Pump The BRCs
There’s a new wave of excitement rippling through the cryptoland. It’s all about the “BRC-20s”. These fungible tokens are the hot topic of the town, as they’re deployed on the mighty Bitcoin blockchain and are starting to gain some serious traction in the market.
The ingenious new standard was first proposed in March Twitter user and coder “domodata”. And this has some serious potential, folks. Now, let’s not get it twisted, tokens on Bitcoin are not a brand new concept. Remember the early days of crypto when “colored coins” were all the rage?
Today, we’re going to delve into the world of BRC-20 tokens and offer our insights into their future.
BRC-20 Tokens
These unique tokens, much like the Ordinal NFTs, were made possible by the new features that were introduced during Bitcoin’s Taproot upgrade.
Now, some of you may be wondering where the name “BRC-20” comes from. It’s actually a playful nod to Ethereum’s popular ERC-20 token standard. But unlike its counterpart, BRC-20 is a simpler standard, constrained by the limitations of the Bitcoin blockchain.
The first token contract deployed using this new standard was for the “ordi” token, with a limit of 1,000 tokens per mint and 21,000,000 tokens in total. And let us tell you, the excitement around BRC-20 was palpable. In less than 18 hours, all 21,000,000 ordi tokens had been minted, with an additional 1,500,000 tokens still pending outside the limit.
The tools deployed for the BRC-20 standard were so efficient that they quickly enabled the deployment of other tokens like “meme,” “punk,” and “doge.” And as a result, over 30,000 Ordinal inscriptions were made in a single day — a record number.
But as you can imagine, this massive influx of activity wasn’t without its consequences. The Bitcoin transaction fees skyrocketed, much to the chagrin of some Bitcoiners. On Sunday, May 7, 2023, bitcoin transaction fees exceeded the block reward for the first time since December 2017 at block height 788,695. Subsequent block heights 788,700 and 788,702 also witnessed fees surpassing the subsidy.
At present, over 413,086 bitcoin transactions are pending confirmation. Fees soared past the $25 mark per transaction on Sunday, and current data displays an average fee of $8.4 per high priority transaction.
BRC-20 Will Be Worthless
Despite the hype surrounding the new BRC-20 standard, experts like Domo have issued strong warnings against financial speculation on these tokens. In fact, Domo was clear from the get-go that “These will be worthless. Please do not waste money mass minting.” But it seems like some folks are turning a deaf ear to these warnings and jumping on the bandwagon anyways. Hey, we get it — in crypto, getting in first on anything new tends to be a decent strategy for speculators. But before you go all-in, you need to understand the two key reasons why the first assets created with this exciting new technology might be “worthless.”
First off, the BRC-20 standard is just a proposal at this point, and there’s no guarantee it will be widely integrated into blockchain tools like wallets and exchanges. This means that average users will probably have a hard time accessing BRC-20s for the foreseeable future. Even if BRC-20s become a widely-accepted standard, the markets won’t be fully liquid for some time. And let’s not forget, the design of BRC-20 isn’t necessarily finalized, much less fully vetted or adopted. There might be other ways to deploy tokens on Bitcoin, or further improvements to BRC-20 in its current form. So, these tokens could become little more than digital museum pieces.
But the more fundamental reason why BRC-20s might be “worthless” is that they aren’t broadly compatible with smart contract or DeFi systems. They’re not technically parallel with Ethereum’s ERC-20s, and Bitcoin itself doesn’t have DeFi features. So, if and when workarounds emerge, getting BRC-20s onto DeFi will likely involve bridges or other higher-risk structures. And for now, this means BRC-20s can’t serve as the backbone of DAOs or other more complex systems that would give them utility and value.
But don’t get us wrong — there are certainly possible use cases for simple tokens on Bitcoin. However, their structure may wind up being radically different from tokens on Ethereum. And the lack of DeFi compatibility means that BRC-20s can’t benefit from liquidity provided by DeFi services like trading pools. Even pure speculation in the tokens may not have the frothy upside of a similar token issued on Ethereum. Case in point: a BRC-20 known as “Pepe” is among those now being traded by a few daring basement-dwellers. But there’s also a “Pepe” memecoin on Ethereum, which was launched in April. Its fully diluted value (FDV) now sits at $820,916,823, compared to the combined FDV of $137 million for all the BRC-20s currently in existence.
Conclusion
So, what’s the bottom line? While there’s room for improvement and a better standard, it’s likely that we’ll see better tooling to index and manage BRC-20 tokens, as well as more degenerate speculation from users. Users could ascribe value to BRC-20 tokens even if a better standard is deployed.
In short, BRC-20s are a fascinating innovation with seriously interesting potential. But if you’re looking for the lowbrow thrill of riding ephemeral pumps in animal-based casino tokens, it seems Ethereum should still be your home base.
Who We Are
Moonrock Capital is a Blockchain Advisory and Investment Firm, incubating and accelerating early stage startups since 2019.
Website: https://www.moonrockcapital.io
Twitter: https://twitter.com/MoonrockCapital
Disclaimer: None of the information contained here constitutes an offer (or solicitation of an offer) to buy or sell any currency, product or financial instrument, to make any investment, or to participate in any particular trading strategy.
