Are you interested in learning about the distinctions between BRC-20 and ERC-20 tokens? With the constant evolution of the cryptocurrency world, it can be challenging to keep up with the introduction of new standards. However, we’re here to help you understand the basics of these two types of tokens.
For newcomers to cryptocurrency, comprehending the differences between BRC-20 and ERC-20 tokens may seem daunting. That’s why we’ve created this guide to provide you with a fundamental understanding of their similarities and differences.
Whether you’re an avid cryptocurrency fan or simply curious about blockchain technology, this guide will give you a clear insight into the world of BRC-20 and ERC-20 tokens. So, let’s explore these two types of tokens together.
Brief History of BRC-20 and ERC-20 Tokens
History of BRC-20 Tokens
The first BRC-20 token to be created was called “ordi,” and support for BRC-20 tokens was quickly added to Bitcoin wallets.
The BRC-20 standard utilizes ordinal inscription and was introduced by Domo on March, 2023. This experimental standard has opened up new possibilities for the Bitcoin network, including its use in DeFi protocols and other blockchain-based applications.
The Taproot upgrade and subsequent development of the Bitcoin Ordinals protocol have created a wealth of new opportunities on the Bitcoin network.
However, the rapid growth in minting activity led to congestion in the Bitcoin mempool and a spike in transaction fees. While some have welcomed the increase in fees as a way to supplement miner revenue as block rewards decrease over time, others have expressed concern about the impact on users in more price-sensitive regions.
At this early stage, BRC-20 tokens carry significant risks and require further development of supporting infrastructure. As noted by its founder, this is an experimental technology and potential risks should be carefully evaluated.
The use of Ordinals, Inscriptions, and BRC-20 tokens has demonstrated that there is strong demand for Bitcoin blockspace beyond its traditional use as a store of value.
History of ERC-20 Tokens
The ERC-20 standard is a set of guidelines for creating new tokens on the Ethereum blockchain. It ensures that these tokens are compatible with other smart contract tokens. This has helped to promote interoperability and ease of use within the Ethereum ecosystem.
In 2015, Ethereum developers, representing the larger Ethereum community, created the ERC-20 token standard, which was officially recognized in September 2017. Developer Fabian Vogelsteller suggested a standard to create a consistent method for handling smart contracts on the Ethereum blockchain.
The proposal was approved and implemented in 2017 as Ethereum Improvement Proposal 20 (EIP-20), but it is still called ERC-20 because that’s how it was known until it was approved. Since its implementation, the majority of tokens in the Ethereum ecosystem have been created using the ERC-20 standard.
The creation of the ERC-20 standard has enabled the development of a wide range of digital assets that can interact seamlessly with each other on the Ethereum blockchain. It has become the most popular token specification and has played a significant role in the growth of the Ethereum ecosystem.
Tokens BRC-20 vs ERC-20: Main Differences
Technology/Blockchain
BRC-20 and ERC-20 are two separate token standards that exist on different blockchains. BRC-20 is based on the Bitcoin blockchain, while ERC-20 is based on the Ethereum blockchain. As a result, the two token standards use different consensus mechanisms.
ERC-20 is the primary token standard for the Ethereum blockchain and its main purpose is to enable tokens to utilize smart contracts, which are a fundamental feature of the Ethereum blockchain.
Smart contracts are self-executing contracts that automatically perform actions when certain conditions are met, removing the need for intermediaries or third parties. However, BRC-20 tokens do not utilize smart contracts, which limits their functionality compared to tokens that do use them.
Minting
The BRC-20 token standard enables the creation and transfer of fungible tokens on the Bitcoin blockchain using the Ordinals protocol. Prior to 2023, the only asset that existed on the Bitcoin blockchain was Bitcoin itself.
While many people appreciate the value of Bitcoin, the fact that it was the only asset on the blockchain was often seen as a limitation, particularly in comparison to other blockchains that were constantly introducing new tokens and projects. The BRC-20 standard offers a way to expand the capabilities of the Bitcoin blockchain and allow for greater diversity in its use.
In terms of minting, both BRC-20 and ERC-20 allow for the creation of new tokens. However, there may be differences in the specific processes and requirements for minting tokens on each blockchain. It is important to note that BRC-20 is still an experimental token standard and may undergo changes and developments in the future.
Overall, both BRC-20 and ERC-20 offer unique features and capabilities for creating and managing tokens on their respective blockchains. It will be interesting to see how these two token standards continue to evolve and compete in the future.
Transaction Fees
Transaction fees for BRC-20 and ERC-20 tokens are different because they exist on two different blockchains. BRC-20 is Bitcoin-based, while ERC-20 is Ethereum-based. For ERC-20 tokens, the transaction cost is calculated using the formula Transaction Cost = gas Used * gasPrice.
The cost of sending ERC-20 tokens is determined by the amount of gas used in the transaction. This amount does not change based on the number of tokens being sent, so sending 1 token costs the same as sending 100 tokens.
The gas used is determined by the ERC-20 contract, while the gas price is determined by the load on the Ethereum network. In contrast, for BRC-20 tokens, users are charged a fee equal to 1% of the transaction amount in BRC-20 tokens.
Transaction Speed
Transaction speed is determined by how quickly transactions are processed. On the Ethereum blockchain, this is typically done using a concept called MEV. However, on the Bitcoin blockchain, transactions are processed differently. Data is written to blocks and then validated by miners. This means that there is no specific preference for which transactions are processed more quickly on the Bitcoin blockchain.
In contrast, on the Ethereum blockchain, those who are able to pay higher gas fees may receive priority for their transactions. This makes the BRC-20 standard more egalitarian and decentralized than the ERC-20 standard.
Security
From a security perspective, BRC-20 tokens are considered more secure than ERC-20 tokens. This is because the Bitcoin network, on which BRC-20 tokens exist, uses a highly decentralized consensus model based on Proof of Work (PoW). This model allows anyone to join the network and validate blocks.
In contrast, the Ethereum network, on which ERC-20 tokens exist, uses a Proof of Stake (PoS) model with a high entry barrier for validators. This means that the number of validators is limited and token holders who delegate their tokens have less control over the validation process. As a result, there is a risk that validators may act maliciously.
There have been instances of security breaches on the Ethereum network, such as the DAO hack in 2016. However, to date, the Bitcoin network has not been compromised.
BRC-20 and ERC-20: Which is Better?
The BRC-20 token standard has its foundation in the ERC-20 standard, indicating a connection between them. At present, ERC-20 tokens are considered a more versatile option for crypto traders because the ERC-20 standard has been established for several years, while BRC-20 has only been in use for a short time.
While BRC-20 may have the same potential as ERC-20, it is always wise to approach new products in the crypto industry with caution. Trends in this industry can change rapidly, so it is important to be cautious when considering new developments. A larger number of crypto wallets accept ERC-20 tokens. BRC-20 does not use smart contracts but instead uses Ordinals inscriptions to function.
BRC-20 has attracted a significant number of supporters who are eager to witness its progress as the market expands. As a result, there are many scam BRC-20 tokens and rug-pulls are a common problem.
Additionally, the Bitcoin blockchain, on which BRC-20 tokens exist, often experiences scalability issues and high transaction fees due to its use of the proof of work consensus mechanism. In contrast, the Ethereum blockchain uses the more efficient proof of stake mechanism.
Conclusion
Both ERC-20 and BRC-20 tokens exist on popular blockchains, which is an advantage for both standards. The Ethereum blockchain is already a popular choice for crypto developers, but the Bitcoin blockchain may also gain popularity due to its support for token creation and minting through the BRC-20 standard. In the future, Bitcoin could become a top choice for token development, but for now, ERC-20 tokens remain the preferred option.
