Bitcoin Transactions Hit Record High as New Token Type Takes Off
BRC-20 Fungible Tokens Climb Above $100M Market Capitalization
By: Owen Fernau •DeFi News
Developers are continuing to push experimentation on the Bitcoin blockchain to new limits.
The most recent major development is BRC-20 tokens, fungible assets named after ERC-20 tokens, a token standard which originated on the Ethereum blockchain and is now used by most tokens issued on that chain.
These tokens have a collective market capitalization of $125M as of May 4, just a small fraction of Bitcoin’s total market cap. And yet, they pushed daily transactions on the Bitcoin blockchain to an all-time high of 682,000 on the first of the month. Bitcoin fees have also spiked to highs not seen since July 2021.
The move is significant. Bitcoin has typically been a network valued for its stability — with its hard cap of 21M tokens backed by a decentralized group of miners, its strength was that it didn’t change. Ordinals, and more recently BRC-20s, represent a shift towards greater experimentation on the Bitcoin ecosystem.
The pseudonymous developer known as domo released the BRC-20 standard on March 8. For the deployment, they used the Ordinals protocol, which enables a way of “inscribing” small units of Bitcoin known as Satoshis with unique data. The data can be anything digital, ranging from images to audio, to text and video.
In the case of BRC-20s, users are inscribing essential data like a token’s supply in a well-known format called JSON. This makes the tokens fundamentally interchangeable.
For now, there isn't much people can do with BRC-20s. The documentation released by the token type’s creator lists three functions — people can create a token, they can mint one that’s already been created, and they can send it.
These tokens may gain more utility once there are applications to use them on. Still, even minting tokens natively on Bitcoin is a major change in the blockchain’s capabilities, which didn’t allow users to easily issue their own coins.
Since their invention in January, Ordinals have shaken up the Bitcoin community. The technology uses a data field introduced by a Bitcoin upgrade called Segwit, as well as capabilities introduced by Taproot, another upgrade which went live in 2021.
Since then, people have inscribed over 1M Ordinals with marketplaces reminiscent of OpenSea springing up to facilitate trading.
While Ordinals sparked BRC-20s, other projects continue to build on Bitcoin some of the infrastructure that’s driven much of Ethereum’s success. For example, Trustless Computer bills itself as a Layer 1 built on Bitcoin, which would allow developers to deploy full-blown applications like those of the major DeFi protocols, in addition to fungible and non-fungible tokens.
Trustless Computer enables its own form of fungible tokens, called SBRC-20s, punk3700, a pseudonymous core contributor to Trustless Computer, told The Defiant. Trustless Computer’s smart contracts can interact with SBRC-20s, but not with BRC-20s. Though the core contributor did say that they are exploring whether to develop a way to bridge BRC-20s to the smart contract solution.
The Trustless Computer team is pushing hard to demonstrate that it’s possible to build applications natively on Bitcoin — they deployed a fork of the second iteration of Uniswap, DeFi’s largest decentralized exchange by volume, on April 30. Trustless Computer allows developers to use Solidity code, which is the most used programming language on Ethereum.
“I feel 10 times better versus my first Ethereum contract deployment in 2017,” punk3077 said.
Trustless Computer doesn’t use the Ordinals protocol, but drew inspiration from it — the smart contract solutions also use the data field introduced by Segwit, which was implemented in 2017.
“I think Ordinals invented an entirely new way of building on Bitcoin,” punk3077 said. “It gives us, developers, an entirely different perspective on Bitcoin. For the first time, we see Bitcoin [as] more than just a currency.”
Trustless Computer is leaning on Ethereum-originating infrastructure for a wallet solution too. Punk3077 introduced a wallet that’s built on MetaMask, the wallet commonly used with Ethereum Virtual Machine (EVM) compatible chains, in February. Users can use MetaMask when using Trustless Computers’ solutions.
Despite its name, Trustless Computer isn’t necessarily trustless — nodes specific to Trustless Computer process the smart contract environment’s transactions off the Bitcoin blockchain. It’s not clear how many nodes are processing Trustless Computer’s transactions, introducing a centralized, and thus corruptible, element to the system.
Building on Bitcoin
Punk3077 isn’t the only one who’s excited about the possibilities of building on Bitcoin. Leonidas, the founder of Ord.io, a blockchain explorer for Ordinals, said BRC-20s show there is a new attitude forming around the blockchain.
“Ordinals culture brings back the recipe for innovation by encouraging developers to try crazy experiments without fear of failure,” the founder told The Defiant.
Leonidas added that Vitalik Buterin, the co-founder of Ethereum, cultivated a welcoming environment for developers because he understood their importance to a crypto network.
“Now there are hundreds of very talented developers working full-time on Web3 use cases on top of Bitcoin,” the founder said.
To be sure, new fads often come and go in crypto. People early to a given development are prone to hype its significance in order to profit, so there’s no guarantee that the excitement around BRC-20s and smart contracts on Bitcoin will last.
The development of BRC-20s and SBRC-20s differ, however, in that they’re enabled by changes to the Bitcoin protocol, which an upgrade called Taproot made possible. As such, the Ordinals protocol, and Trustless Computer is baked somewhat natively into the Bitcoin blockchain. This differs from many attempts to use the network by building on top of it, which can often introduce security vulnerabilities.
The effects of the new activity of the world’s most valuable blockchain are just starting to become clear. The median value of a transaction using Bitcoin has fallen off as people have begun to use the blockchain outside of simply sending BTC.
Leonidas is looking forward to a new era for Bitcoin. “The reality is that over the past five years, Bitcoin has fallen very far behind Ethereum and other Web3 blockchains from an infrastructure and UX perspective.”
Bitcoin has also seen increased interest as major US banks have failed this year and with some investors hedging by directing capital towards the digital asset. With that, plus the developments of native smart contracts, BRC-20s, and Ordinals, the Bitcoin blockchain is certainly drawing attention from a broader audience than it has in recent years.
Punk3700, for one, is aiming to seize the moment. “This is the best time to build on bitcoin,” they said.