What exactly is BRC-20? A complete explanation of the core differences with ERC-20

At the beginning of 2023, when BRC-20 tokens suddenly stirred ripples in the dormant crypto market, many investors and developers were puzzled—what is the essential difference from the already mature ERC-20? Although both are token standards on the blockchain, they represent explorations along two different development paths: Bitcoin and Ethereum. To understand BRC-20, we first need to clarify its relationship and divergence from ERC-20.

The Essence of BRC-20: Functional Expansion of the Bitcoin Ecosystem

What is a BRC-20 token?

BRC-20 tokens are exchangeable token standards built on the Bitcoin blockchain, marking Bitcoin’s evolution from a simple peer-to-peer payment tool to a multi-functional application platform. This standard allows developers to create and issue various tokens on the Bitcoin network, including DeFi applications, gaming assets, identity verification tools, and more, greatly expanding Bitcoin’s original functionality.

Compared to Bitcoin’s initial design philosophy, BRC-20 represents a bold breakthrough. Bitcoin is traditionally known for its concise scripting language, which ensures security but limits flexibility. The emergence of BRC-20 breaks through this limitation, injecting new vitality into the ecosystem while retaining Bitcoin’s underlying security and decentralization features.

The Mature Ecosystem of ERC-20: Ethereum’s Token Standard

The status of ERC-20 tokens

ERC-20 is the most widely used token standard on the Ethereum blockchain and has become the de facto standard for DeFi, governance tokens, utility tokens, and many other application scenarios. This standard establishes a set of规范化的规则体系, ensuring that all ERC-20-based tokens can seamlessly interact with wallets, exchanges, and decentralized applications within the Ethereum ecosystem.

Ethereum itself was designed for smart contract functionality, with its Solidity programming language providing far more powerful expressive capabilities than Bitcoin’s scripting language. This enables ERC-20 tokens to support highly complex financial logic and application scenarios. As a result, ERC-20 has established a dominant position in DeFi lending platforms, decentralized exchanges, yield farming protocols, and more.

Commonalities Between the Two Standards

Although BRC-20 and ERC-20 belong to different blockchains, they share important similarities in their fundamental理念：

Consistency in standardization framework

Both standards follow clear规范要求, ensuring token compatibility within their respective ecosystems. This standardized design allows developers to integrate quickly and users to operate conveniently.

Democratization of token creation

Both BRC-20 and ERC-20 significantly lower the technical barriers for issuing tokens; any developer with basic programming skills can issue tokens on the respective chain. This has driven explosive growth in the token economy.

Support for smart contracts (to varying degrees)

Both standards support smart contract functionality, although the complexity and flexibility differ, enabling automated transaction execution and business logic.

Liquidity advantages within their ecosystems

BRC-20 and ERC-20 tokens can circulate freely among applications within their ecosystems, providing users with ample trading flexibility and market depth.

Fundamental advantages of blockchain technology

Both inherit the decentralization and high security of blockchain, effectively resisting censorship and fraud risks.

BRC-20 vs ERC-20: The Difference Rooted in Underlying Chain Design

Bitcoin and BRC-20: A Fusion of Conservatism and Innovation

Constraints of technical architecture

Bitcoin uses a Proof of Work consensus mechanism, with a relatively simple scripting language. Developing BRC-20 must innovate within these fixed constraints, which limits its potential for complex functionalities. Currently, BRC-20’s smart contract capabilities are still in a relatively early stage.

Lag in market recognition

As a new standard that only truly emerged in 2023, the BRC-20 ecosystem is still in its early stages. While there are well-known tokens like ORDI, SATS, and RATS, its application scenarios are far less rich than ERC-20. This presents both risks and opportunities—the market’s long-term imagination for its applications remains broad.

Trade-offs in energy consumption

Bitcoin’s PoW mechanism guarantees absolute security but also entails higher energy costs. This imposes practical constraints on large-scale DeFi applications deployment.

Ethereum and ERC-20: Functionality and Ecosystem Maturity

Advantages of programming capabilities

Ethereum’s Solidity language and virtual machine design allow developers to build highly complex financial applications. This enables ERC-20 tokens to support lending, trading, liquidity mining, and other multi-layered financial services.

Ecosystem maturity and scale

Since its inception in 2015, Ethereum has accumulated tens of thousands of ERC-20 projects, a large developer community, and comprehensive infrastructure. Well-known projects like Polygon (MATIC), Chainlink (LINK), Tether (USDT), and Wrapped Bitcoin (WBTC) are testament to the thriving ERC-20 ecosystem.

Milestones in energy efficiency upgrades

Ethereum completed its transition from Proof of Work to Proof of Stake (Ethereum 2.0) in September 2022, significantly reducing energy consumption. Additionally, scalability improvements through sharding further strengthen ERC-20 tokens’ competitiveness.

Richness of ecosystem applications

ERC-20 tokens have become an indispensable part of DeFi infrastructure, whether in lending platforms, decentralized exchanges, or yield farming protocols, ERC-20 is standard.

Market Outlook Divergence: Two Parallel Exploration Paths

Future possibilities for BRC-20

Potential for expanding application scenarios

BRC-20 may become a key carrier for DeFi applications, gaming assets, and digital identities within the Bitcoin ecosystem. This will transform Bitcoin from a “digital gold” role into a multi-functional application platform.

Deepening market liquidity

As the BRC-20 ecosystem grows, Bitcoin asset liquidity and market depth will increase significantly, potentially attracting participation from traditional financial institutions.

Impact of regulatory environment

The long-term development of BRC-20 will largely depend on the regulatory policies of various countries. Friendly regulatory environments will accelerate adoption, while strict restrictions may create obstacles.

Necessity of technological innovation

To compete with ERC-20, BRC-20 needs continuous innovation in scalability, transaction costs, development tools, and more. Community support, developer engagement, and market recognition are key factors.

Evolution directions for ERC-20

Continuous ecosystem upgrades

The completion of Ethereum 2.0 is just the beginning. Future upgrades like sharding and cross-chain interoperability will further enhance the performance and application scope of ERC-20 tokens.

Maintaining dominance in DeFi

ERC-20’s leading position in lending, trading, yield farming, and other core DeFi applications is unlikely to be shaken in the short term. Its first-mover advantage and network effects provide a strong moat.

Integration with institutional finance

Rising interest from institutional investors in crypto assets may promote the expansion of ERC-20 applications in tokenized securities and compliant assets.

Expansion of cross-chain interoperability

As cross-chain bridging technology matures, ERC-20 tokens will be able to connect more conveniently with other blockchain ecosystems, further consolidating its core position.

Conclusion: Two Standards, Two Choices

The existence of BRC-20 and ERC-20 is not a zero-sum competition but rather a representation of the development strategies of two different ecosystems: Bitcoin and Ethereum. BRC-20 symbolizes Bitcoin’s brave exploration into functional applications while maintaining its core security attributes; ERC-20, on the other hand, reflects Ethereum’s established dominance in DeFi, leveraging its programming flexibility.

The future market may feature multi-chain coexistence, each excelling in its domain. BRC-20 might find its niche in asset security and highly decentralized application scenarios, while ERC-20 will continue to dominate in complex, interaction-intensive DeFi applications. Their collaborative development will ultimately promote the entire blockchain ecosystem toward greater maturity and diversity.