BRC-20, a new dark horse in the digital currency market or a flash in the pan? What are its risks?

This article will briefly introduce the Bitcoin L2 architecture, BRC-20 related content and security views.

Written by: Beosin

Recently, the focus of discussion in the Bitcoin field seems to have shifted to the Bitcoin network, and BRC20 has also become a hot topic of discussion recently.

Everyone is discussing whether the Bitcoin L2 expansion scheme and the emergence of the BRC20 standard can bring more powerful functions and scalability to Bitcoin, but now, the market is still too hyped. In this article, we will share Briefly introduce the Bitcoin L2 architecture, BRC20 related content and security views.

What is the Bitcoin L2 architecture?

In the blockchain, there is an impossible triangle, that is, security, decentralization, and scalability. When these three are introduced into the blockchain, you can only choose two out of three, and you cannot satisfy all of them.

Bitcoin is a blockchain system that maximizes security and decentralization at the expense of scalability. The block generation time of Bitcoin is about 10 minutes, while other common public chains such as Ethereum 2.0, Solana, etc., the block generation time is in seconds or even milliseconds. It can be seen that Bitcoin has made a huge sacrifice in efficiency, while security And decentralization is the highest, making a large number of blockchain participants have a great demand for the expansion of Bitcoin.

**Bitcoin Layer 2 is an expansion scheme for Bitcoin, mainly aimed at the upper-layer expansion of Bitcoin-scarce application scenarios and relatively inefficient operating efficiency, in order to solve the scalability of the above-mentioned impossible triangle Dimensions, such as the Stacks system. **

The Stacks system is a Bitcoin upper layer network that supports decentralized applications and smart contracts. It is connected to the Bitcoin blockchain system through a consensus mechanism that spans two chains, so as to achieve both the security of Bitcoin and smart contracts. The purpose of rich application scenarios.

Stacks takes a pyramid approach, with a base settlement layer (Bitcoin) at the bottom, then adding smart contracts and programmability on top of that (Stacks), and then adding a layer of scalability and speed on top of that (Hiro's subnet) . By adopting this layered approach, it not only has the same rich functions as public chains such as Ethereum, but also avoids a large number of shortcomings of these complex public chains.

Stacks are layer 2 of Bitcoin, with some unique properties like their own token, which acts as an incentive mechanism to maintain a historical ledger of all its transactions, and operates according to its own security scheme.

Although Stacks adds additional functionality to Bitcoin, it does not change the content of Bitcoin itself due to its Proof of Transmission (POX) consensus mechanism. This is also what differentiates Stacks from L2 scaling solutions on Ethereum (such as Polygon or Arbitrum), which keep the simplicity and security of Bitcoin itself, while other functions and optimized speed are implemented using other layers, so that Even if other layers are compromised, it will not affect the base layer (Bitcoin).

What is BRC20?

To explain BRC20 clearly, we must first introduce Ordinals.

**Ordinals is a system protocol for numbering Satoshi (sats), the smallest unit of Bitcoin. It can assign a unique number to each Satoshi. **And, Ordinals also supports text, pictures, audio, video, etc. function, so that each Satoshi is unique, similar to the familiar Ethereum non-homogeneous token NFT, and we call it Bitcoin NFT. Ordinals also artificially assign rarity to these sats. Based on specific happenings in the Bitcoin network as a reference, the sats numbers are divided into the following levels:

Common: not the first satoshi of its block;

Uncommon: the first Satoshi of each block;

Rare: first satoshi per difficulty adjustment cycle;

Epic: first satoshi for each halving period;

Legendary: the first Satoshi of each cycle;

*Myth: The first Satoshi of the genesis block. *

The founders of BRC20 came up with another idea based on the Ordinals protocol. Since the Ordinals protocol can create Bitcoin NFTs by assigning different "attributes" to each Satoshi, it is also possible to create Bitcoin FTs by giving a unified "format" and "attributes", that is, homogeneous tokens .

Through the Ordinals protocol, BRC20 writes text data in a unified JSON format into Satoshi. This text data is the ledger of BRC20 tokens. According to the text data, token holdings and transfers can be analyzed. It mainly includes the following contents:

{

“p”:”brc-20”,

"op":"deploy",

“tick”:”ordi”,

“max”:”21000000”,

“lim”:”1000”

}

{

“p”:”brc-20”,

"on": "mint",

“tick”:”ordi”,

“amt”:”1000”

}

{

“p”:”brc-20”,

“on”:”transfer”,

“tick”:”ordi”,

“amt”:”1000”,

}

The above are the three standards of BRC20. Among them, the op field indicates the operation that needs to be performed, **includes deploy (deployment), mint (casting) and transfer (transfer), and tick indicates the name of the token that needs to be operated. max represents the total amount of tokens issued, lim represents the maximum number of coins minted per token, amt represents the number of tokens that need to be operated, **In the transfer standard, there are also fields such as "to", but this is not necessary, transfer is The balance change is realized by sending the inscription to the target address, as shown in the figure below.

BRC20 implements a "first come, first served" mechanism. **After deploying a certain BRC20 token, it cannot deploy another token with the same name. Even if a token with the same name is deployed, due to off-chain accounting During the parsing process, the platform has already recorded the previously deployed token with the same name, so it will consider the second deployment illegal and will not record it. **The same is true for the management principle of minting cap limit.

The above example is the recently popular ordi token. This token is a BRC20 experimental token launched by the creator of BRC20. It is the first Bitcoin inscription token. Its circulation is 21 million pieces. Mining fees can be minted, and a maximum of 1,000 pieces can be minted each time. Although the token is a BRC20 experimental token, as the first BRC20 token, it has attracted a large number of investors, making the unit price of ordi once exceed $100, with huge price fluctuations. Moreover, because ordi uses the order book method instead of the transaction pair method, that is, the token holder places an order to sell, and the price is customized by the seller, so the price of the token cannot be calculated uniformly, and it is also different on different platforms. Unable to find a unified valid price.

At present, the number of BRC20 tokens deployed exceeds 20,000, which can be viewed through the unisat website. ()

BRC20 related issues, what are the security risks?

At present, although the BRC20 token has received the attention and recognition of a large number of users, it is only a json file after all, without any practical value or business application scenarios as support. It is a product that uses the popularity and traffic of BTC to attract investors . And BRC20 tokens cannot be used and managed as conveniently as BTC, they need a separate wallet for management, ordinary users need to learn and ordinary users want to participate in BRC20 investment, they need to use third-party tools, these third-party tools generally require Threshold, such as Unisat, if you use it for the first time, you need to pay nearly 200 sats to enter the Unisat market and participate in BRC20 investment, which greatly increases the complexity of user use and participation threshold.

Although BRC20 has received a lot of attention in recent times, it still has some risk points, including:

**1 Bubble Risk: Due to hype and speculation in the BRC20 token market, the token price may be overvalued. **

**2 Security risk: Like other blockchain technologies, BRC20 tokens can also be hacked. **

**3 Lack of supervision: The lack of supervision of blockchain technology and the cryptocurrency market may lead some criminals to use BRC20 tokens for fraudulent and illegal activities. **

*Extended reading: **Chong "earth dog" meets Pixiu plate, what should you pay attention to under the meme craze? *

BRC20 is easy to give users the illusion that BRC20 is a token created using the security of Bitcoin, which will be as safe and stable as Bitcoin, but in fact it is not the same as BTC. The security of BTC is based on Supported by encryption and consensus algorithms, it has been running relatively stably for quite a long time and has withstood the test of time. **BRC20 uses the Ordinals protocol to bind BTC. The Ordinals protocol currently runs for a short time and is still developing In the initial stage, there may be some security risks that have not been discovered. **

For example, the Ordinals protocol supports writing text, pictures, audio, video and even codes into the Bitcoin network. Is this process safe and is there any risk of injection? **The above introduces the numbering of sats, and each number is artificially divided into levels. When the time comes to some special blocks of Bitcoin, there may be miners stealing them in order to grab the bookkeeping rights of special blocks And rolling back the block allows you to obtain a high-level sats number. If the miner's computing power is at an advantage, it will have a security impact on the Bitcoin consensus. These are security risks that require special attention. **