Original author: Fiona

Original translation: Deep Tide TechFlow

DWF Ventures investor Fiona tweeted an introduction to the working principle of Ordinals, the market size of BRC-20, and its advantages and disadvantages. She believes that BRC-20 has changed the DeFi landscape of Bitcoin by making tokens interchangeable, and although it is still in its early stages, there is potential.

Ordinals Inscription

Before delving into the BRC-20 token, it is important to understand how Ordinals work. By default, 1 satoshi is a small fraction of 1 bitcoin, and 100 million satoshis are equivalent to 1 bitcoin.

Ordinals can assign a sequence number to a single satoshi, which can be tracked and traded through inscriptions. Each satoshi can be stamped with data through Bitcoin transactions, such as images, text, or videos.

After a transaction is mined, the written data will be permanently stored on the Bitcoin blockchain. This makes each satoshi unique and therefore, non-fungible.

Ordinals NFT's competitive advantage lies in their ability to be created directly on the Bitcoin blockchain. Since its launch in January 2023, the inscription activity has grown significantly, and Bitcoin NFTs have also seen considerable prosperity.

BRC-20

In March 2023, @domodata established the foundation for a new token standard, BRC-20, using ordinal numbers. BRC-20 is an experimental token standard for interchangeable tokens on the Bitcoin blockchain.

Unlike the ERC-20 standard, the BRC-20 standard does not rely on smart contracts, but instead uses Ordinals inscriptions. BRC-20 tokens can be deployed, minted, and transferred by directly writing JavaScript Object Notation (JSON) data into the token.

Although BRC-20 is a type of Ordinals inscription, not all ordinals are BRC-20 tokens. Standard Bitcoin ordinals can be engraved with any information, but BRC-20 tokens always have JSON data engraved. In short, unlike standard ordinals, BRC-20 makes tokens fungible.

BRC-20 Market Size

According to CoinMarketCap, the current market capitalization of BRC-20 is approximately $3.4 billion, which has grown 3.4 times in 7 months. Leading tokens include $ORDI (the first minted BRC-20 token) and $SATS.

The advantages and disadvantages of BRC-20

BRC-20 has many advantages:

·Enhanced Bitcoin Tokenization Beyond the Theory of "Digital Gold"

· Inherits the security of Bitcoin's PoW system, making it technically more secure than Ethereum.

·Fully on-chain, no need for additional file systems like IPFS.

·Can attract a diverse and large user base from the Bitcoin network.

· Interoperability with existing Bitcoin infrastructure (including wallets and exchanges)

Of course, BRC-20 also has some shortcomings:

·Due to the limited block size and transaction throughput of Bitcoin, scalability issues may lead to increased fees and time.

·Compared with ERC-20, smart contract functionality is limited, so it cannot achieve very advanced functions.

·Interoperability challenges with other blockchain networks, as BRC-20 aims to facilitate interactions within the Bitcoin ecosystem.

·At an early stage, there is a certain risk due to limited support tools as it is still in the experimental stage.

Precautions for BRC-20

By making tokens interchangeable, BRC-20 has changed the Bitcoin DeFi landscape. With the development of the Bitcoin L2 ecosystem, we may see more BRC-20-focused DeFi projects by 2024.

Although BRC-20 is still in its experimental stage and not yet mature, the growth of research and development projects reminds us of Ethereum's similar footprint to some extent. The increasing interest of users, projects, developers, and investors in BRC-20 proves its potential.

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