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There are countless tokens in the cryptocurrency space, and the majority are created utilizing one of the few widely accepted token standards. One of the most well-known standards today is ERC-20 on Ethereum, with more than a million tokens coming on the market with its help (based on Etherscan data). BRC-20 is Bitcoin's new and experimental equivalent, with less than 80 tokens now showing on the Coinmarketcap webpage. While both standards facilitate the creation and control of tokens on Ethereum and Bitcoin, respectively, and have similar names, they vary massively in the underlying technologies, possible use cases, and environments.
Tokens can be created, transferred, and stored on a blockchain. Since the blockchain landscape is rapidly changing and expanding, more projects are emerging, driven to the space. Moreover, an increasing number of companies outside the blockchain realm are also drawn to crypto thanks to its many possibilities and are, therefore, interested in developing their assets. Standards make this wish feasible.
Token standards encompass a set of policies, instructions, and protocols that govern the behavior and interaction of crypto tokens within a specific blockchain environment. These standards are vital in forming tokens' functionality and establishing a framework that ensures consistency, compatibility, and seamless integration across different blockchain apps, wallets, and other platforms.
Moreover, these standards set forth token creation and operation guidelines, enabling developers to design their own crypto assets with consistent characteristics for a particular blockchain. By adhering to token standards, developers can effortlessly and relatively quickly deploy their tokens within the blockchain ecosystem and enjoy a more streamlined creation process.
The ERC-20 standard for the Ethereum tokens is one of the original and most commonly utilized technical standards for generating and releasing tokens. This standard was suggested by Fabian Vogelsteller almost a decade ago, in 2015. He submitted the suggestion through the project's GitHub page as an Ethereum Request for Comment (this is where the part of the standard's name, ERC, comes from). Since it was the twentieth proposal, it was given the name ERC-20. The Ethereum contributors and supporters supported Vogelsteller's proposal and put it into action in 2017 as Ethereum Improvement Proposal 20 (EIP-20). Nonetheless, the old name persists.
The ERC-20 standard sets out a list of regulations that all tokens must follow. These regulations cover various aspects such as token transfers, transaction approvals, user access to token data, and total token supply. As it was adopted by thousands of developers who believed in Ethereum's potential, this standard became crucial for securing the blockchain's scalability and interoperability, thus maintaining compatibility among the multitude of assets and dApps developed within Ethereum's ecosystem. Consequently, because of its importance and growing popularity, more and more teams and companies are choosing to utilize the Ethereum standard to bring their ideas and projects to life.
Moreover, the ERC-20 standard allows developers to anticipate how new tokens will operate within the broader Ethereum system, making it easier for them to proceed with their projects without worrying about the need for substantial revisions each time a new token is introduced. New projects also do not have to be concerned about compatibility issues with older projects as long as the token adheres to the rules.
ERC-20 tokens are incredibly versatile and find applications in various areas within the blockchain space. For instance, ERC-20 tokens play a fundamental role in the growth of the DeFi sector, as they are among the most popular assets for lending, borrowing, and yield farming. Additionally, they serve as the foundational structure for popular stablecoins like USDT and USDC, facilitating stability by pegging their value to fiat currencies. These stablecoins help attract a more conservative public to crypto and offer new opportunities for connecting DeFi and traditional finance.
After the emergence of the innovative Bitcoin Ordinals protocol in January 2023, which allowed NFTs to be recorded on satoshis or sats (1 sat is one of the 100 millionths of every Bitcoin), people started to wonder whether making ordinary, fungible tokens on the Bitcoin network is feasible, too. In March 2023, an anonymous programmer known as Domo presented the BRC-20 token standard, marking the beginning of a new, fascinating period in Bitcoin's history.
It is clear that BRC-20 is a revolutionary concept, but it is still a very fresh one. Inspired by how well-received and efficient Ethereum's ERC-20 standard has been, the goal of BRC-20 is to streamline token issuance and introduce more capabilities within the Bitcoin ecosystem, which is renowned as the original and most robust blockchain network globally. While the objectives are admirable and exciting, the reality emphasizes the significant amount of work needed before this standard can genuinely compete with ERC-20. Therefore, users should approach this standard with great caution.
One of the most outstanding features of this standard is undoubtedly its association with Bitcoin. As the first cryptocurrency, Bitcoin holds significant economic power within the crypto space and has gained the trust of many users. Bitcoin has the largest and most liquid market in the crypto industry, with a fully diluted market cap of nearly 1,3 trillion US dollars, representing about 54% of the entire crypto market's volume. This offers a substantial pool of capital for all potential BRC-20 projects, fostering an environment conducive to growth. Beyond being a store of value, Bitcoin with BRC-20 is evolving into a platform for innovation, backed by the most robust network in the crypto sphere.
Moreover, BRC-20 aims to maintain Bitcoin's simplicity and security principles. The standard is designed to be lightweight and less complex than Ethereum's smart contracts, reducing potential vulnerabilities. The safety is also backed by script-based operations. Unlike Ethereum's Turing-complete smart contracts, BRC-20 tokens rely on Bitcoin's scripting language, which is intentionally limited to ensure security. This trade-off results in fewer features but enhanced safety and reliability. The decreased complexity and mitigated risks are two critical benefits when it comes to choosing the standard one prefers to work with. Consequently, Bitcoin's capability to enable a robust and tamper-resistant platform for token creation and operation is highly valuable.
Despite their similar names, there are noticeable distinctions between the two standards. First of all, the ERC-20 standard for tokens is widely recognized. It was developed in 2015 and officially recognized in 2017, so ERC-20 tokens have been extensively tested and have shown consistent performance. Their versatility and wide acceptance have earned them the title of a top choice among many teams seeking to create new tokens and platforms within the Ethereum ecosystem. Conversely, still in the early stages, BRC-20 tokens are only beginning to gain traction and facing significant uncertainty about their future outlook.
Secondly, the ERC-20 standard is well-known for its inherent adaptability, which allows organizations to personalize tokens for specific purposes. This flexibility ensures more customized functionality and opens up opportunities for a wide variety of potential uses. In contrast, BRC-20 tokens present challenges in accommodating different use cases and, therefore, have significantly fewer capabilities. Supporters and contributors to the network can bypass this issue by identifying use cases and cryptocurrency sectors that align perfectly. Only time will reveal whether this approach to development is triumphant.
Thirdly, Ethereum is predisposed to vulnerabilities since its smart contract flexibility enables the creation of complex and innovative applications. However, this flexibility also introduces higher risks of bugs and vulnerabilities. On the other hand, as mentioned in more detail above, BRC-20 tokens may offer enhanced security by leveraging Bitcoin's robust network and security features.
While Bitcoin is the biggest cryptocurrency right now, with a market cap three times bigger than Ethereum's, Ethereum has much more power in terms of its ecosystem. As the blockchain environment progresses, BRC-20 may become the next biggest competitor standard-wise, but it needs a lot of time, research, and development before it can happen. For now, crypto enthusiasts will gain from comprehending the strengths and limitations of token standards, not only those mentioned above, enabling them to navigate the diverse crypto landscape better.
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