Pump BRC: The promise and woes of a bitcoin-backed token


A new craze is sweeping cryptoland – so-called “BRC-20” alternative tokens deployed on the bitcoin blockchain, and are starting to see some major market activity. The proposed new standard was introduced in March by a coder known online as DOMOAnd it has very interesting potential.

Tokens aren’t a fundamentally new idea on bitcoin – in fact, one of the earliest big experiments in crypto, “colored coins” There was an attempt to do something similar. But the BRC-20, like non-fungible tokens (NFTs), were enabled by new features Introduced in the recent Taproot upgrade of bitcoind.

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That’s the main point of the BRC-20 experiment – to see what the new technology can really do. When I reached out, Domo generously recommended some resources for techies who want to dig deeper on BRC-20. This Basic introduction for builders Explains how to deploy the BRC-20 and discusses some of the broader questions that have yet to be resolved. this is another in-depth technical rundown by Domo. and this is a video intro by YouTuber pazNGMI, which includes information about minting and wallets.

But Domo and most other experts have issued stern warnings against financial speculation in the new token format. In fact, right after the experimental standard was launched, domo announced That “These will be useless. Please don’t waste money in large scale mining.”

With the flood of new BRC-20 memecoins traded for real moneyAt least some people are clearly ignoring that warning. And it’s hard to blame them: in crypto, being the first to enter anything new is a good strategy for speculators.

‘It’ll be useless’

So why would the first asset created from this exciting new technology be “useless”? There are two sides to the explanation.

On the one hand, the BRC-20 standard is just a proposal at this point, and there is no guarantee that it will be widely integrated into blockchain tools such as wallets and exchanges. Average users will probably have difficulty accessing BRC-20s in the near future. The wallet must have special features to read the ordinances, and even more special features to read the new BRC-20s. The same goes for exchanges — as Domo warned in March, “It is unlikely that balances will be safely tradable using existing market infrastructure.” Some exchanges are certainly gearing up to integrate BRC-20s, but markets will not be fully liquid for some time, even if BRC-20s become a widely accepted standard.

But even that standardization may be far-fetched: The BRC-20’s design hasn’t necessarily been finalized, let alone fully tested or adopted. In theory, there could be other ways to deploy the token on bitcoin, or further improvements to BRC-20 in its current form. If competing or better standard airs are more widely adopted, the current wave of BRC-20s may become little more than digital museum pieces.

But second, and more fundamentally, it is unclear where the economic value of tokens issued on bitcoin could come from.

Above all, it is a question because BRC-20 is not widely compatible with smart contracts or decentralized finance (DeFi) systems. Despite Ethereum borrowing its nomenclature from ERC-20s, they are not technically parallel, and regardless, bitcoin itself does not have DeFi features. So if and when a workaround emerges, obtaining BRC-20 on DeFi will likely involve bridges or other high-risk structures.

For now, this means that BRC-20 cannot serve as the backbone of Decentralized Autonomous Organizations (DAOs) or other more complex systems that would provide utility and value to them. There are certainly potential use cases for ordinary tokens on bitcoin, but their structure may be fundamentally different from tokens on ethereum – a topic for a deeper dive some other time.

There is too much immediate downside to the current limitations of BRC-20s, even for Dzen, which is happy to play Memecoin’s decentralized Ponzi game. The lack of DeFi compatibility means that BRC-20 cannot benefit from the liquidity provided by DeFi services such as trading pools. Therefore even in pure speculation in the token there cannot be a frothy inversion of a similar token issued on Ethereum.

See also: Pepecoin short sellers lose millions as PEPE nears $1B valuation

In fact, we are watching it play out right now. A BRC-20 known as “Pepe” some of those intrepid basement-dwellers are now trading. BRC Pepe and all other BRC-20s currently in existence had a combined fully diluted value (FDV) of $137 million as of May 2.

But there is also a “Pepe” memecoin on Ethereum, which was launched in April. Its FDV now stands at $1.2 billion.

In short, the BRC-20 is an attractive innovation with seriously interesting potential. But if you’re looking for the bottom-line thrill of riding short-term pumps in animal-based casino tokens, it looks like Ethereum should still be your home base.

The views and opinions expressed here are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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