What Are Bitcoin Ordinals and The BRC-20 Token Standard?

Bitcoin Ordinals are a protocol that inscribes data - text, images, video, or code - directly onto individual satoshis, the smallest unit of Bitcoin, turning them into Bitcoin-native, NFT-like assets. The BRC-20 token standard builds on this technology, using JSON-based Ordinals inscriptions to create fungible tokens on Bitcoin without smart contracts. Since their March 2023 launch, Bitcoin Ordinals and BRC-20 tokens have significantly increased network activity, though Runes has since become the dominant fungible token standard on Bitcoin.

The introduction of the Ordinals protocol has enabled the creation of NFT-like (non-fungible token) assets on the Bitcoin network. Unlike conventional NFTs, which involve creating a new token, Bitcoin Ordinals involve direct inscription of raw file data onto the blockchain. This approach is a notable innovation, adding new dimensions to digital asset management within the Bitcoin ecosystem.

The BRC-20 token standard ( Bitcoin Request for Comment 20) tokens gained immense popularity quickly after their introduction in March 2023. This surge in popularity led to a significant increase in Bitcoin's network transactions, causing a record high in unconfirmed transactions in May 2023 and a temporary halt of the Bitcoin blockchain. This event highlighted the substantial impact of BRC-20 tokens on Bitcoin's network performance.

Understanding Bitcoin Ordinals NFTs - as they are referred to colloquially - and BRC-20 tokens is crucial for anyone interested in digital currencies and blockchain technology. This guide covers how Bitcoin Ordinals work, how the BRC-20 token standard functions, how it compares to Ethereum's ERC-20 and Bitcoin's newer Runes protocol, and what to weigh before investing. Let’s begin with the basics:

What Are Bitcoin Ordinals NFTs and How Do They Work?

Bitcoin Ordinals are inscriptions of data - text, images, audio, or video - written directly onto individual satoshis using Bitcoin's own block space, rather than on a separate token or sidechain.

Bitcoin Ordinals, introduced by developer Casey Rodarmor, allow users to inscribe data such as text, images, or videos directly on the Bitcoin blockchain. This is achieved through inscribing data onto satoshis, the smallest unit of Bitcoin- with each inscription generating an Ordinal (also known as a Bitcoin NFT). The technology was made possible by Bitcoin's 2017 SegWit and 2021 Taproot upgrades. Ordinal NFTs have sparked debate in the Bitcoin community regarding the use of the blockchain for non-financial purposes.

What Is The BRC-20 Token Standard ?

The BRC-20 token standard is a protocol for creating and transferring fungible tokens on Bitcoin using Ordinals inscriptions, roughly comparable in purpose to Ethereum's ERC-20 standard but without smart contract functionality.

The BRC-20 token standard on the Bitcoin network is a new protocol for creating and transferring fungible tokens, akin to Ethereum's ERC-20 (Ethereum Request for Common 20). This standard utilizes Bitcoin's Ordinal inscriptions to embed token data directly on the blockchain. However, unlike ERC-20 tokens, BRC-20 tokens do not rely on smart contracts, leading to a simpler but less feature-rich functionality. As an experimental protocol, BRC-20's long-term viability and effectiveness are still under evaluation, marking an evolving phase in the digital asset industry on the Bitcoin platform.

How Do BRC-20 Tokens Work?

BRC-20 tokens work by inscribing JSON data onto individual satoshis to define, mint, and transfer a token, with off-chain indexers tracking balances since there is no smart contract layer to do it on-chain.

BRC-20 tokens operate uniquely within the Bitcoin ecosystem, and their functionality is distinctive from other token standards like Ethereum's ERC-20. Here's an in-depth explanation of how BRC-20 tokens work:

• Foundation: BRC-20 tokens utilize the Bitcoin Ordinals protocol, which was made possible by Bitcoin's Taproot upgrade in November 2021. This protocol allows for the inscription of additional data, such as text, images, or audio, onto individual satoshis. These inscriptions give each Satoshi a unique ordinal number based on the order in which they are mined.
• Token creation: To create BRC-20 tokens, JSON (JavaScript Object Notation) data is inscribed onto satoshis. This JSON code defines the token's attributes, including its name, symbol, supply, minting conditions, and transfer conditions.
• Deployment: The process of deploying a BRC-20 token involves defining these parameters and creating a JSON file that details the token's attributes.
• Minting: After deployment, the minting of new tokens is managed according to predefined criteria, with the initial recipient being determined by the service used for the inscription.
• Transfers: Transfers of BRC-20 tokens between users involve altering the JSON data in the inscriptions, effectively tracing the token's journey across Bitcoin addresses.
• Storage: Unlike ERC-20 tokens, which use smart contracts for storage and transactions, BRC-20 tokens store their information within the Bitcoin blockchain through inscription script data. This design choice, while limiting the tokens to basic functionalities, potentially reduces vulnerabilities and contributes to their security.
• Availability: BRC-20 tokens can be acquired through centralized exchanges like Gate.io or decentralized platforms. However, they are not as easily traded as ERC-20 tokens, and their availability remains limited.
• Use cases: BRC-20 tokens have seen significant market adoption, and thousands of tokens have already been minted. They are being used for peer-to-peer transfers, potentially in decentralized finance (DeFi), and for tokenizing real-world assets like gold and real estate. BRC-20 tokens have also been used to create meme tokens and other digital assets.

Despite their innovative nature, BRC-20 tokens face limitations inherent to the Bitcoin blockchain, such as scalability challenges and limited functionality compared to ERC-20 tokens. Their current capabilities are primarily focused on the minting, deploying, and transferring of tokens, without the advanced features found in smart contract-based tokens.

BRC-20 vs. ERC-20: Key Differences

BRC-20 and ERC-20 both create fungible tokens, but they differ in architecture: BRC-20 tokens are inscription-based and rely on off-chain indexers, while ERC-20 tokens run natively on Ethereum smart contracts. The comparison below summarizes the main differences.

Bitcoin Ordinals vs. Runes: What Changed After 2024

Runes is a fungible token protocol launched by Casey Rodarmor at the April 2024 Bitcoin halving (block 840,000) to address BRC-20's main weaknesses - particularly the reliance on off-chain indexers and the UTXO clutter created by BRC-20 minting. Runes stores token data more efficiently within Bitcoin's native UTXO model and has become the preferred standard for new fungible token launches on Bitcoin, with BRC-20 activity declining significantly since 2024.

Are Bitcoin Ordinal NFTs Worth Investing In?

Investing in Bitcoin Ordinals is a decision that depends on your risk tolerance and investment strategy. Here are some insights:

• BRC-20 tokens, closely related to Bitcoin ordinals, have been gaining substantial momentum in the market. Increase in value suggests that there is growing investor interest and market potential in these types of tokens​​.
• Bitcoin Ordinal cryptos are expected to enable new and innovative use cases and markets for NFTs. They could offer solutions for things like decentralized identity, web2 analogs, and physical infrastructure networks. This potential for diverse applications could make Bitcoin Ordinals an attractive area for investment, especially if you're interested in emerging technologies and the expansion of the Bitcoin ecosystem​​.
• If you're looking for a long-term investment strategy that can weather the volatility of the crypto market, Bitcoin ordinals, alongside Bitcoin and BRC-20 tokens, might be worth considering. Each of these assets has unique characteristics and advantages, making them suitable for different investment goals. Bitcoin, for instance, is recognized as a reliable store of value, while BRC-20 tokens offer innovation and experimentation opportunities in the crypto space​.

The Future of Ordinal NFTs and BRC-20 Tokens

The introduction of Ordinal NFTs and the BRC-20 standard broadened the scope of Bitcoin's functionality and sparked new conversations about the blockchain's potential uses. Newer protocols such as Runes have since built on and, for fungible tokens, largely superseded BRC-20, highlighting the dynamic and evolving nature of blockchain technology. Their ongoing development and integration within the digital asset ecosystem will remain a key area of interest for investors, developers, and enthusiasts in the blockchain community.
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Conclusion

Bitcoin Ordinals and the BRC-20 token standard opened up an entirely new category of digital assets on Bitcoin, turning individual satoshis into inscribable, NFT-like collectibles and enabling experimental fungible tokens without smart contracts. While BRC-20 activity has cooled since Runes launched in April 2024, Ordinals inscriptions and the broader inscription ecosystem remain an active area of Bitcoin development. For traders who want direct exposure to Bitcoin price movements rather than speculative inscription tokens, Delta Exchange offers BTC perpetual futures and options with deep liquidity.

Frequently Asked Questions (FAQs)

Q1: What are Bitcoin Ordinals and how do they work?

Answer: Bitcoin Ordinals use ordinal theory to assign a unique serial number to each satoshi, the smallest Bitcoin unit. Images, text, and video can be inscribed directly on-chain, making each one immutable and stored entirely on Bitcoin, unlike most NFTs which reference external storage.

Q2: What is the BRC-20 token standard on Bitcoin?

Answer: BRC-20 is an experimental fungible token standard that uses JSON-formatted Ordinals inscriptions to deploy, mint, and transfer tokens on Bitcoin. It has no smart contract layer, so off-chain indexers handle balance tracking. Functional but far less composable and programmable than ERC-20.

Q3: How are BRC-20 tokens different from ERC-20 tokens?

Answer: ERC-20 tokens run on Ethereum's smart contract layer and connect directly into DeFi protocols. BRC-20 tokens are inscription-based, have no native programmability, and depend on off-chain indexers for balance tracking. By 2024-2025, Runes had largely displaced BRC-20 for new fungible token launches on Bitcoin.

Q4: Why did Bitcoin Ordinals increase network activity and congestion?

Answer: The 2023 inscription boom flooded Bitcoin's mempool and pushed fees to multi-year highs. Activity spiked again at the April 2024 halving when Runes launched at block 840,000, with Ordinals and Runes inscriptions briefly accounting for a large share of total Bitcoin transactions that week.

Q5: What are the use cases of Bitcoin Ordinals and BRC-20 tokens?

Answer: Digital art, collectibles, on-chain gaming assets, and meme coins are the main use cases. Runes, launched at the April 2024 halving block, have largely taken over new fungible token issuance from BRC-20. Traders following Bitcoin's expanding ecosystem can track BTC price action on Delta Exchange through perpetuals and options.

Q6: Are Bitcoin Ordinals and BRC-20 tokens a good investment opportunity?

Answer: Most BRC-20 tokens have thin liquidity and minimal utility, and the market has cooled sharply since 2024 as Runes took over. Ordinals collections remain highly speculative with no reliable valuation framework. Delta Exchange offers BTC perpetuals and options for traders wanting Bitcoin exposure without the volatility of inscription tokens.