What is BRC-20?
BRC-20 can be considered Bitcoin’s version of ERC-20 (very similar but still with some differences). It was introduced in March 2023 by an anonymous developer named Domo. This technology originated from Bitcoin’s SegWit soft fork (2017) and Taproot upgrade (November 2021).
How are Ordinals created?
Ordinals are created by imprinting a number on the satoshi, or satoshi, the smallest unit of Bitcoin. This Ordinal number and its associated data are embedded in the “Attestation Signature” field of the Bitcoin transaction. This data confirms the ownership of used funds and ensures they are not double spend.
Unlike ERC-20, BRC-20 is still in the proposal stage and its tokens are not traded much on decentralized exchanges. In fact, trading of these tokens is mainly concentrated on centralized exchanges such as Binance, OKX and Bybit. With the recent rise in the price of Bitcoin, especially in the Asian region, the BRC-20 token and its Ordinals have grown significantly in popularity over the past six months.
Key points analysis (Ordinals ≠ BRC-20)
- Ordinals and Bitcoin “NFTs”
Ordinals is an NFT protocol based on the Bitcoin network. Ordinals make every homogeneous Satoshi a unique “NFT” by assigning a unique and immutable identity to a Satoshi (i.e. Ordinal number + comment). As a result, Ordinals assign higher trading and collectible value to satoshis. When the smallest unit of Bitcoin becomes a new hot target, to a certain extent, it can be regarded as an extension of Bitcoin.
Since Ordinals was created in December 2022, approximately 7.8 million NFTs and tokens have been minted as of May 18, 2023, opening new doors to the Bitcoin ecosystem.
Figure 1. Ordinals - Inscriptions (over time), source: Dune Analytics
Unlike Ethereum-based ERC20 NFTs, Bitcoin NFTs minted based on Ordinals are stored on the Bitcoin blockchain, which is closer to a "real" NFT in that once published and verified on the network, its metadata cannot be changed. . For ETH NFTs, the ERC721 token typically only contains an ID that points to a URL to retrieve the NFT's metadata, which may be changed at any time by the team or external parties that control its smart contract keys.
Both methods of generating NFTs have pros and cons, and the main differences between the two can be summarized in Figure 2 below.
Figure 2. Bitcoin NFT vs ETH NFT, source: Galaxy Research
Although still in its early stages, some important NFT projects have begun to enter the market. Yuga Labs’ “Twelvefold” received offers of up to 7.115 Bitcoin after it was announced on February 27, 2023. CryptoPunks also issued 10k Bitcoin Punks. There are also some third-party nodes on the market that help users mint Bitcoin NFTs without building their own full nodes, including Ordinals Bot and Gamma.
According to a report by Galaxy Digital, the market size of Bitcoin NFTs can reach $4.5 billion by 2025. In addition, the market infrastructure supporting Bitcoin NFTs will be completed in the second quarter of 2023, which will ultimately be reflected in various new bridge projects such as $VMPX and $MUBI, which we will also introduce in this report.
- BRC-20: The evolution of Ordinals
It is worth noting that NFTs can be obtained by filling in different information on Satoshi. So, if the information we fill in has certain rules, or is filled in according to unified standards (i.e. deployment, minting and transfer), can we generate fungible tokens (FT) on Bitcoin? The answer is yes.
BRC-20 is a technology that leverages Ordinals to create and trade fungible tokens (FTs) on the Bitcoin blockchain. Simply put, BRC-20 can be regarded as a variant of Ordinals NFT. The inscriptions on the NFT are pictures, while the ones marked on the BRC-20 are text data in a unified JSON format. In BRC-20, inscriptions are also used as a ledger for BRC-20 tokens and can be used to track the transfer of each token. However, BRC-20 tokens cannot interact with smart contracts or perform any automated operations.
$ORDI is the first token issued under the BRC-20 standard (March 9, 2023), with a maximum of 1,000 tokens minted at a time, for a total of 21,000,000 tokens. $ORDI is free in the initial stage of release, and users only need to pay miner fees to obtain tokens. All 21,000,000 $ORDI tokens were minted in less than 18 hours. As of May 22, 2023, the lowest price in the secondary market was $11.48/$ORDI. According to data from Dune Analytics, approximately 8.5 million $ORDI was minted and 1,458 BTC in mining fees were generated.
According to ordspace.org, as of May 19, 2023, there are more than 18k BRC-20 token projects with a total market value of approximately US$420 million. Over the past few months, the BRC-20 protocol has dominated transaction volume on the Bitcoin network, sometimes exceeding 50% of total Bitcoin transaction volume.
Figure 4. Bitcoin transaction percentage, source: Dune Analytics
- How does BRC-20 affect Bitcoin and the Bitcoin ecosystem?
BRC-20 will have an impact on Bitcoin’s mining fees and transactions. Since minting and transferring BRC-20 requires more blockchain space due to its complex mechanism design, competition for block space may result in higher transaction fees for users seeking fast confirmations.
According to Glassnode data, miner revenue from fees peaked at 42.595% and is rising again due to the popularity of $ORDI and new BRC-20 minting such as those initiated by $VMPR and $MUBI.
Figure 5. Bitcoin: % of miner revenue from fees, source: Glassnode
Advantages and Disadvantages of BRC-20 and Ordinals
Why is it so popular?
- Compared to ERC-20
BRC-20 cannot interact with smart contracts (i.e. there is no burning and locking function), which means that the issuance of BRC-20 tokens will not be retained by the project team and venture capital institutions. Everyone participates truly equally in the ecosystem.
The value of BRC-20 is supported by Bitcoin, which ensures that BRC-20 tokens will not have the risk of zeroing out like ERC-20 tokens and ERC-20 sidechain tokens.
- The minting and trading of BRC-20 significantly increases transaction fees. High fees and block rewards create staggering profits for miners.
- A New Narrative in a Tested Consensus: The BRC-20 standard and the Bitcoin ecosystem are new concepts within the industry and are prone to market sentiment and capital inflows. Some leading institutions such as Yuga Labs and CryptoPunks have entered the arena.
- Bitcoin’s Beta Play: The BRC20 token was essentially created within the Bitcoin network and is currently being packaged as a Beta Play for traders to venture into as Bitcoin prices continue to rise over the past 12 months.
- Low market liquidity: For many BRC20 tokens, there is low liquidity in the market for both buyers and sellers, which leads to volatility on both sides. Considering the market is bullish on Bitcoin, we believe the industry trend is for continued growth as Bitcoin becomes more popular.
potential concerns
- The threshold for user participation is higher:
The BRC-20 standard is relatively complex and requires additional data storage and transaction steps. Specifically, when users mint Ordinals, they need to run a full node. Whether it is the cumbersome node construction or the expensive Bitcoin gas fees (including imprinting and transfer), retail investors will be prevented from entering the market to a certain extent.
- Security Question:
- There is no AMM on the Bitcoin chain, requiring secure secondary market transactions.
- Since BRC-20 introduces a more complex asset management mechanism, additional tools or platforms are required, which may be vulnerable to malicious attacks and violate the design concept of Bitcoin - decentralization.
- Due to excessive trading volume, Binance suspended the withdrawal function twice on May 7 and May 8. On May 8, 2023, no blocks were generated for an hour, and there were 350k unconfirmed transactions. When fee revenue consistently exceeds block rewards, it can lead to time bandit attacks. Miners will choose to process transactions with higher gas fees and ignore transactions with lower fees.
- Most BRC-20 tokens are Meme coins with no real value and application scenarios.
Comparing the May and December snapshots, we see a “Cambrian explosion” of new BRC20 projects emerging within the ecosystem. However, we note that only a few notable projects have stood the test of time. These include $ORDI, $MUBI, and $VMPX, some of which are already listed on tertiary exchanges. In addition to these projects, we see that the total market cap of BRC20 tokens has grown from $444 million to over $2 billion now, as shown in the chart below (MXLY is not considered as it is a scam token with a valuation of $10.6 trillion currency).
Figure 6. BRC-20 Tokens displayed in Market Cap, source: brc-20.io (May, 2023)
Figure 7. BRC-20 token market value ranking, data source: brc-20.io (December 2023)
- BRC20 infrastructure is still in its early stages:
With only a few projects and the various scams/Ponzi schemes present in the ecosystem, it is difficult to filter out new projects that are stable enough to adapt to the retail market. Although more mature projects like ORDI are on the rise.
- Regulatory risks:
Bitcoin is more of a commodity, but BRC-20 tokens could enable an unregistered securities market on the Bitcoin blockchain.
Dive Deeper: $MUBI and $ORDI
As mentioned above, several projects have become leaders in the BRC20 popular narrative. In this ecosystem, we will focus on Multibit, a project that provides bridging solutions for EVM chain, Bitcoin network and BRC20/ERC721 compatibility. At the same time, we will also conduct an in-depth study of the main leader of the BRC20 narrative, $ORDI.
MUBI: Multibit
https://www.coingecko.com/en/coins/multibit
Project name: Multibit
Project Type : BRC20 Token & Ecosystem Bridge
Blockchain: Bitcoin, Ethereum, BSC & Polygon
Token code: MUBI
Cryptocurrency Ranking : N/A
Maximum supply : 903,586,439
Circulating supply: 903,586,439
Market Cap/USD: $61,850,759
Fully diluted valuation/USD: $61,850,759
What is Multibit
MultiBit is the first two-way cross-chain bridge for cross-network transfers between BRC20 and ERC20 tokens. By facilitating easier liquidity of these tokens, MultiBit enhances cross-chain interoperability. Our mission is simple: promote liquidity and accessibility of BRC and ERC tokens in a secure and user-friendly way.
Investor and Fundraising Information
Funding rounds raised:
Initially freely minted on Bitcoin as the BRC20 token, however, the Multibit team reserves a portion of the tokens for bridging and raising funds via the following link:
https://app.bounce.finance/launchpad/multibi t
On Ethereum, Multibit’s initial fully diluted valuation (FDV) is $400,000 for a total of $387.5 million MUBI, distributed as follows:
- KOL whitelist sales: 11.25%
- Public sale: 78.75%
- DEX liquidity (locked indefinitely): 5%
- Team (initial 6-month lock-in, followed by 2-year vesting period): 5%
The fundraising ultimately raised $196,075 at $0.000506 per MUBI.
This means early investors received a 135x return on investment.
Tokenomics
In addition to the token fundraising allocation mentioned above, all other MUBI tokens have been minted and are available as circulating tokens in the BRC20 and EVM ecosystem.
liquidity pathways
Centralized Exchange (CEX):
$MUBI is listed on major secondary and tertiary exchanges, with main trading activity concentrated on MEXC, Gate and Bitmart.
DEX:
The MUBI Liquidity Pool (LP) is primarily located on Uniswap and has a total value locked (TVL) of $1.9 million on Ethereum L1.
Investment opportunities (market potential)
- Bitcoin Beta Play-BRC20
As part of the BRC20 token ecosystem, MUBI is a Bitcoin Beta play with a lower market capitalization, suitable for market participants interested in investing in the BRC20 space and focusing on its bridging infrastructure and cross-chain liquidity.
- First BRC20 bridges and bridge market leader
As the first stable bridge between Bitcoin and other EVM chains, Multibit is a leader in bridging liquidity between ecosystems and bridging BRC20 tokens to new chains.
Their bridging workflow is as follows:
- Token deposit
The journey begins when you deposit Bitcoin RC-20 tokens (BRC20s) to a unique address provided by the Multibit protocol. Multibit verifies token deposit transactions.
- Token minting
After successful verification, the Multibit protocol takes action to mint an equal amount of tokens on the Ethereum or BNB chain.
- safety
The Multibit protocol regularly aggregates tokens from all assigned unique addresses. The tokens are securely transferred to unified cold wallets.
- Token withdrawal
When you are ready to withdraw your tokens, the Multibit protocol will remove (or "destroy") the corresponding number of tokens from the EVM chain. It then transfers the equivalent value of tokens back to you from the secure cold wallet.
- Surge in BRC20 adoption in EVM
There has been a surge in transaction volume on all EVMs over the past few days. A detailed analysis of each EVM’s transaction hash input data shows that this growth can be attributed to the introduction of Ordinals engraving. These protocols allow for the minting of tokens inspired by Bitcoin Ordinals (BRC-20).
Notably, Ordinals on the Polygon network gained significant traction and maintained their dominance in the majority of daily transactions.
in conclusion
As the first project to bridge the BRC20 token between Bitcoin and EVM chains, it has established itself as a market leader within its infrastructure. As a Bitcoin Beta play, MUBI is currently the darling of the public and a potential asset for users to invest in to gain access to the BRC20 token ecosystem.
Although early investors receive relatively high ROI, new investors should exercise caution as supply is concentrated among early adopters of Bridges. However, as long as Bitcoin continues to grow, $MUBI, as one of the few projects that continues to grow in terms of total value locked, popularity, and usage, will continue to appreciate driven by Bitcoin’s growth.
ORDI: Ordinals
https://www.coingecko.com/en/coins/ordi
Project name: ORDI
Project Type: BRC20
Blockchain: Bitcoin
Token code: ORDI
Cryptocurrency Ranking: 61
Maximum supply: 21,000,000
Circulating supply: 21,000,000
Market Cap/USD: $1,048,995,165
Fully diluted valuation/USD: $1,048,995,165
What is ORDI
Ordi (ORDI) is the first BRC-20 token on Bitcoin, utilizing the Ordinals protocol to burn information on Satoshi. With a limited supply of 21 million coins, Ordi introduces innovative possibilities for NFTs and tokens, assigning ordinal numbers based on the order of mining and transfer.
Open source projects on GitHub include a BIP for the ordinal scheme, a satoshi tracking index, a wallet that supports ordinal transactions, and a block explorer. Despite its lack of intrinsic value as a meme token, Ordi’s novelty and innovativeness have driven its significant market capitalization, marking it as a symbol of cryptocurrency innovation.
Investor and Fundraising Information
None; ORDI is freely minted at creation and its cost is effectively zero, plus the Bitcoin network fuel fee paid by the minter.
Funding rounds raised:
none
Tokenomics
A total of 21,000,000 ORDI coins were minted. Following the vision of Bitcoin, ORDI is an idea and experiment by Domo on the Bitcoin network. All tokens are minted at genesis, so no more new ORDI will be put on the chain.
specific information:
https://domo-2.gitbook.io/brc-20-experiment/
liquidity pathways
Centralized Exchange (CEX):
ORDI is listed on all major centralized exchanges, and its main trading activities are concentrated on primary and secondary exchanges, such as Binance, OKX, Bybit, etc.
DEX: None
Investment opportunities (market potential)
- BRC20 market leader
As the first BRC20 token, as well as critical infrastructure for other BRC20 tokens on the Bitcoin network, $ORDI differentiates itself from competitors in the market as the leading and oldest BRC20 token on the market.
- Bitcoin Beta Gameplay-BRC20
As the #1 ID BRC20 token and the most decentralized BRC20 token on the market, ORDI becomes a Bitcoin Beta play for market participants interested in investing in deflationary assets within the Bitcoin ecosystem.
- deflationary narrative
With only Bitcoin having only 21 million coins available and some of which have already been minted, the deflation narrative has taken hold on ORDI. Since the total supply is limited, ORDI will have a net deflation rate over time. For example, if someone loses their private key or makes a transaction error, the supply will decrease, and ORDI will be more valuable in the future.
- BRC20 adoption surges in EVM
A similar narrative to $MUBI, $ORDI is also receiving more attention due to increased BRC20 adoption on other chains (see previous $MUBI chart).
in conclusion
As a BRC20 market leader with limited supply and surging demand for centralized exchanges and on-chain token ownership, ORDI has become a popular holding asset for investors who are bullish on Bitcoin but want a higher Bitcoin Beta.
Despite ORDI's popularity, it is currently only listed on centralized exchanges due to its limited supply, and investors should exercise caution when investing in ORDI due to its highly volatile nature. Nonetheless, it is currently the easiest asset to give investors exposure to the Bitcoin network and BRC20.
citation
Ordinals - Inscriptions (overtime): https://dune.com/queries/2013645/3334054
Galaxy Research: https://www.galaxy.com/research/whitepapers/bitcoin-ordinals-inscriptions-5-billion-nft-market/
Bitcoin Transactions %:
https://dune.com/queries/2432967/3996835
Bitcoin: Percent Miner Revenue from Fees: https://studio.glassnode.com/metrics?a=Bitcoin&category=Miners&m=mining.RevenueFromFees&s=1672491600&u=1684763999&zoom=
