On May 13, Binance Academy’s ORC-20 tokens achieved a record-high trading volume after a knowledge update on the standard.
Dune’s data revealed that on May 13, the number of ORC-20 transactions on the Bitcoin blockchain reached a record high of 72,200 in a day. Out of these transactions, around 70,000 inscriptions were minted, with 5.9 BTC being paid.
The majority of these ORC-20 token transactions were concentrated in PUNK, PEPE, MEME, and other similar tokens. On the same day, the number of BRC-20 transactions was approximately 265,000.
ORC-20 tokens are represented as JSON files inscribed onto satoshis with an ordinal serial number and run on the Bitcoin blockchain, similar to BRC-20 tokens. ORC-20 was created after the BRC-20 standard to address some of its limitations by improving security and flexibility.
Unlike BRC-20, ORC-20 supports a wider array of data formats and leverages Bitcoin’s Unspent Transaction Output (UTXO) model to circumvent the issue of double-spending, which has been a significant concern for some BRC-20 tokens.
What Is the ORC-20 Standard?
The ORC-20 standard aims to enhance adaptability, scalability, and security while maintaining backward compatibility with BRC-20 on the Bitcoin network. It is an open standard designed to improve upon BRC-20.
BRC-20 is an experimental token standard that enables users to mint and transfer fungible tokens using the Ordinals protocol on the Bitcoin blockchain.
How can ORC-20 tokens be used?
ORC-20 tokens offer various features, such as:
- Deployment: Users can deploy new ORC-20 tokens or migrate existing BRC-20 tokens using a “deploy event.”
- Minting: ORC-20 tokens can be minted using a mint event.
- Sending: ORC-20 tokens can be sent using a send event.
- Canceling: ORC-20 partial transactions can be canceled using a “cancel event.”
- Upgrading: Existing ORC-20 tokens can be upgraded with an upgrade event, such as supply and max mint.
ORC-20 transactions are based on the UTXO model, and each transfer requires the sender to specify the amount to be received by the receiver and the remaining balance to be sent back to the sender. This approach ensures secure transactions and eliminates the possibility of double-spending.
Some ORC-20 token proponents suggest that this could enable minters to move beyond creating new meme tokens and start issuing equity in applications and businesses. However, this unregistered securities market may not be practical since businesses prefer to know who owns and trades their equity.
If a company wants to leverage Bitcoin to issue equity, it would be better to choose a regulated security token offering and issue it on a side-chain like the Liquid Network, which provides whitelisting for wallets and holders.
How Does ORC-20 Improve the BRC-20 Standard?
The ORC-20 protocol is built upon the Ordinals and BRC-20 token standards with the primary aim of promoting the adoption of Ordinals, which are digital artifacts capable of carrying various data types on the Bitcoin network. This protocol enables users to deploy new ORC-20 tokens and migrate existing BRC-20 tokens.
BRC-20 is an experimental token standard on the Bitcoin blockchain that is named after Ethereum’s ERC-20. It allows developers to create and transfer fungible tokens through the Ordinals protocol. BRC-20 has gained popularity in the crypto ecosystem, especially after the emergence of meme coins like Pepe (PEPE) in May 2023.
The main limitations of BRC20 are as follows:
- Supply and max per mint is immutable after the first deployment
- Naming space is limited to 4 digits with “First is first” approach
- “Inscribe Transfer” and “bookkeeping” heavily rely on external centralized indexers
- All these issues need to be improved.
The proposed ORC-20 protocol offers several enhancements, including:
- Allowing a token identifier in the deploy event to differentiate ORC-20 tokens with the same ticker, with no constraints on ticker size.
- Defaulting ORC-20 tokens to JSON format and supporting a wider range of formats consisting of case-insensitive key-value pairs.
- Requiring the initial minted amount to be kept in the minter’s address until the first send transaction is made. However, minted amounts can be passed (sent) to different addresses as long as the sent event is not inscribed. The new address will inherit the full amount upon receiving the mint ordinal, allowing marketplaces to implement ORC-20 without code break.
- Adopting the UTXO model for the transaction model, where the sender specifies the amount to be received by the receiver and the remaining balance to be sent to the sender in each transfer.
- Considering any send transaction without sending all remaining balance as a partial transaction.
- Allowing a send transaction to transfer an amount to multiple receivers.
- Requiring each send event (except self-transacting) to explicitly specify the amount to be sent.
- Sending the remaining balance to the sender in the last step to complete a transaction, with the default behavior being to send all remaining amounts back to the sender without specifying an amount.
- Adopting the UTXO model, where the previous inscribed balance is no longer in a valid state upon the completion of each transaction.
- Allowing each send event to include a nonce, which enables the sender to cancel a partial transaction by specifying the nonce.
How Does ORC-20 Prevent Double-Spending?
The ORC-20 transaction model is based on Bitcoin’s UTXO model, making the transfer process simpler. When a transfer occurs, the sender designates the amount to be received by the receiver and the remaining balance to be sent back to themselves.
In the UTXO model, the previous balance becomes invalid after each transaction, aligning with UTXO principles. ORC-20 tokens allow each “sends” event to include a nonce, which serves as a unique identifier for the transaction. This allows the sender to cancel a partial transaction if necessary. By specifying the nonce, the sender can undo and reverse a transaction that has not been fully processed.
Risks of ORC-20 Tokens
Before investing in ORC-20 tokens, it’s important to note that this is an experimental project, and there is no guarantee of the value or usefulness of tokens created using this standard. Although ORC-20 has the potential to enhance the token standards of the Bitcoin network, it has been criticized for being complex and not providing significant benefits over existing standards.
The future of ORC-20 depends on how the community responds to it and its ability to address these concerns. It is strongly advised that users exercise caution and conduct thorough research before getting involved with ORC-20.
ORC-20 is currently an experimental project, and there is no guarantee of the value of tokens created using this standard. While it has the potential to enhance token standards for Bitcoin, there has been significant criticism that it is complex and does not provide significant advantages over existing standards.
What is your opinion on ORC-20 tokens? Will they gain popularity and increase speculation in Bitcoin? Will the tools used to create these standards become widely adopted? Or will this project fail like previous attempts to add non-native assets to the Bitcoin base chain?