ORC-20 tokens run on the Bitcoin blockchain and are represented as JSON (JavaScript Object Notation) files inscribed onto satoshis with an Ordinal serial number, similar to BRC-20 tokens. Created after the BRC-20 standard, ORC-20 aims to address a few of BRC-20's limitations by improving security and enhancing flexibility. 

ORC-20 expands BRC-20's scope by supporting a wider array of data formats and leverages Bitcoin's Unspent Transaction Output (UTXO) model to circumvent the issue of double-spending, which has been a significant concern for some BRC-20 tokens.

What Is the ORC-20 Standard?

The ORC-20 standard is an open standard designed to improve BRC-20 on the Bitcoin network. The ORC-20 standard's objective is to maintain backward compatibility with BRC-20 while improving adaptability, scalability, and security.

BRC-20 is an experimental token standard that allows users to mint and transfer fungible tokens via the Ordinals protocol on the Bitcoin blockchain.

How Does ORC-20 Improve the BRC-20 Standard?

The ORC-20 protocol builds on Ordinals and the BRC-20 token standard. The primary objective of the ORC-20 protocol is to promote the adoption of Ordinals, digital artifacts that can carry various data types on the Bitcoin network. It enables users to deploy new ORC-20 tokens and migrate existing BRC-20 tokens.

BRC-20 is an experimental token standard on the Bitcoin blockchain named after Ethereum's ERC-20. It enables developers to create and transfer fungible tokens through the Ordinals protocol. BRC-20 has become popular in the crypto ecosystem, especially after the rise of meme coins like Pepe (PEPE) in May 2023.

The current limitations of the BRC-20 standard, such as double-spending and restricted naming space, have led to a need for improvements. The proposed ORC-20 protocol introduces several enhancements, such as UTXO and flexible naming space, to address these limitations.

How Does ORC-20 Prevent Double-Spending?

The transaction model used in ORC-20 is based on Bitcoin's UTXO model. When a transfer occurs, the sender specifies the amount to be received by the receiver and designates the remaining balance to be sent back to themselves, simplifying the transfer process.

In the UTXO model, the previous inscribed balance is rendered invalid after each transaction is completed, aligning with the UTXO principles. Each "sends" event in ORC-20 tokens can include a nonce. This allows the sender to include a unique identifier for the transaction, which can be used to cancel a partial transaction if needed. By specifying the nonce, the sender can undo and reverse a transaction that has not been fully processed.

Risks of ORC-20 Tokens

Those who intend to invest in ORC-20 tokens should first understand that ORC-20 is an experimental project, and there is no assurance of the value or usefulness of tokens produced using this standard. While ORC-20 may potentially improve the token standards of the Bitcoin network, it has received criticism for being complex and not offering significant advantages over existing standards.

The fate of ORC-20 hinges on how the community reacts to it and its ability to tackle these concerns. It's highly recommended that users exercise caution and investigate extensively before engaging with ORC-20.

Also learn: What Are Ordinals? An Overview of Bitcoin NFTs