Bitcoin’s BRC-20 token standard has become the latest trend in the crypto ecosystem, especially after the Pepe meme coin rise in recent months. A total of 8,500 different tokens have been minted using the BRC-20 standard, and the majority of these BRC-20 tokens are meme coins, such as Pepe and Meme.

BRC-20 is an experimental token standard on the Bitcoin (BTC) blockchain modelled after Ethereum's ERC-20. It allows programmers to create and send fungible tokens via the Ordinals protocol.

Although modelled after ERC-20, the BRC-20 token standard is fundamentally different from its Ethereum-based counterpart. BRC-20 tokens don’t make use of smart contracts. The token standard also requires a Bitcoin wallet to mint and trade these tokens.

The BRC-20 token standard was created early in March this year by an anonymous on-chain analyst called Domo. The objective was to make it possible for fungible tokens to be issued and transferred on the Bitcoin blockchain. The market cap of BRC-20 tokens has exploded over the past month and currently sits at $120 million, a 600% rise from the last week.

BRC-20 tokens market cap. Source: brc20-io

The BRC-20 token frenzy has also dwarfed the original number of Bitcoin transactions on the blockchain. The number of BRC-20 transactions on the Bitcoin blockchain between April 29 and May 2 reached over 50% outperforming regular BTC transactions.

The BRC-20 token volume peaked on May 1 with 366,000 transactions, and the total number of transactions on the network is 2.36 million.

BRC-20 tokens transaction volume. Source: Dune

Along with the rise in the number of BRC-20 transactions, the transaction fees have also seen a significant surge due to the new token activity. Since its inception in late April, the network has generated an additional 109.7 BTC in transaction fees for miners.

BRC-20 tokens total fees. Source: Dune

The meme coin frenzy has been a notable topic on the Ethereum (ETH) blockchain, but with the rise of the BRC-20 standard, a similar trend is also observed on the Bitcoin blockchain. The meme coin frenzy has also led to a significant rise in Ethereum network gas fees leading to network congestion as well.

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Bitcoin network faces heightened congestion with over 5 million inscriptions, exacerbating block space demand as BRC-20 tokens achieve a market cap milestone of $1 billion, contributing to increased activity on the network.

The Bitcoin blockchain has been facing a growing backlog of transactions in recent days amid the arrival of memecoins on the network. 

The market capitalization of BRC-20 tokens, a fungible tokens standard built on the Ordinals protocol that is fueling the memecoin surge on Bitcoin, surpassed US$1 billion on Tuesday, before retreating to US$588 million as of 6:00 p.m. in Hong Kong Thursday, according to data provider BRC-20.io. 

Headlined by memecoin rising star Pepe, over 14,300 types of BRC-20 tokens are contributing to jamming up the blockchain thanks to Ordinals, a protocol that allows data to be inscribed in the smallest monetary unit of Bitcoin, satoshi. The inscription also brought a version of non-fungible tokens (NFT) to Bitcoin. 

“The primary driver of this congestion and the related surge in transaction fees are inscriptions that use the BRC-20 minting standard,” said Colin Harper, head of research and content at Bitcoin mining software and services firm Luxor Technologies, in an email. 

Bitcoin’s network congestion can be measured by its memory pool size, or mempool, the queue of pending valid transactions waiting to be added to blocks. It is often measured in virtual bytes (vbytes), and a single Bitcoin block can theoretically hold up to a million vbytes. 

Over 298,312 transactions were waiting to be validated as of 6 p.m. on Thursday, which is equal to a near one-month high of 186.7 million vbytes. Bitcoin’s mempool size stood at 3.31 million vbytes on April 24, according to on-chain data from mempool.space. 

The expanding mempool size caused Bitcoin transaction fees to rise to US$30.91 on Monday, the highest in two years. This dropped to US$14.05 as of 6 p.m. in Hong Kong, according to Chicago-based investment software company ycharts.

“[BRC-20 inscriptions] use JavaScript Object Notation (JSON) file format which is relatively data heavy. Combine that heaviness with the ‘first-come, first-mint’ incentives that BRC-20 mints create and you have a recipe for transaction congestion,” wrote Harper, 

Miners profit from Bitcoin congestion

With the heating memecoin economy on the Bitcoin blockchain, the network surpassed 5 million Ordinals inscriptions on Tuesday, according to data from Dune Analytics. 

The congestion may have lengthened waiting times for Bitcoin users, but Luxor Technologies’ Harper said that the BRC-20 standard essentially doubled miner revenue.

“Surging fees will price out some transactions for sure, but I doubt that this BRC-20 minting mania will last too much longer. Fees may become elevated like this from time to time with different inscription mints or other demands for block space, but they will revert to the mean eventually,” wrote Harper.

Nazar Khan, the chief operating officer and chief technology officer of U.S.-based Bitcoin mining company TeraWulf, also expects transaction fees to return to normal in the short term.

“While we expect transaction fees to return to lower levels in the next couple of weeks, we believe this episode highlights how varied the use case for the Bitcoin network can be over time. Whatever the short-term impacts of surging transaction fees may be today, Bitcoin is the most secure and robust network that exists and will continue to attract increasing levels of activity,” added Khan.

Enough memes for Bitcoin? 

While miners welcomed the revenue surge, some Bitcoin developers are campaigning to phase out Ordinals and BRC-20 tokens from the network. 

“Action should have been taken months ago. Spam filtration has been a standard part of Bitcoin Core since day 1. It’s a mistake that the existing filters weren’t extended to Taproot transactions. We can address that, or try a more narrow approach like OP_RETURN (ie, what “Ordisrespector” does). Since this is a bugfix, it doesn’t really even need to wait for a major release,” said Bitcoin Core developer Luke Dashjr in an email dated May 8.

NFT supporters, including Washington Sanchez, the NFT product lead at U.S.-based cryptocurrency exchange Kraken, brushed off Dashjr’s threat on social media.  

“Luke is waging a 1 man jihad against Ordinals, I doubt the other devs will take him seriously based on their precious comments that Bitcoin was working as expected if people are submitting valid transactions,” tweeted Sanchez. 

However, online discussions show that Dashjr has some support from the Bitcoin community. 

“[Bitcoin] was not originally intended to support tokens or smart contracts,” one user wrote on bitcointalk.org, an online cryptocurrency forum launched by pseudonymous Bitcoin founder Satoshi Nakamoto. “These changes are breaking the network and eroding the years of trust that Bitcoin has created.”

source: forkast

image source: ai

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Disclaimer

The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading crypto assets comes with a risk of financial loss.