What is BRC20?

BRC-20 is a metaprotocol for fungible tokens on Bitcoin, leveraging the Ordinals protocol to inscribe JSON data directly into Bitcoin transactions. A metaprotocol is a set of rules and standards that exist as a layer above the base blockchain protocol, Bitcoin nodes don't understand or enforce BRC-20 rules, but specialized indexers interpret inscribed data to maintain token state and validate operations.

Unlike Ethereum's ERC-20, which uses on-chain smart contracts enforced by the network itself, BRC-20 relies on social consensus: participants agree to follow the same ruleset for interpreting inscriptions, with indexers providing the canonical state of all tokens.

How It Works

BRC-20 tokens are created through a simple three-operation model:

Deploy: Create a new token by inscribing deployment parameters (ticker, max supply, mint limit)
Mint: Inscribe mint operations to claim tokens from the deployed supply
Transfer: Create transfer inscriptions, then send the inscribed satoshi to move token

Example
JSON
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{
  "p": "brc-20",
  "op": "deploy",
  "tick": "ordi",
  "max": "21000000",
  "lim": "1000"
}

Each operation is inscribed as JSON into a Bitcoin transaction, creating an immutable record on-chain. Indexers scan these inscriptions in block order to maintain the current state of all BRC-20 tokens—who owns what, total supply, and transfer history.

Key Characteristics

Metaprotocol design: BRC-20 is purely data inscriptions interpreted by indexers following agreed-upon rules, not enforced by Bitcoin consensus

First-come, first-served: Token tickers are claimed on a first-inscription basis; anyone can deploy any four-letter ticker

UTXO-based: Tokens exist within specific satoshis, making transfers require careful UTXO management

Indexer consensus: Different indexers may diverge if they implement rules differently, though major indexers converge on canonical interpretation

Trading BRC-20 Today

BRC-20 tokens can be traded onchain through PSBT-based marketplaces like UniSat, Best in Slot, Magic Eden, and OKX Web3. These platforms use Partially Signed Bitcoin Transactions (PSBTs) to enable trustless atomic swaps, sellers sign offers with specific SIGHASH flags that allow any buyer to complete the transaction. The ecosystem has processed over 71,000 BTC in cumulative trading volume (~$7 billion) and generated 6,922 BTC in miner fees since launch. However, this architecture imposes significant limitations: automated market makers are impossible without off-chain components, liquidity fragments across isolated marketplaces with no cross-platform order aggregation, and front-running <EV is a significant factor given Bitcoin's 10-minute block times. These constraints, combined with the inability to build composable DeFi primitives like lending protocols or yield farming, highlight the need for programmable smart contracts while maintaining Bitcoin's security guarantees.

Further reading: Ordinals Theory Handbook | BRC-20 Specification