The Bitcoin blockchain gives birth to a new type of crypto

Things are heating up up on the bitcoin blockchain.

Daily transactions have shot to a record high of 682,000 this month, according to Glassnode data, nearly 40% higher than the previous peak in 2017. Bitcoin’s dominance, or its share of the total $1.16 trillion cryptocurrency market, has increased to 44 % from 38% at the beginning of the year.

What’s up?

Enter BRC-20, the first class of crypto tokens built on the bitcoin blockchain, besides bitcoin itself. Almost 25,000 of the experimental coins have already been minted this year, sending transactions through the roof.

“BRC-20 tokens are a phenomenon we haven’t seen before,” said Gordon Grant, co-head of trading at Genesis trading.

Primarily due to the creation of these tokens, the seven-day average daily transactions are more than 531,000, nearly double what they were a month ago, according to Blockchain.com data.

This new class of crypto has no specific use beyond speculation, similar to memecoins. Still, its nascent popularity points to interest in bitcoin not just as a store of value or payment method, but as the basis for developing new coins and applications — previously considered the domain of more modern blockchains like ethereum and solana.

Some investors and developers see bitcoin’s blockchain as a safer long-term basis for creating tokens and applications in the wake of the crypto bloodbath that followed the collapse of high-profile firms such as FTX and a general flight from riskier assets, according to market participants.

“People have seen what’s possible with other blockchains and they want it on bitcoin, as the oldest network, bitcoin has a track record that people can trust,” said Alex Miller, CEO of bitcoin developer network Hiro.

Yet the BRC-20 frenzy has been fleeting.

Volatile

The total value of these tokens – which are usually traded in secondary markets, particularly decentralized exchanges – exceeded $1 billion in early May, but has since fallen back to $446 million, according to tracker BRC-20.io.

Since bitcoin’s blockchain was not originally designed to support a crypto ecosystem, unlike ethereum and solana, BRC-20 tokens are created using ordinal theory, which allows data to be entered on each satoshi – the smallest denomination of bitcoin, or a hundred millionths.

“There’s not much use when it comes to BRC-20 tokens and Ordinals,” said CJ Reim, contributor at blockchain firm CoreDAO, although he sees the trend as “promising” in terms of interest in building products on the bitcoin blockchain.

The race to create these new coins has not had a significant impact on the price of bitcoin, which has been trading below $30,000 since mid-April.

The rapid creation of BRC-20 tokens has not been without controversy, with critics saying that the issuance of these tokens has made it more difficult for users who want to use bitcoin for its original intended purposes.

“Gas” fees, or transaction costs on the bitcoin blockchain, have risen in the past month, with total dollar-denominated fees per day near a new all-time high of $17.8 million per day, according to Glassnode data.

The median transaction fee rose as high as $30.91 against a range of 90c and $4.23 between January and May 1, Blockchain.com data showed.

The network has also slowed considerably. The congestion was so acute that the world’s largest crypto exchange Binance had to pause bitcoin withdrawals on May 7.

“While congestion has eased somewhat, it is still elevated, with users at most waiting over 30 hours for transactions to be confirmed,” said Nauman Sheikh, head of treasury management at digital asset investment manager Wave Digital Assets.

“This has pushed the limits of bitcoin’s technology.” — Lisa Mattackal and Medha Singh, (c) 2023 Reuters

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