BTC Markets

BRC-20, ERC-20, and Tokens on BTC

BitOoda BTC Market Research, 7/25/23

Vivek Raman
Key Takeaway #1

Key Takeaway #2

Key Takeaway #3

Key Takeaway #4

The week was relatively uneventful on the Bitcoin (and Ethereum and alt-coin) front, with crypto prices continuing to range sideways after the fervor of the past 2 months around a potential BTC ETF and the ramifications of the XRP ruling. BTC slipped from the key $30k level it has held for a month as we seem to approach the summer crypto doldrums. Notably, and in a sobering data point to crypto, the S&P 500 and broader stock market continued to melt up, closing the gap with crypto performance.

Nevertheless, the true macro catalysts for Bitcoin and the broader crypto ecosystems are further on the horizon. A potential approval decision on the latest wave of ETF filings could plant the seeds for a wider adoption base. And regardless of an ETF launch, the halving in Q2 2024 steadily approaches.

In the meantime, we will continue to focus on the topic of Bitcoin network fees. Last week, we reviewed the concept of Ordinals, which have planted the seeds for an NFT ecosystem on Bitcoin. NFTs can ultimately transcend digital speculation and represent ownership of real world assets – a promising use case for all blockchains that can support NFT tech.

This week, we will look at one specific use case of Ordinals: the creation of fungible BRC-20 tokens on Bitcoin, analogous to the fungible ERC-20 token standard on ETH.

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The week was relatively uneventful on the Bitcoin (and Ethereum and alt-coin) front, with crypto prices continuing to range sideways after the fervor of the past 2 months around a potential BTC ETF and the ramifications of the XRP ruling. BTC slipped from the key $30k level it has held for a month as we seem to approach the summer crypto doldrums. Notably, and in a sobering data point to crypto, the S&P 500 and broader stock market continued to melt up, closing the gap with crypto performance.

Nevertheless, the true macro catalysts for Bitcoin and the broader crypto ecosystems are further on the horizon. A potential approval decision on the latest wave of ETF filings could plant the seeds for a wider adoption base. And regardless of an ETF launch, the halving in Q2 2024 steadily approaches.

In the meantime, we will continue to focus on the topic of Bitcoin network fees. Last week, we reviewed the concept of Ordinals, which have planted the seeds for an NFT ecosystem on Bitcoin. NFTs can ultimately transcend digital speculation and represent ownership of real world assets – a promising use case for all blockchains that can support NFT tech.

This week, we will look at one specific use case of Ordinals: the creation of fungible BRC-20 tokens on Bitcoin, analogous to the fungible ERC-20 token standard on ETH.

Figure: BTC Price
Source: Tradingview

What is an ERC-20 Token?

  • Before we get to fungible tokens on Bitcoin, let’s revisit the fungible token standard, ERC-20, on Ethereum. Indeed, the Ethereum ecosystem has been known for its fungible token economy since the early days, coming into the spotlight during the ICO boom in 2017 and proliferating in the 2020-2021 bull market with DeFi and meme tokens.
  • It is important to note that a fungible ERC-20 token is simply a ledger of balances across different Ethereum addresses. The key functions most ERC-20 tokens have are listed below: there is a total supply, a balance for each Ethereum account, the ability to transfer, and the ability to allow someone else to use / spend / transfer your tokens. In other words, ERC-20 tokens are essentially arbitrary made-up instruments with pre-set characteristics. They are valuable only because all activity on the token can be memorialized on a blockchain.
  • Nevertheless, tokens are integral parts of the crypto economy today.
Figure: ERC-20 Standard
Source: https://docs.openzeppelin.com/contracts/4.x/api/token/erc20#IERC20
  • While it seems that many ERC-20s are useless, there are also useful fungible tokens, with the main use case being stablecoins.
  • Stablecoins, such as USDC, generate additional activity (fee revenue) on top of their settlement blockchain and onboard more users.
  • So if Ethereum can have a robust token ecosystem, why can’t Bitcoin? Initially, having a fungible token standard was not possible on Bitcoin. This changed with the introduction of Ordinals (and the associated BTC upgrades – SegWit and Taproot).
  • As a result, the BRC-20 standard was introduced alongside the genesis of Ordinals; BRC-20 tokens are built on top of Ordinals and allow data to be inscribed on top of individual satoshis, which allows similar functionality (transferring tokens, etc.) as the ERC-20 standard.
  • This could allow for a parallel token universe to blossom on BTC!
Figure: BRC-20 Overview
Source: Twitter

BRC-20 Ecosystem

  • It is still very early in the BRC-20 journey. While the total market cap of BRC-20 tokens is just over $1bn (a fraction of the total market cap of ERC-20 tokens on Ethereum and other EVM chains), there are no tokens with real use cases yet.
  • The brc-20.io site below shows the top tokens by market cap, which all represent meme tokens at the moment. This is because the more “legitimate” tokens – namely stablecoins – need to see ossification of a token standard on BTC before adoption.
  • Indeed, while BRC-20s could create additional utility, transaction fees, and user activity on Bitcoin, it also comes with risks (hacking, regulatory concerns, etc.). And the BRC-20 is one of several experimental token standards being built on top of Ordinals. Nevertheless, while it is still early, innovation on the BTC protocol could be another driver of the next crypto bull market.
Figure: BRC-20 Token List
Source: https://www.brc-20.io/

Disclosures

Purpose

This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda.io.

Analyst Certification

Vivek Raman, denoted by an “AC” on the cover of this report hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships.

Conflicts of Interest

This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation.

General Disclosures

Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or on or through http://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge.  BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services.  BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information.

The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision.  The Information is not a recommendation to engage in any transaction.  The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment.  The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance. 

Ooda Commodities, LLC is a member of NFA and is subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets.

BitOoda Technologies, LLC is a member of FINRA.

“BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc.

Copyright 2023 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.

The week was relatively uneventful on the Bitcoin (and Ethereum and alt-coin) front, with crypto prices continuing to range sideways after the fervor of the past 2 months around a potential BTC ETF and the ramifications of the XRP ruling. BTC slipped from the key $30k level it has held for a month as we seem to approach the summer crypto doldrums. Notably, and in a sobering data point to crypto, the S&P 500 and broader stock market continued to melt up, closing the gap with crypto performance.

Nevertheless, the true macro catalysts for Bitcoin and the broader crypto ecosystems are further on the horizon. A potential approval decision on the latest wave of ETF filings could plant the seeds for a wider adoption base. And regardless of an ETF launch, the halving in Q2 2024 steadily approaches.

In the meantime, we will continue to focus on the topic of Bitcoin network fees. Last week, we reviewed the concept of Ordinals, which have planted the seeds for an NFT ecosystem on Bitcoin. NFTs can ultimately transcend digital speculation and represent ownership of real world assets – a promising use case for all blockchains that can support NFT tech.

This week, we will look at one specific use case of Ordinals: the creation of fungible BRC-20 tokens on Bitcoin, analogous to the fungible ERC-20 token standard on ETH.

Figure: BTC Price
Source: Tradingview

What is an ERC-20 Token?

  • Before we get to fungible tokens on Bitcoin, let’s revisit the fungible token standard, ERC-20, on Ethereum. Indeed, the Ethereum ecosystem has been known for its fungible token economy since the early days, coming into the spotlight during the ICO boom in 2017 and proliferating in the 2020-2021 bull market with DeFi and meme tokens.
  • It is important to note that a fungible ERC-20 token is simply a ledger of balances across different Ethereum addresses. The key functions most ERC-20 tokens have are listed below: there is a total supply, a balance for each Ethereum account, the ability to transfer, and the ability to allow someone else to use / spend / transfer your tokens. In other words, ERC-20 tokens are essentially arbitrary made-up instruments with pre-set characteristics. They are valuable only because all activity on the token can be memorialized on a blockchain.
  • Nevertheless, tokens are integral parts of the crypto economy today.
Figure: ERC-20 Standard
Source: https://docs.openzeppelin.com/contracts/4.x/api/token/erc20#IERC20
  • While it seems that many ERC-20s are useless, there are also useful fungible tokens, with the main use case being stablecoins.
  • Stablecoins, such as USDC, generate additional activity (fee revenue) on top of their settlement blockchain and onboard more users.
  • So if Ethereum can have a robust token ecosystem, why can’t Bitcoin? Initially, having a fungible token standard was not possible on Bitcoin. This changed with the introduction of Ordinals (and the associated BTC upgrades – SegWit and Taproot).
  • As a result, the BRC-20 standard was introduced alongside the genesis of Ordinals; BRC-20 tokens are built on top of Ordinals and allow data to be inscribed on top of individual satoshis, which allows similar functionality (transferring tokens, etc.) as the ERC-20 standard.
  • This could allow for a parallel token universe to blossom on BTC!
Figure: BRC-20 Overview
Source: Twitter

BRC-20 Ecosystem

  • It is still very early in the BRC-20 journey. While the total market cap of BRC-20 tokens is just over $1bn (a fraction of the total market cap of ERC-20 tokens on Ethereum and other EVM chains), there are no tokens with real use cases yet.
  • The brc-20.io site below shows the top tokens by market cap, which all represent meme tokens at the moment. This is because the more “legitimate” tokens – namely stablecoins – need to see ossification of a token standard on BTC before adoption.
  • Indeed, while BRC-20s could create additional utility, transaction fees, and user activity on Bitcoin, it also comes with risks (hacking, regulatory concerns, etc.). And the BRC-20 is one of several experimental token standards being built on top of Ordinals. Nevertheless, while it is still early, innovation on the BTC protocol could be another driver of the next crypto bull market.
Figure: BRC-20 Token List
Source: https://www.brc-20.io/

Disclosures

Purpose

This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda.io.

Analyst Certification

Vivek Raman, denoted by an “AC” on the cover of this report hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships.

Conflicts of Interest

This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation.

General Disclosures

Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or on or through http://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge.  BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services.  BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information.

The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision.  The Information is not a recommendation to engage in any transaction.  The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment.  The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance. 

Ooda Commodities, LLC is a member of NFA and is subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets.

BitOoda Technologies, LLC is a member of FINRA.

“BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc.

Copyright 2023 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.

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