Ordinal Technology and BRC20: Emerging Forces in the Bitcoin Ecosystem

Ordinal technology has brought new possibilities to the Bitcoin ecosystem. This innovation allows for the numbering and tracking of individual satoshis (the smallest unit of Bitcoin, where 1 billion satoshis equals 1 Bitcoin). In this way, users can engrave various data on each satoshi, such as images, text, or videos. Once a transaction is confirmed, this data is permanently stored on the Bitcoin blockchain, making each satoshi a unique and irreplaceable unit.

Ordinal NFTs are unique in that they are created directly on the Bitcoin main chain. Since the advent of ordinal technology in January 2023, engraving activity has seen explosive growth, driving the thriving development of the Bitcoin NFT market.

In March 2023, a new token standard BRC20 emerged. This is an experimental standard for implementing fungible tokens on the Bitcoin blockchain. Unlike Ethereum's ERC20, BRC20 does not rely on smart contracts, but instead utilizes ordinal inscription technology. Users can deploy, mint, and transfer BRC20 tokens by directly writing JSON data into satoshis.

It is worth noting that while BRC20 is a type of ordinal inscription, not all ordinals are BRC20 tokens. Ordinary ordinals can contain any information, while BRC20 tokens always contain JSON data in a specific format, which gives BRC20 tokens their fungibility.

According to market data, the total market capitalization of BRC20 has reached approximately $3.4 billion, growing 3.4 times in 7 months. Among them, ORDI (the first minted BRC20 token) and tokens like SATS rank among the top in market capitalization.

The advantages of BRC20 include:

• Expanded the application scope of Bitcoin, surpassing the simple "digital gold" positioning.
• Inherited the security of the Bitcoin PoW system, making it more secure than Ethereum at the technical level.
• Completely based on on-chain operations, no need to rely on additional file systems
• Able to attract the large user base of the Bitcoin network
• Good interoperability with existing Bitcoin infrastructure (such as wallets and exchanges)

However, BRC20 also faces some challenges:

• Limited by Bitcoin's block size and transaction processing capacity, which may lead to increased fees and transaction delays.
• Compared to ERC20, the smart contract functionality is limited, making it difficult to implement complex applications.
• There are interoperability difficulties with other blockchain networks.
• As an emerging technology, it is still in the experimental stage, support tools are limited, and there are certain risks.

The emergence of BRC20 has brought new vitality to the Bitcoin ecosystem. With the development of Bitcoin Layer 2 solutions, more decentralized financial projects based on BRC20 may emerge in 2024. Although BRC20 is still in its early stages, its development trajectory is reminiscent of Ethereum's early development in certain aspects. The growing interest from users, project parties, developers, and investors in BRC20 highlights the potential of this technology and its future development space.