Bankless: BRC20 meme fever will eventually be a mess, Bitcoin expansion is fundamental

Memecoin fever is spreading!

A new token type called BRC-20 is attracting developers and offering an experience similar to that of Ethereum ’s shitcoins on the Bitcoin blockchain. BRC-20 is built using the Ordinals protocol, which has recently gained traction for bringing NFTs to Bitcoin.

In this article, we’ll dive into all things BRC-20, from the basic definition to the hyped tokens, while dissecting the on-chain carnage that the hype has caused (not every user is happy about this…) We then discuss our thoughts on the state of the BRC-20 market and why this craze is no different than the ones that came before it.

“The new overlord of the square”

BRC-20 has recently angered BTC purists because it is named after Ethereum’s ERC-20 token standard and is the brainchild of Domo, which calls itself “Dune Wizards on the end chain” (Dune Wizards: a nickname for blockchain analysts).

BRC-20s use ordinal inscriptions of JSON data to create what are essentially fungible collections of NFTs. While this experiment created a fungible ERC-20 style token, its use cases were fairly limited.

Unlike ERC-20, which can be used as collateral in various dApps on Ethereum, BRC-20 is limited to minting and transfer functions. In the absence of Bitcoin’s native decentralized exchange solution, asset sales can be done on-chain through escrow or token treasury functions.

At contract deployment, anyone can mint BRC-20 tokens for free (plus transaction fees) in increments specified by the token contract — asset issuance cannot be pre-minted. Despite much discussion surrounding this token type, the project’s white paper states that Taproot-enabled Bitcoin asset issuance is not a new concept, citing the Taro protocol as providing a “clearly better solution.”

BRC-20 "To The Moon"

The total market capitalization of BRC-20 has surged over the past few weeks, surging 3,441% from $17.5 million on April 25 to $619.7 million on May 9. Many BRC-20 tokens have experienced similar parabolic gains.

For example, ORDI, the first and largest BRC-20 with a market cap of $434 million, has risen 2,357% from $0.75 to $18.43 during this period. Since April 2, ORDI has skyrocketed 18,330% and started to land on centralized exchanges such as Gate.io.

Other BRC-20s have delivered similar exponential returns to holders, with tokens such as PEPE, MEME, and MOON all up more than 2,000% in the past month.

Bitcoin transaction fees soar

The BRC-20 craze has caused chaos in the Bitcoin fee market.

BTC fees have reached their highest level since April 2021, with the average fee per transaction soaring and now sitting at around $31.

As the BRC-20 craze intensifies, the Bitcoin blockchain has generated a total of more than $49 million in transaction fees over the past week. Between that and block space rewards, miners have generated more than $204 million in revenue during this period.

For reference, this weekly earnings is the highest level since May 2022.

The surge in demand for block space has caused severe congestion on the network. There are currently more than 411,000 pending transactions in the mempool.

Congestion has also had an impact on centralized crypto platforms. Binance was forced to halt withdrawals twice between May 6 and 7 and is now prioritizing lightning withdrawals to provide users with an alternative option.

"Sunrise in the east, rain in the west"

While speculators are busy dumping it all in the meme casino, individuals using crypto in the real world — especially in Latin America, Africa, and Asia — now have to compete with these gamblers (degens) for block space.

Providing an alternative store of value to fiat currencies in inflation-ridden regions and providing financial services to the unbanked have long been two of Bitcoin’s strongest value propositions. Soaring transaction fees pose a major barrier to adoption among low-income, fee-sensitive populations, who have historically benefited the most from alternative money and financial systems.

Some users have blamed the BRC-20 craze as the root cause of the congestion, with some observers even claiming that BRC -20 adoption is akin to a DDoS attack on the Bitcoin network.

While this phenomenon should be criticized, it is also the reality of the commoditization of publicly available block space. These transactions, which may seem silly and meaningless to some, are a completely valid use of Bitcoin block space.

Blockchain has yet to be widely adopted, and the idea that the future of consumer finance is conducted on a Layer-1 basis is laughable. Layer-1 networks alone, whether Bitcoin or Ethereum, cannot provide enough block space to obtain the scale required for the next generation of financial primitives.

Rather than fighting current fee increases by attacking specific use cases (a relatively minor problem when considering the exponential growth in future adoption), we must focus our attention on building reliable decentralized scaling solutions.

Familiar fate

Just like their Ethereum-based memecoin cousins, demand for BRC-20 will be short-lived in the long run. Their prices will not rise, but rather a series of slumps: these instruments are not suitable for investment!

They have no value other than the value generated on the meme layer, and while BRC-20 has been around for two months, these alternative Bitcoin ecosystem tokens need cross-chain meme enthusiasm to attract a lot of attention. While we have witnessed explosive growth in memecoins in the past, the craze always subsides and they will eventually return to their own tracks.

While you may be tempted to follow some of the more explosive-sounding moves, be warned: you could lose more than the value of your investment. Allocate appropriately, as these tokens have no value and operate under an immature framework!

Bottom Line

BRC-20s may not foster any meaningful crypto advancement, but they represent a powerful thought experiment, with Ordinals theory highlighting the role of culture in crypto-financial systems.

High gas fees (despite the limited use cases of today’s crypto-financial systems in developing countries) should serve as a warning that contemporary blockchain systems are not able to meet future demands, driving awareness among industry participants of the need for decentralized scaling solutions.

Meme crazes come and go, but creating demand for block space is critical to ensuring the continued security of the network. Especially for the Bitcoin network, as the block incentive decreases with successive halvings, miners will increasingly rely on transaction fee income to cover operating costs. The long-term future of Bitcoin is multiple expansion methods, and the outbreak of Ordinals and the resulting high fees are a catalyst towards this future.