Ordinals and BRC20: A New Development Direction in the Bitcoin Ecosystem

The Bitcoin network has recently seen a new technological innovation - Ordinals. This technology allows for the assignment of a unique serial number to each satoshi (the smallest unit of Bitcoin, with 1 billion satoshis equal to 1 Bitcoin), enabling them to be tracked and traded through inscriptions.

The core of ordinal technology lies in the ability to inscribe data, such as images, text, or videos, on a single satoshi. Once the transaction is confirmed, this data is permanently stored on the Bitcoin blockchain, making each satoshi unique and turning it into a non-fungible digital asset.

This innovation brings new application possibilities to the Bitcoin network. Since the launch of ordinal technology in January 2023, the activity of inscriptions has significantly increased, and the Bitcoin NFT market has also flourished. The main advantage of ordinal NFTs is that they can be created directly on the Bitcoin blockchain without relying on other platforms.

In March 2023, a new token standard BRC-20 emerged. BRC-20 is an experimental fungible token (FT) standard on the Bitcoin blockchain. Unlike Ethereum's ERC-20, BRC-20 does not rely on smart contracts but utilizes ordinal inscription technology. BRC-20 tokens can be deployed, minted, and transferred by directly writing JSON data into satoshis.

It is worth noting that while BRC-20 is a form of ordinal inscription, not all ordinals are BRC-20 tokens. Standard ordinals can inscribe any information, while BRC-20 tokens always contain JSON data in a specific format. This difference gives BRC-20 tokens their fungibility, while standard ordinals retain their non-fungible characteristics.

According to market data, the market capitalization of BRC-20 has grown 3.4 times in just 7 months, reaching approximately $3.4 billion. Among them, ORDI (the first minted BRC-20 token) and SATS have become leading tokens in the market.

The advantages of BRC-20 include:

1. Expanded the functionality of Bitcoin, going beyond the traditional "digital gold" positioning;
2. Inherits the strong security of Bitcoin;
3. Operates entirely on-chain, without the need for an additional document storage system;
4. Able to attract a large user base from the Bitcoin network;
5. Compatible with existing Bitcoin infrastructure.

However, BRC-20 also faces some challenges:

1. Scalability issues may arise due to the limitations of the Bitcoin network;
2. Compared to ERC-20, the smart contract functionality is relatively limited;
3. There are barriers to interoperability with other blockchain networks;
4. As an emerging technology, it is still in the experimental stage, with limited supporting tools.

Nevertheless, BRC-20 has created new possibilities in the Bitcoin ecosystem by introducing fungibility. With the development of Bitcoin's second-layer network, 2024 may see more decentralized finance projects centered around BRC-20 emerging.

Although BRC-20 is still in its early stages, its development trajectory somewhat resembles the early development of Ethereum. The growing interest from users, project parties, developers, and investors in BRC-20 highlights the potential of this technology. In the future, BRC-20 is expected to bring more innovative applications to the Bitcoin network, further enriching the blockchain ecosystem.