From BRC-20, ORC-20 to SRC-20: Will these innovative experiments be the future of Bitcoin?

Written by: Four pillars

Compiled by: Baize Research Institute

In January 2023, Bitcoin core contributor Casey Rodarmor proposed the "Ordinals Theory" and created the Ordinals protocol, sparking a frenzy on the Bitcoin network reminiscent of the NFT minting craze that once occurred on Ethereum. The "Ordinals Theory" allows users to inscribe arbitrary files (images, text, videos, etc., up to 4MB in size) onto satoshis (the smallest unit of Bitcoin), enabling various files to be stored on-chain.

Shortly after, Domo developed a new token standard called BRC-20 based on the Ordinals protocol. Essentially, BRC-20 is a new method for facilitating the issuance and transfer of tokens by inscribing text onto satoshis. This standard gained significant attention in April, leading to a surge in the number of BRC-20 tokens and a spike in Bitcoin chain transaction fees on May 8. At that time, the Bitcoin network faced over 400,000 pending transactions, resulting in the comical situation where the cryptocurrency exchange Binance halted Bitcoin deposits and withdrawals.

As BRC-20 tokens gained attention, their prices also saw a dramatic rise. The price of the first token in the BRC-20 standard, ordi, started at $0.1 and eventually skyrocketed 310 times to $31 on May 8, with a market cap approaching $650 million. This scale of market capitalization placed it around 70th on Coingecko, even surpassing Sui and Optimism.

However, this trend was short-lived and is now showing signs of weakening. Nevertheless, it must be acknowledged that the emergence of the BRC-20 standard has brought significant attention back to Bitcoin after a prolonged period of unfavorable market conditions.

Subsequently, more new token standards emerged and found their own niches—ORC-20 and SRC-20. From May 13 to 15, transactions involving ORC-20 tokens accounted for 10% of total Bitcoin network transactions. Additionally, SRC-20 tokens have recently begun to gain momentum.

Ordinals Theory

The Ordinals Theory is not a new concept that appeared out of nowhere, but rather a derivative of a prior concept: ordinals, which refer to the sequential numbering of the smallest unit of Bitcoin, satoshis. According to the Ordinals Theory, each satoshi is numbered according to its mining order.

In fact, the ordinal number of a satoshi can be represented in various ways, including:

• Integer representation: 2099994106992659—numbers arranged in mining order. Since the total supply of Bitcoin is 21,000,000, and 1 BTC = 100,000,000 satoshis, the maximum ordinal number is 21 trillion.
• Decimal representation: 3891094.16797—The number before the decimal point represents the height of the Bitcoin block that mined the satoshi, while the number after represents the order of the satoshi within that block.
• Degree representation: 3°111094′214″16797‴—The last group of numbers indicates the order in which the satoshi was mined within the block, while the preceding numbers represent the block height in degrees.
• Percentile notation: 99.99971949060254%—A method of representing the percentage of the satoshi in the total supply of Bitcoin.
• Name: A method of ordering using letters a-z.

Interestingly, the creator of the Ordinals Theory also assigned rarity to each satoshi based on its assigned ordinal number:

• Common: All satoshis in each block except the first one.
• Uncommon: The first satoshi of each block (approximately every 10 minutes).
• Rare: The first satoshi after difficulty adjustment (approximately every two weeks).
• Epic: The first satoshi after a halving event (approximately every 4 years).
• Legendary: The first satoshi when difficulty adjustment and halving events coincide (approximately every 24 years).
• Mythic: The first satoshi of the Bitcoin genesis block (only one exists).

Inscriptions: Writing Files into Satoshis

The Ordinals Theory gives each satoshi a unique ordinal number, and the Segwit and Taproot upgrades of the Bitcoin network have made it possible to inscribe files onto satoshis.

SegWit, short for Segregated Witness, is an upgrade applied to the Bitcoin network client Bitcoin Core in 2017. While SegWit addressed the long-standing transaction malleability issue in the Bitcoin network and paved the way for the operation of the Lightning Network, the most important aspect of the discussions surrounding this upgrade is the expansion of block size.

SegWit introduced a new concept—block weight—changing the unit of block size from Bytes to vBytes, where 1 vByte is equivalent to 4 weight units. Thus, the maximum block size has been changed from 1 MB to 1 vMB. Additionally, existing transaction data is divided into two parts:

a. Transaction data, b. Witness data. Transaction data contains information about the sender, receiver, inputs, and outputs; while witness data contains information about scripts and signatures.

Subsequently, the Taproot upgrade advanced by updating the script language used in the Bitcoin network to Tapscript. After the upgrade, broader transactions became feasible on the Bitcoin network, and the Ordinals Theory leveraged this to record various files on satoshis through witness data.

Essentially, each satoshi has a unique ordinal number and can store data, functioning similarly to NFTs. However, unlike most NFTs in the Ethereum ecosystem, the inscription process records all data, making it a more authentic "blockchain-native" NFT than Ethereum NFTs. Users can utilize the Ordinals protocol to record files on satoshis, and the satoshis containing the files can also be traded (exchanged) like regular Bitcoin.

However, to achieve this, a significant challenge is that users must use wallets compatible with Ordinals. Although inscriptions are recorded on satoshis, they can be transferred to any Bitcoin wallet, but the challenge arises from the inability to distinguish these inscribed satoshis from other Bitcoins. Therefore, during regular BTC transfers, there is a risk of accidentally sending inscribed satoshis as miner fees. Thus, Ordinals users should choose a wallet that allows for easy control and selection of satoshis.

Examples

So far, early users have created a variety of Bitcoin NFTs using the Ordinals protocol. The earliest were created using images, with the first recorded inscription being the satoshi number 727,624,168,684,699, which featured the dickbutt image.

Dustlabs inscribed their 535 DeGods through the Ordinals protocol by packaging them into a single block (block #776408), while Yuga Labs, the developer of the well-known Ethereum NFT "Bored Ape," placed a collection of generative art called TwelveFold onto the Bitcoin network.

Meanwhile, there are many interesting experiments using text. Aside from the BRC-20 we will highlight below, Sats Names is also a good example.

Ethereum Name Service (ENS) is a naming service on the Ethereum network, while Sats Names is a naming service on the Bitcoin network. To register a name, simply input text according to JSON syntax, as shown above.

Does this allow anyone to use unique names at will? For example, if Xiao Ming creates the name "bitcoin.sats," and Xiao Hong creates the same name "bitcoin.sats" on a different satoshi, this could lead to ambiguity. What Sats Names primarily does is recognize the ownership of a specific name—belonging to the first satoshi that created that name. Therefore, if Bitcoin naming services want to achieve widespread application, the limitation lies in the need for a separate indexer to distinguish name types and ownership.

BRC-20

BRC-20 is an experimental token standard proposed by Domo in March 2023, allowing anyone to issue new tokens on the Bitcoin network by inscribing text.

Unlike Ethereum's ERC-20, which allows for immediate issuance and transfer of tokens after deploying a smart contract, BRC-20 tokens are not actual tokens but rather satoshis that record specific text. Therefore, similar to Sats Names, a separate indexer is needed to understand the status or balance of BRC-20 tokens.

Since the issuance method of BRC-20 tokens differs from that of ERC-20 tokens, the deployment, minting, and transfer stages may be difficult to understand. To help readers better grasp this, we will use the existing BRC-20 token XING as an example.

Deployment:

The deployment of the XING token was recorded by bc1qxhxhxxrv244ptsp5447lx4nsyue3ek23s9yycf (the deployer) in the satoshi numbered #1934771250000000. However, since this deployer only deployed the XING token and did not mint it, we can see that their XING token balance is zero.

Minting:

A minter, bc1qk3fqhw8txe5ev0s8n7rj2e3z564uw02hfhuw62, inscribed the above text into 26 different satoshis, minting a total of 26,000 XING tokens, as shown below. The reason for minting 26,000 tokens across 26 satoshis instead of all at once is that the maximum minting amount set by the deployer is 1,000.

Transfer:

To transfer 26,000 XING tokens, bc1qk3fqhw8txe5ev0s8n7rj2e3z564uw02hfhuw62 inscribed the above text in 5 satoshis to transfer 22,000 XING tokens.

Balance:

So how many XING tokens does the wallet address in the above example ultimately hold?

• bc1qxhxhxxrv244ptsp5447lx4nsyue3ek23s9yycf (the deployer): Only deployed the XING token and did not mint them, so the balance is 0.
• bc1qk3fqhw8txe5ev0s8n7rj2e3z564uw02hfhuw62 (the minter/sender): Searching this address on ordiscan shows that it holds 26 XING inscriptions. However, this address minted 26,000 tokens and sent 22,000 tokens; why does it still have 26 inscriptions? This is because for BRC-20 tokens, transferring does not involve transferring existing minted inscriptions but rather inscribing the transfer text of XING into another satoshi to complete the transfer. In other words, when the transfer process occurs, the sender's balance is deducted, and the XING transfer inscription is added to the receiver's balance. Therefore, even though bc1q…uw62 still retains the inscription of 26,000 tokens, the final confirmed balance is 4,000 because the inscription of 22,000 tokens was sent to another address.

In summary, BRC-20 introduces a new way to handle fungible tokens (FT) on the Bitcoin network, and it has gained widespread attention alongside the recent rise of memecoins (e.g., PEPE) on the Ethereum network.

In the past two months, nearly 50% of the transaction fees generated on the Bitcoin network have been related to ordinals, particularly BRC-20. As of May 9, 2023, the number of deployed BRC-20 tokens was 1,599, with a total network fee of 628.7 BTC related to minting and 46.8 BTC related to transfers, indicating that BRC-20 has triggered significant network usage.

The first BRC-20 token, ordi, started at $0.1 and soared to a high of $31 as it was listed on various centralized exchanges. Additionally, the market capitalizations of other tokens like nals, meme, pepe, and piza range from $10 million to $40 million.

Are all BRC-20 trading markets centralized without smart contracts?

How do BRC-20 token trades work? It is well known that the Ethereum network supports smart contracts, allowing decentralized market protocols to be established through smart contracts, but it is impossible to create similar smart contracts on the Bitcoin network.

If you have used the UniSat Marketplace, you will find that various BRC-20 token trades are listed on the platform, where buyers can connect their Bitcoin wallets to make purchases. In addition to secondary market trading of BRC-20 tokens, this also appears in various markets trading Bitcoin NFTs (e.g., MagicEden). Do all existing Ordinals markets use a centralized custody method?

The answer is PSBT (Partially Signed Bitcoin Transaction). PSBT is a feature introduced by BIP-174 that allows users to sign only certain inputs. Therefore, UniSat and other Ordinals markets leverage PSBT to enable buyers and sellers to transact in a trustless and non-custodial manner.

The popularity of BRC-20 has led to a significant increase in Bitcoin network fees. However, this trend was short-lived and is now showing signs of weakening. This is where the new token standards come into play—ORC-20 and SRC-20. From May 13 to 15, transactions involving ORC-20 tokens accounted for 10% of total transactions. Additionally, SRC-20 tokens have recently begun to gain momentum.

ORC-20

While BRC-20 paved the way for using Ordinals to issue FTs on the Bitcoin network, it is a very early experiment and has many drawbacks:

First, when initially deploying BRC-20 tokens, the total supply and the maximum number of tokens minted at a time are fixed and cannot be changed. While this may be beneficial in some cases, it does limit the flexibility of the token model.

The second drawback is that BRC-20 token names can only have 4 characters. In contrast, ERC-20 tokens can have names of varying lengths. Removing the restriction on token name length would allow more projects to create tokens.

The third drawback is that the transfer of BRC-20 tokens relies entirely on external, centralized indexers. Since the inscription process itself is simply writing data into satoshis, the Bitcoin network has no way at the consensus level to prevent inscriptions that violate the BRC-20 standard.

For example, if the maximum supply of the BRC-20 ordi token is 21,000,000 and all 21,000,000 tokens have been minted, according to the BRC-20 token standard, minting additional ordi tokens is invalid, but the minting transaction will still be recorded because the transaction pays a fee. Thus, it is entirely up to external indexers to determine which inscriptions are valid or invalid, leading to situations where attackers exploit weaknesses in the UniSat market to perform double-spending attacks on BRC-20 tokens, resulting in economic losses.

It can be said that ORC-20 is an upgraded version of the BRC-20 standard, addressing some of the shortcomings of the BRC-20 standard:

1. Token Identification

Compared to the BRC-20 standard, the ORC-20 standard brings substantial enhancements. One improvement is the addition of identifiers (IDs) that can identify specific tokens. In the BRC-20 standard, if tokens with the same name are deployed, the external indexer will consider the first deployed token as "legitimate." In contrast, in the ORC-20 standard, even tokens with the same name can still be distinguished because the inscription number at deployment includes the "ID," allowing for identification.

2. Arbitrary Length Token Names

Secondly, unlike the BRC-20 standard, which only allows the creation of four-letter names, ORC-20 allows for names of arbitrary length. For example, the first deployed ORC-20 token, ORC, has a name consisting of three letters.

3. Upgradable

Third, the ORC-20 standard introduces the ability to modify the total supply and the maximum number of tokens minted at a time. While this flexibility may be exploited by deployers, it also provides opportunities for various token economics experiments. These experiments may include gradually reducing the maximum number of tokens minted at a time or simulating Bitcoin halving.

4. UTXO Model

Fourth, and most importantly, ORC-20 incorporates the concept of UTXOs to transfer tokens. For example, if A sends $2 to B, and B already has $1 on hand. In an account model, B's balance would show as $3—$1 and $2 merged together. But in a UTXO model, B's balance would consist of two separate UTXOs, one for $1 and one for $2. If B sends $2.5 to C, it will merge the $1 and $2 UTXOs and split them into UTXOs of $2.5 and $0.5, where $2.5 goes to C, and $0.5 remains with B. The advantage of this improvement is that UTXOs can only be used once, inherently preventing double-spending. ORC-20's incorporation of the UTXO concept in token transfers is the biggest difference from BRC-20.

To send ORC-20 tokens, the sender must inscribe the text from step 1 in the above image into a satoshi, and the receiver needs to inscribe the text from step 2 to send the balance back to the sender. This is similar to the UTXO process. Therefore, wallets or markets adopting ORC-20 must wait until the ORC-20 transfer transaction is completed.

ORC-20 Ecosystem and Current Status

Although ORC-20 has not been around as long as BRC-20, we can see that it is gaining some traction, with a total transaction volume involving ORC-20 of approximately 260,000 transactions and fees of about 19.5 BTC.

There are some community projects worth noting, such as BitPunks, which provides an ORC-20 browser, and OrcDAO, which uses ORC tokens.

SRC-20

While the ORC-20 standard can be seen as an enhanced version correcting the limitations of BRC-20, the SRC-20 standard utilizes Stamps to inscribe text, which is entirely different from the previous two standards.

BRC-20 and ORC-20 are based on the Ordinals Theory, which involves writing arbitrary files into the witness data of Bitcoin transactions. However, this process occupies a significant portion of the distributed ledger's capacity, allowing nodes to prune or eliminate witness data. Moreover, not all nodes need to retain or propagate this witness data.

In contrast, with Stamps, since the information is stored in UTXOs, every full node must store them, making them more durable than ordinals, or rather, doubly "blockchain-native." While this is a clear advantage, the space for storing data is limited, only accepting 24x24 pixel images or 8-bit deep PNGs or GIFs.

The text used for deploying, minting, and transferring SRC-20 tokens is also in JSON format, very similar to BRC-20.

Conclusion

From Sats Names to the recently popular BRC-20, and then to ORC-20 and SRC-20, there are even efforts to incorporate staking features into BRC-20 tokens. Why are there so many experiments on the Bitcoin network?

First, compared to the robust security of the Bitcoin network, its utilization is still very low. The nature of the script language limits the execution of complex smart contracts on the Bitcoin network, thereby restricting its applications. However, its superior security level encourages developers and users to continuously test and leverage its capabilities. Of course, if merely storing and transferring funds has such high security, it would be fantastic if this security could be applied to various other use cases.

Secondly, text has infinite expressive potential. Just like in the early days of PCs, when many games were text-based, text can inspire imagination and represent a wide range of concepts. Sats Names, BRC-20, ORC-20, and SRC-20 tokens use text to symbolize intangible entities and employ external indexers to provide them with a tangible feel. While these standards are still in their early stages and have their limitations, there is no doubt that they will serve as the foundation for a multitude of innovative experiments in the future.

Another question is how far these "X" RC-20 tokens can go. The Bitcoin network fundamentally cannot implement complex smart contracts, and since BRC-20 tokens are not tangible like ERC-20 tokens, merely representing the existence of tokens by recording inscriptions on satoshis, it is hard to imagine their utility beyond being traded as meme tokens. Perhaps we can envision simple governance activities where users connect their Bitcoin wallets and vote based on the number of BRC-20 tokens they hold, but executing governance results on-chain remains unfeasible.