BRC-20 Tokens — Fungible Tokens on Bitcoin and the Controversy

BRC-20 Tokens on Bitcoin

If Ordinals inscriptions are Bitcoin's answer to NFTs, BRC-20 tokens are its answer to ERC-20 fungible tokens. Created by a pseudonymous developer called "domo" in March 2023, BRC-20 uses Ordinals inscriptions to deploy, mint, and transfer fungible tokens on Bitcoin.

How BRC-20 Works

BRC-20 is elegantly simple (critics would say "hacky"). It uses JSON inscriptions to define token operations:

Deploy

{"p":"brc-20","op":"deploy","tick":"ordi","max":"21000000","lim":"1000"}

This deploys a token called "ordi" with a max supply of 21M and a mint limit of 1,000 per transaction.

Mint

{"p":"brc-20","op":"mint","tick":"ordi","amt":"1000"}

Anyone can mint up to the limit until max supply is reached. First come, first served.

Transfer

Transfers are a two-step process: first inscribe a transfer inscription, then send that inscription to the recipient. An off-chain indexer tracks balances.

The Critical Detail: Off-Chain Indexing

Here's the part most people miss: BRC-20 "validity" is determined by off-chain indexers, not by Bitcoin consensus. Bitcoin nodes don't understand BRC-20 at all. They just see data inscriptions. A separate indexer (like the ord indexer or BRC-20 specific indexers) parses these inscriptions and maintains a balance database.

This means:

• Different indexers could disagree on balances (and they have)
• BRC-20 security is NOT the same as Bitcoin security
• You're trusting the indexer implementation, not Bitcoin consensus

Market Impact

Despite (or because of) their simplicity, BRC-20 tokens exploded:

• The "ORDI" token reached a multi-billion dollar market cap
• BRC-20 minting caused the largest mempool congestion in Bitcoin's history in May 2023
• Fees spiked to over 500 sat/vB during peak mania
• Miners earned record fees, with some blocks containing more fee revenue than the block subsidy

Alternatives and Evolution

BRC-20 limitations spawned alternatives:

• Runes: Casey Rodarmor's response — a UTXO-based fungible token protocol that's more efficient and doesn't bloat the UTXO set
• ARC-20 (Atomicals): Another fungible token scheme using a different indexing approach
• RGB: Client-side validated smart contracts with proper token support (more on this in a later post)

My Honest Opinion

BRC-20 tokens are technically inelegant. They abuse the inscription mechanism, rely on off-chain indexers, and caused genuine harm to Bitcoin users through fee spikes. But they proved massive demand for tokens on Bitcoin, and they've driven innovation in more proper solutions like Runes and RGB.

The market spoke clearly: people want fungible tokens on Bitcoin. The question is whether we build proper infrastructure for it or let hack-together solutions dominate. I'm rooting for Runes and RGB.

Stay updated on the evolving Bitcoin token landscape on our blog.