allowed the Bitcoin network to support something close to NFTs. The protocol introduced a method of inscribing information,  such as images or text, onto individual Satoshis (the smallest denominations of Bitcoin possible). 

The interesting thing about Satoshis is that they have a built-in rarity system.  Sats are assigned a “serial number” based on the order in which they are mined on the Bitcoin blockchain. This gives an ordinal number for each Satoshi, which means you can track the history of each one.

Satoshis mined within the first 1000 blocks, or even mined by Bitcoin founder Satoshi Nakamoto himself, have an inherent value. Since Satoshi Nakamoto has been long inactive, these sats are also quite scarce. Today, there’s a whole market dedicated just to these rare sats, never mind those with inscriptions.

This attracted a whole new audience to the Bitcoin network: collectors. Quickly, everyone wanted to inscribe ordinals, with the community testing the protocol to its limits. That’s where the BRC-20 protocol comes in.

Bitcoin developer Domo (@domodata) used the ordinals protocol to build the groundwork for a new fungible token protocol, BRC-20. Using the ordinals protocol as its base tech, the BRC-20 protocol allows you to issue currencies on the first and most popular blockchain Bitcoin. The test protocol launched in March 2023, and since then, it’s seen a lot of success.

But how does it work exactly?

How Do BRC-20 Tokens Work?

The BRC-20 protocol builds upon the base technology of the Ordinals protocol. 

The ordinals protocol made it much easier to attach additional data (such as text, images, or audio) to a single Satoshi. This was possible since the Taproot upgrade, but cumbersome to those without development skills. Via Rodarmor’s protocol, it’s reasonably easy to inscribe sats with whatever information you need.

BRC-20 tokens are essentially ordinals inscribed with specific standardized information. To explain, BRC-20 tokens are always inscribed with JSON  (JavaScript Object Notation) data. It’s this code that gives the ordinal extra functionality. While the BRC-20 standard is still limited, this small amount of code allows you to deploy, mint, and transfer tokens on the Bitcoin network.

Risks of BRC-20 Protocol

Of course, like with any new asset class, BRC-20 tokens pose some challenges.

Energy and Data Inefficient

Due to Bitcoin’s PoW mechanism and how the BRC-20 protocol is designed, deploying, minting, and transferring tokens costs a lot of energy. The protocol has also been criticized for creating “junk UTXOs”, meaning the protocol is not as efficient as it could be. 

Expensive

As the BRC-20 protocol uses a lot of energy and isn’t always efficient, it can also be expensive to inscribe, distribute, and manage BRC-20 assets.

Limited Functionality compared to EVM chains

If you’re looking for programmable tokens, BRC-20 tokens may seem limited in functionality for you. However, as the 

Highly Experimental

As the BRC-20 protocol is entirely experimental, the assets it creates are high-risk and have an uncertain future.

Top BRC-20 Tokens

So now you know how they work, you might be wondering which BRC-20 tokens you may already know about. Today, two of the most held BRC-20 tokens are ORDI and WOJAK. Keep in mind that most of these tokens have been created for educational or entertainment purposes and may not hold any future value. 

ORDI 

The most popular BRC-20 token to date is ORDI. Short for Ordinals. Not to be confused with the protocol Bitcoin Ordinals, which is the eponym. ORDI is the first ever fungible token that applies to the BRC-20 standard and was created during the described experiment by @domodata. It has been listed by several big exchanges. 

WOJAK

Just by its name, users should be able to guess that the WOJAK token is a memecoin. The name of the token goes back to the internet meme called “Wojak” (polish for soldier or warrior). It’s a simple black-and-white cartoon drawing of a bald man with a wistful expression. This particular token is a memecoin and to learn more about these types of assets, check out the full article on what a memecoin is.

BRC-20 vs ERC-20 Tokens: What’s the Difference?

Simply put, we are comparing a Bitcoin asset to an Ethereum asset. But of course, there’s more to it. 

For starters, BRC-20 tokens are much more limited than their Ethereum token counterparts. To explain, many blockchains have their own virtual machine that has the power to execute smart contracts. For Ethereum and Solana, that’s EVM, the Ethereum virtual machine. These virtual machines can read and execute code which allows for more complex assets and conditions relating to those assets. 

But here’s where the big difference is: Bitcoin does not use a virtual machine, and this poses some limitations. For example, BRC-20 tokens are not interoperable – you can’t easily transfer them to other chains. Additionally, Bitcoin cannot handle complex tokens or store extra information outside of the blockchain, unlike Ethereum which can use EVM to find files stored on IPFS and other decentralized storage protocols.

Then, since the Bitcoin network uses a proof-of-work consensus, it is much slower, more expensive and energy-consuming than Ethereum, which uses proof of stake. That means creating BRC-20 tokens requires more time, money and funds than just releasing an ERC-20 token. However, this same PoW mechanism means that Bitcoin tokens are much more secure and immutable than ERC-20 tokens.

BRC-20 tokens Vs Bitcoin Runes: What’s the Difference?

In 2024, Casey Rodarmor launched the Bitcoin Runes protocol as a more efficient way to create fungible Bitcoin assets. While Bitcoin Runes are similar to BRC-20 assets, they are more data and energy-efficient. They don’t create “junk UTXOs” and they store data more immutably too. 

The other difference lies in their compatibility. Bitcoin Runes are Lightning network compatible and don’t require Taproot-compatible wallets.

How to store BRC-20 tokens securely

To store BRC-20 tokens securely, you need a Bitcoin wallet that stores your private keys offline and allows you to interact with these experimental assets. Currently, this is not the easiest feat, but if you want to start managing BRC-20 tokens securely, a great way to do it is by connecting your Ledger device to a BRC-20-compatible third-party wallet. 

Manage your BRC-20 tokens with Ledger and Leather (Hiro)

Leather (formerly Hiro) Wallet is a Bitcoin software wallet that supports Bitcoin ordinals and BRC-20 tokens.  It also supports Runes and Bitcoin Stamps. Plus, you can also use Leather to connect to Bitcoin layer two network Stacks. Connecting your Ledger device to Leather wallet is easy: just follow this help center tutorial to get started.

Manage your BRC-20 tokens with Ledger and XVerse

Xverse is a popular Bitcoin hot wallet compatible with BRC-20 tokens and ordinals. It also allows you to manage rare sats and runes. It’s easy to connect your Ledger device to Xverse too, allowing you to manage BRC-20 tokens with security. To connect your device to Xverse, follow the steps in this Help Center article!

The Future of Bitcoin Tokens

Although only experimental, BRC-20 tokens have already had an impact on the Bitcoin network and the DeFi market as a whole.

BRC-20 tokens, while experimental, are becoming more commonplace. However, the BRC-20 protocol is no longer the only Bitcoin fungible token protocol built on the scene. In 2023, the Stamps protocol launched, alongside its fungible variant SRC-20. Then in 2024, Bitcoin ordinals creator Casey Rodarmor launched an optimized fungible token protocol for creating Bitcoin Runes. In short, there are several protocols using Bitcoin to create alternative assets.

So, before you go diving into BRC-20, make sure you do your research. While Ledger can protect you from exposing your private key on the internet, it can’t prevent you from mismanaging your ordinals. It’s all too easy to send your BRC-20 tokens by mistake, so before you dive in, make sure you check out the support article on how to manage ordinals.

 If you do decide to experiment with this new protocol, you should always do so with caution. Only then can you interact with experimental assets in confidence. Remember: self-custody means responsibility, but with the right knowledge and a Ledger device, you can navigate the alternative Bitcoin asset ecosystem with confidence.