BRC-20 Tokens - Good or Bad for Bitcoin?

BRC-20 tokens were created and launched in March 2023 by an anonymous Bitcoin user. They were created in order for Bitcoin to have some of the features that makes Ethereum popular (ie. ERC-20 tokens).

And BRC-20 tokens sure have been a success. The market cap of all BRC-20 recently surpassed $1 billion USD (WorldCoinStats). Unfortunately, this has had some negative effects on the Bitcoin blockchain as these tokens have begun to clog the chain.

This article will cover exactly what the surge in popularity for BRC-20 tokens means for Bitcoin and whether or not the explosion of these tokens is good or bad for Bitcoin.

What are BRC-20 Tokens?

BRC-20 tokens are tokens on the Bitcoin blockchain. They have a very similar functionality as ERC-20 tokens. However, BRC-20 tokens do not have smart contract functionality.

Basically, you should view them as a way for token creators to launch meme coins on the Bitcoin blockchain - all the BRC-20 tokens at the moment are simply meme coins. It does not have much utility beyond that as they have no smart contract functionality.

When Were BRC-20 Tokens Launched?

BRC-20 tokens were launched in March 2023 by an anonymous user. They are based on the Bitcoin Ordinals system, which was launched in January 2023.

Bitcoin has existed since 2009. However, it did not have this functionality until 2023. And there's a good reason for that.

BRC-20 Tokens - Good or Bad for Bitcoin

There has been a lot of talk within the Bitcoin community about whether or not BRC-20 tokens are good or bad for Bitcoin. The general consensus appears to be that BRC-20 tokens are a net negative for Bitcoin for the following reasons:

1. BRC-20 tokens clog the Bitcoin network.

These token transactions still occur on Bitcoin blocks, which are relatively small. With the addition of BRC-20 tokens, the transaction data for these tokens must now go on all Bitcoin blocks.

Bitcoin blocks are relatively small, so space is at a premium. As such, the price to place transactions on Bitcoin blocks has increased due to the increased demand for data on Bitcoin blocks. There have been reports of Bitcoin users paying up to 200 satoshis/vB (~$8.00) for a Bitcoin transaction.

These increased transaction costs are occurring during a bear market. Just imagine how much more congested the chain will be during a bull market?

2. BRC-20 tokens destroy Bitcoin's credibility.

Bitcoin has struggled with credibility since its inception. It has slowly gained credibility while many other cryptocurrencies have lost credibility due to the large amount of scams that occur on their blockchains.

Bitcoin will most likely not lose credibility because Bitcoin has no association with any of the BRC-20 projects. However, it was much nicer when Bitcoin did not have to deal with bad publicity from scam projects occurring on its blockchain.

3. BRC-20 tokens aren't useful.

The biggest problem with BRC-20 tokens is the lack of use these tokens have for anything. ERC-20 tokens and ERC-721 tokens at least have some functionality as they have smart contract compatibility.

BRC-20 tokens do not have smart contract compatibility, so they have very little use outside of creating tokens on the Bitcoin network. Any serious cryptocurrency project would build on Ethereum, Cardano, Solana, or any of the other smart contract enabled blockchains.

4. BRC-20 tokens will bring more users to Bitcoin.

Elon Musk has stated he likes Dogecoin because it's a fun project that brings people to cryptocurrency, which is basically the entire purpose of meme coins. Meme coins that reside on another blockchain have the added benefit of bringing people to the meme coin and the underlying blockchain because users need the underlying blockchain's coins to pay transaction fees.

For this reason, it's reasonable to think that BRC-20 tokens could bring more people to Bitcoin. Unfortunately, the downside of this is that Bitcoin does not have the capability to handle all the transactions that having a token protocol requires (see Ethereum's problems with network congestion).

Are BRC-20 Tokens Here to Stay?

BRC-20 tokens became incredibly popular in a somewhat short amount of time. A lot of this growth is driven by the fact that Ethereum has such high gas fees that many investors are priced out of purchasing meme coins on Ethereum, so they flock to chains with lower fees like Bitcoin and the Binance Smart Chain.

These tokens have only existed for two months, but are they here to stay? Or are they just one of the many trends in cryptocurrency that vanish just as quickly as they started?

It's difficult to say whether or not BRC-20 tokens are a fad or a real game changer in cryptocurrency. The biggest hurdle they will have to overcome is that they do not have smart contract capabilities, and they will likely never has this capability.

Bitcoin was not designed for smart contracts and it seems unlikely that they will ever be implemented on the blockchain.

That said, BRC-20 tokens have one thing that is more important than smart contracts - memes. In other words, BRC-20 tokens have a lot of popular support because they are based on a blockchain that has a lot of name recognition. Sure, developers cannot develop DeFi projects on Bitcoin, but they can launch meme coins. And meme coins garner a lot more interest from the general public than complicated DeFi projects.

With that in mind, it appears likely that BRC-20 tokens will be a part of Bitcoin for the foreseeable future.

Final Thoughts

To summarize, BRC-20 tokens are undoubtedly clogging the Bitcoin network and have drastically increased the transaction cost on the Bitcoin network as investors flock to mint these tokens (mostly meme coins). This has angered many Bitcoin purists that believe Bitcoin should remain as a decentralized peer-to-peer client.

However, the surge of BRC-20 tokens will likely bring a large number of investors to Bitcoin that previously had no interaction with the cryptocurrency. It will likely be a net positive for Bitcoin in the long term, but it will have a negative impact in the short term as Bitcoin adjusts to the flood of new users.

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