Bitcoin transactions hit record high as new token type takes off

Developers continue to push experimentation on the Bitcoin blockchain to new limits.

The latest major development is BRC-20 tokens, fungible assets named after ERC-20 tokens, a token standard that originated on the Ethereum blockchain and is now used by most tokens issued on that chain.

These tokens have a combined market cap of $125 million as of May 4, just a tiny fraction of Bitcoin’s total market cap. And yet they pushed daily transactions on the Bitcoin blockchain to an all-time high of 682,000 on the first of the month. Bitcoin fees have also risen to heights not seen since July 2021.

The move is significant. Bitcoin has typically been a network valued for its stability – with a hard cap of 21 million tokens backed by a decentralized group of miners, its strength was that it didn’t change. Ordinals, and more recently BRC-20s, represent a shift towards greater experimentation on the Bitcoin ecosystem.

BRC-20 Standard

The pseudonymous developer known as domo released The BRC-20 standard March 8. For the deployment, they used the Ordinals protocol, which enables a way to “write in” small units of Bitcoin known as Satoshis with unique data. The data can be anything digital, everything from images to sound, to text and video.

In the case of BRC-20s, users enter important data such as a token’s supply in a well-known format called JSON. This makes the tokens fundamentally fungible.

For now, there isn’t much people can do with the BRC-20s. The documentation released by the token type’s creator shows three functions – people can create a token, they can create one that has already been created, and they can send it.

These tokens can gain more utility when there are applications to use them for. Still, even minting tokens on Bitcoin is a major change in the blockchain’s capabilities, which did not allow users to easily issue their own coins.

Ordinals

Since their invention in January, Ordinals have shaken up the Bitcoin community. The technology uses a data field introduced by a Bitcoin upgrade called Segwit, as well as features introduced by Taproot, another upgrade that went live in 2021.

Since then, people have entered over 1M Ordinals with marketplaces reminiscent of OpenSea popping up to facilitate trading.

While Ordinals sparked the BRC-20s, other projects continue to build on Bitcoin some of the infrastructure that has driven much of Ethereum’s success. For example, Trustless Computer bills itself as a Layer 1 built on Bitcoin, which will allow developers to deploy full-fledged applications like those of the major DeFi protocols, in addition to fungible and non-fungible tokens.

Faithless computer

Trustless Computer enables its own form of fungible tokens, called SBRC-20s, punk3700, a pseudonymous core contributor to Trustless Computer, told The Defiant. Trustless Computer’s smart contracts can interact with SBRC-20s, but not with BRC-20s. Although the core contributor said they are investigating whether to develop a way to bridge BRC-20s to the smart contract solution.

The Trustless Computer team is pushing hard to demonstrate that it is possible to build applications natively on Bitcoin — they distributed a fork of the second iteration of Uniswap, DeFi’s largest decentralized exchange by volume, on April 30. Trustless Computer allows developers to use Solidity code, which is the most widely used programming language on Ethereum.

“I feel 10x better compared to my first Ethereum contract distribution in 2017,” said punk3077.

Trustless Computer does not use the Ordinals protocol, but took inspiration from it – the smart contract solutions also use the data field introduced by Segwit, which was implemented in 2017.

“I think Ordinals invented a whole new way to build on Bitcoin,” said punk3077. “It gives us, developers, a completely different perspective on Bitcoin. For the first time, we see Bitcoin [as] more than just a currency.”

Trustless Computer relies on Ethereum-native infrastructure for a wallet solution as well. Punk3077 introduced a wallet built on MetaMask, the wallet commonly used with Ethereum Virtual Machine (EVM) compatible chains, in February. Users can use MetaMask when using Trustless Computers’ solutions.

Despite its name, the Trustless Computer is not necessarily trustless – nodes specific to the Trustless Computer process the smart contract environment’s transactions from the Bitcoin blockchain. It is not clear how many nodes process Trustless Computer’s transactions, introducing a centralized, and thus corruptible, element to the system.

Builds on Bitcoin

Punk3077 isn’t the only one excited about the possibilities of building on Bitcoin. Leonidasthe founder of Ord.io, a blockchain explorer for Ordinals, said the BRC-20s show that there is a new attitude that is forming around the blockchain.

“Ordinal’s culture brings back the recipe for innovation by encouraging developers to try crazy experiments without fear of failure,” the founder told The Defiant.

Leonidas added that Vitalik Buterin, the co-founder of Ethereum, cultivated a welcoming environment for developers because he understood their importance to a crypto network.

“Now there are hundreds of very talented developers working full-time on Web3 use cases on top of Bitcoin,” the founder said.

To be sure, new fads come and go often in crypto. People early in a given development tend to hype its importance to making money, so there is no guarantee that the excitement around BRC-20s and smart contracts on Bitcoin will last.

However, the development of the BRC-20s and SBRC-20s differs in that they are enabled by changes to the Bitcoin protocol, which an upgrade called Taproot made possible. As such, the Ordinals protocol and the Trustless Computer are baked somewhat naturally into the Bitcoin blockchain. This differs from many attempts to use the network by building on top of it, which can often introduce security vulnerabilities.

The effects of the new activity on the world’s most valuable blockchain are just beginning to become apparent. The median value of a Bitcoin transaction has fallen as people have started using the blockchain outside of sending BTC.

Leonidas is looking forward to a new era for Bitcoin. “The reality is that over the last five years, Bitcoin has fallen very far behind Ethereum and other Web3 blockchains from an infrastructure and UX perspective.”

Bitcoin has also seen increased interest as major US banks have failed this year and with some investors hedging by directing capital to the digital asset. With that, plus the development of native smart contracts, BRC-20s and Ordinals, the Bitcoin blockchain is certainly drawing attention from a wider audience than it has in recent years.

Punk3700, for one, aims to seize the moment. “This is the best time to build on bitcoin,” they said.