BRC-20 Tokens: What Are They, How They Work and How to Make Them?

BRC-20 is the token standard for creating new tokens on the Bitcoin Blockchain. They are now considered one of the most significant inventions on the Bitcoin network, opening a new era of fungible tokens without changing the core protocol of Bitcoin.

Following the Ethereum ERC-20 standard, the BRC-20 standard allows developers and users to issue, transfer, and store fungible tokens directly on Bitcoin via the Ordinals protocol. This innovation has given rise to meme coins, utility tokens, and test assets that operate on the world’s most secure blockchain. This blog will discuss what BRC-20 tokens are, how they operate behind the scenes, and how you can make your own.

Also Read: What are Bitcoin Ordinals? Working Explained

What Are BRC-20 Tokens?

BRC-20 tokens are fungible, experimental tokens implemented on the Bitcoin blockchain using the Ordinals inscription system. The pseudonymous developer Domo launched the BRC-20 standard in March 2023, with inscriptions written in JSON to specify a token’s rules, including its supply, minting limits, and transfer logic. BRC-20 tokens do not use smart contracts, unlike ERC-20 tokens. Instead, they store metadata about tokens both on-chain and directly on individual satoshis without any external requirements.

The design simplifies BRC-20 tokens and aligns with Bitcoin’s minimalist philosophy. Although the standard is still in its early experimental phase, there is already enormous demand, and popular tokens such as ORDI are the first to set the trend.

Why BRC-20 Tokens Matter

BRC-20 tokens have diversified Bitcoin well beyond its role as a conventional store of value. Before its launch, Bitcoin did not have an easy way to create fungible tokens. BRC-20 standard transformed that by providing:

• Permissionless issuance model of tokens.
• Whole metadata storage of tokens on the chain.
• Interoperability with the developing Ordinals ecosystem.
• Bitcoin has decentralised records of tokens that cannot be changed.

This technology has enabled the entry of new financial products, community-based tokens, experimental projects, and meme coin ecosystems without compromising Bitcoin’s security.

How BRC-20 Tokens Work

BRC-20 tokens are based on three fundamental mechanisms: Ordinals, inscriptions, and indexers. These, along with the ability to create tokens, calculate balances, and transfer without smart contracts, make it possible.

1. Ordinals Protocol

Every BRC-20 token is stored on a satoshi courtesy of the Ordinals numbering system. The protocol gives satoshis unique identifiers, hence enabling them to hold custom inscriptions. This guarantees that token information is bound to the block chain of Bitcoin forever.

2. JSON-Based Inscriptions

BRC-20 tokens use JSON inscriptions that specify token parameters. There are three major types of inscription:

• Deploy: This establishes the token’s guidelines, including the ticker name (e.g., ordi), supply cap, and mint cap.
• Mint: This will enable users to mint new token units, provided the minting rules allow it.
• Transfer: This determines the traffic of tokens between addresses.

These files are not interpreted in the Bitcoin network. Rather, off-chain indexers read them and monitor token balances and state.

3. Indexers

Because Bitcoin nodes are unaware of token rules, third-party indexers maintain records of:

• How many tokens were minted?
• Who owns them?
• Which transfers are valid?

Indeed, wallets and marketplaces rely on these indexers to display correct token balances. Although this introduces a dependency, it does not alter the Bitcoin protocol.

The BRC-20 and ERC-20 differ in several ways.

• BRC-20 does not use any smart contracts, whereas ERC-20 relies on them.
• In Bitcoin, metadata is stored on-chain, whereas in ERC-20, it is stored in contract storage.
• BRC-20 transfers rely on indexers, whereas ERC-20 transfers are certified by the blockchain.
• ERC-20 is more established and widely used, whereas BRC-20 tokens are more of an experiment.

Nevertheless, the ease of use of BRC-20 tokens has made them easy to adopt.

How to Create a BRC-20 Token

Easy-to-use platforms have facilitated the development of a BRC-20 token. The process can be broken down into several steps as follows.

The first step is to install an Ordinals-compatible wallet

You will require a Bitcoin wallet that supports inscriptions and BRC-20 token management. Popular choices include:

• UniSat Wallet
• Xverse Wallet
• Hiro Wallet

With these wallets, you can get, send, and save inscribed satoshis.

Step 2: Add Bitcoin to Network Fees

The deploy, mint, and transfer inscriptions each have transaction fees you must pay. The charges depend on network congestion and the size of the inscription.

Step 3: Develop the Deploy Inscription

To issue a new BRC-20 token, inscribe a JSON file containing token details, including:

This deployment file can be generated and broadcast by such platforms as UniSat.io, Ordinal Bot, or Open Ordex.

Step 4: Mint Your Tokens

After deployment, it is possible to issue tokens by inscribing another JSON file:

Minting will continue until the amount of money specified in the deploy inscription is reached.

Step 5: Transfer Tokens

Send your tokens to another person: make a transfer inscription.

Balances will be updated in your wallet and indexer.

Final Thoughts

BRC-20 tokens are a radical and new step in the Bitcoin ecosystem. They make new experimentation, utility, and community-driven energy to the Bitcoin blockchain by making fungible tokens possible, using simple JSON inscriptions. Despite being still young and in development, BRC-20 tokens have already altered the approach of creators and developers to Bitcoin’s potential. With the ecosystem’s expansion and the development of better tools, BRC-20 will likely have a significant impact on Bitcoin’s future.

Disclaimer: BFM Times acts as a source of information for knowledge purposes and does not claim to be a financial advisor. Kindly consult your financial advisor before investing.