Ordinals Market Update for 4th May 2023: assessing the BRC-20 Token mania
BRC-20 Tokens send fees soaring but if they’re not even art, what are they good for?
To quote a certain Russian statesman, “there are decades where nothing happens; and there are weeks when decades happen.”
The cycles are compressed in Bitcoin – it seems like months of events have occurred just over the last week. In particular, BRC-20 Tokens exploded in price and popularity, triggering an inscription frenzy that sent Bitcoin mining fees to price levels unseen outside of major BTC market cycle conclusions:
Johoe’s mempool stats show users paying a high premium, up to 140 sats / vB, for rapid confirmation of BTC-20 inscriptions.
What are BRC-20 Tokens?
BRC-20 is a standard for token data attached to satoshis in accordance with the Ordinals protocol. Instead of a monkey JPEG, some simple data fields following the JSON format are inscribed to a sat. The data is brief and simple. For example, here’s the full data content of the Inscription which created ORDI:
{
"p": "brc-20",
"op": "deploy",
"tick": "ordi",
"max": "21000000",
"lim": "1000"
}
A BRC-20 founder deploys the token with an initial Inscription (as in the Ordi “deploy” operation shown above) which defines its “tick”er and “max”imum issuance. That done, anyone who wishes to claim the token may Inscribe it (in the batch quantity defined by “lim”) at their own expense – the rush to inscribe such tokens for speculative purposes is what spiked fees recently. Once inscribed, the tokens may be traded, currently on 2 marketplaces or over-the-counter (OTC)… and for now, that’s about all there is to it from a technical standpoint. That said, trading and storing these tokens securely is currently far from easy and we await better wallet software, marketplaces, data sites, and further supporting infrastructure.
Evaluating BRC-20 Tokens
ORDI is the leading BRC-20 Token with a theoretical market cap of $74 million – in reality the market is too illiquid to support such a valuation. According to Ordspace (which measures market data from UniSat, the leading BRC-20 marketplace, and so offers more complete volume data than the BRC-20.io tracking site which omits it), ORDI did $892,600 in volume over the past 24 hours and has 4,685 people holding it. Considering that trading is still restricted on UniSat, these numbers are astounding for an Inscription which is nothing more than a four character ticker with a 21 million issuance limit… or is it?
BRC-20s are also known as Fungible Tokens, as units of the same group are entirely interchangeable and equivalent in value (i.e. “fungible”) to one another. This differentiates them from Non-Fungible Tokens, in which units of a collection are noticeably different (e.g. one monkey JPEG may have sunglasses, another laser eyes) and so can differ in price.
Inscribed tokens are in a very early state and currently offer no smart contracting capability or even utility beyond (highly speculative) trading. However, BRC-20s do have some advantages when compared to more complex tokens based on Ethereum smart contracts – and these advantages are similar to those enjoyed by ordinals when compared to Ethereum NFTs.
Firstly, BRC-20s are decentralized, with no central controller able to alter their content or rug-pull. Given that Ethereum’s $225 billion market cap is largely based on its smart contracting ability, and given the aforementioned vulnerabilities of many such contracts (which have led to countless scams on Ethereum and other smart contract platform), even the relatively primitive BRC-20 tokens raise some interesting prospects for user independence and security.
Secondly, BRC-20s run on the most secure, valuable, and well-known blockchain – Bitcoin. With Ethereum having switched to Proof of Stake and signaled compliance to government regulation (perhaps in preparation to hosting CBDCs), many people are more comfortable with holding assets, conducting DeFi, and so on via Bitcoin.
The Future of Bitcoin Tokens
Nearly 11,500 BRC-20s have been deployed at the time of writing, with a total market cap of $125 million. Most of the tokens see little to no volume (as is the case with Ordinal Inscriptions) and, as indicated, the market cap figure is something of a mirage. Nevertheless, the recent trading mania has generated real wealth for those who were early, lucky, or wise. As a result, this new space within Ordinals has captured a lot of attention. Major crypto marketplaces such as Binance and OKX have signaled their interest in Bitcoin tokens (whatever eventual standard they adhere) which may lead to a fresh round of token inscription and trading mania.
Developers are now working on improving the rudimentary and limited BRC-20 to be more secure and flexible. ORC-20 proposes a new standard and the OSHI token allows for liquidity pools. Eventually, we may see stablecoins and the like running on Bitcoin – although given the fee pressure, it can be hoped they’ll run mostly on some Layer 2 solution.
Full Disclosure: the author holds no financial stake in any products or services mentioned above.
