Do you know why crypto exploded into the mainstream in 2017?
Or, more specifically, Initial Coin Offerings (ICOs) for crypto made using Ethereum’s ERC-20 token standard.
All that anyone needed to invest in an ICO was an Ethereum wallet. Oh, and some money, of course.
Suddenly a new crypto project could come up with a compelling idea and sell its tokens directly to the public – while making millions of dollars for itself in the process.
And by the same token (sorry), anyone anywhere could invest in that project and potentially make millions themselves.
So, naturally, as success stories mounted, ICOs became a phenomenon.
The New York Times summed up the general sentiment in a January 2018 piece, titled: everyone is getting hilariously rich and you’re not.
I always loved that headline.
However, that “hilariously rich” part is only half the story. Because, as we know, ICOs also opened a whole new avenue of scamming, fraud and general dodgy dealings.
So, I guess a more accurate headline would have been: everyone is either getting hilariously rich, or losing all their money – and you’re not.
But that doesn’t really have the same ring to it, does it?
Of course, the fun couldn’t last.
By mid-2018 advertising crypto was banned by Facebook, Google, Twitter et al, and US regulators were cracking down hard on anyone even thinking of conducting an ICO.
Today, ICOs don’t really exist. They’re called “public token sales” and any new project that dares to go ahead with one knows it’s likely to get sued by the US Securities and Exchange Commission (SEC).
Which is one reason most new projects are 95% owned by insiders and Venture Capitalists (VCs).
That’s because you’re allowed to let VCs and “accredited investors” buy up your project at an insane discount, but if you let the public get in early, you’ll get sued into oblivion by the SEC.
(To become an accredited investor you have to earn more than $200,000 per year, or have a net worth of more than $1m (not including your home)).
Regular investors (the public) are only allowed to buy in when a project has already launched and is trading for many multiples of what the VCs and accredited investors bought in for.
The thinking behind this is that all rich people are smart and all non-rich people are stupid – at least according to regulators.
So, if you let stupid people invest early, they won’t understand the risks, will invest more than they can afford to lose, and will probably lose all their money.
Of course, regulators would say that rich people can afford to lose more money and that’s why only rich people can be accredited investors.
Either way, the fact remains that ordinary people can no longer get into (most) crypto projects early.
But the point of all this, at least in terms of today’s article is that Ethereum – or more specifically tokens made on Ethereum using the ERC-20 token standard – is what fuelled the 2017 crypto boom.
Now Bitcoin has its own token standard – the BRC-20.
And, as you may expect, crypto people are going kind of crazy over it.
To understand BRC-20 tokens, we first have to understand ordinals
Once again, we’re going back to 2017…
During the 2017 bull run, Bitcoin got A LOT more popular. And with more people using it, there was a clamour for scaling solutions.
This eventually led to a hard fork of bitcoin and the creation of Bitcoin Cash in August 2017… which later had its own hard fork in November 2018 and split into Bitcoin Cash ABC and Bitcoin Cash SV.
It was a mess.
Anyway, roughly a month before the original Bitcoin Cash hard fork, there was a less contentious Bitcoin upgrade called segregated witness, or SegWit.
This upgrade split Bitcoin transactions into two parts. Essentially, it segregated the witness data from the transaction. Hence Segregated Witness.
By doing this, it freed up the space that the witness data had taken up, which meant more transactions could fit into each bitcoin block, which increased scalability.
(If you want to know about SegWit in more detail, you can read this Investopedia post.)
However, people soon realised that empty space could be filled by other types of data. There was just one problem, the space for this data was limited to around 80 bytes – which is just 80 characters.
Fast-forward to November 2021 and Bitcoin gets another upgrade, called Taproot.
Taproot did a lot of things. But what we’re concerned with here is that it made it easier to store arbitrary data within a Bitcoin transaction.
Basically, it meant you could now store up to roughly 4 MB of data in the witness part of a Bitcoin transaction.
This is 50,000 times more data than you could store before. 4 MB is easily enough to store a jpg, or a short video, or a song or even DOOM.
Some smart people soon realised this meant you could start making NFTs with Bitcoin.
These NFTs use something called “ordinal theory”.
And ordinal theory is just a fancy sounding name for assigning unique serial numbers to individual satoshi.
(Remember, one Satoshi is the smallest unit you can divide Bitcoins into. One satoshi is 1/100,000,000 of a bitcoin. One satoshi is worth roughly $0.00027 at today’s prices, and would be worth roughly $0.01 if Bitcoin ever hit $1 million.)
What’s amazing about ordinals is that the data is stored in the Bitcoin blockchain itself
So now we have a way of making every single satoshi unique – i.e., non-fungible.
And a way of uploading up to 4 MB of data to each one of those non-fungible satoshis.
So, we have Non-fungible tokens (NFTs) on the Bitcoin blockchain.
And unlike almost all Ethereum-based NFTs, the data is stored on the Bitcoin blockchain itself. Not on a layer-2 or in a centralised webserver.
In short, these Bitcoin ordinal NFTs are actually decentralised and immutable.
This is kind of revolutionary.
And it led to people having more ideas about what they could use ordinals for…
Enter BRC-20 tokens
It wasn’t long before a developer going by the name domo realised he could add a script to an ordinal and create a new token standard – the BRC-20.
He created this post on the 9th of March 2023, introducing his “experiment”:
And within days it absolutely blew up.
It’s now just over a month later, and there are tens of thousands of BRC-20 tokens, with a combined market cap of more than $600 million:
Now, the thing with BRC-20 tokens, is that unlike Ethereum’s ERC-20 tokens, they don’t have smart contracts, so they don’t actually do anything.
So this isn’t like the ICO craze of 2017, because most of those ICOs were promising to make things – payments processes, DeFi platforms, instant insurance, etc.
However, the fact that these tokens can’t actually do anything sort of makes them the perfect memecoins. Memecoins don’t do anything anyway.
Not everyone loves ordinals and BRC-20s
As with everything crypto – or everything anything, come to think of it – BRC-20s are not without their haters.
Obviously many orthodox Bitcoiners hate the idea of Bitcoin ever being used as anything but a peer-to-peer cash system. Or a store of value, as they now call it.
For now, we’ll just ignore those religious zealots.
But the other argument against ordinals and BRC-20s is more compelling.
Because there is only so much space available per bitcoin block, when you have ordinals and BRC-20s filling it up, it causes fees to spike, stops other transactions getting through and slows the network to (even more of) a crawl.
As you can see, ordinals and BRC-20s caused average Bitcoin transaction fees to spike to over $30 earlier this month.
So right now there is a big debate over whether ordinals are a good or bad thing, and whether the core Bitcoin developers should try do something to stop them.
Either way, It’s the most interesting thing to happen on Bitcoin since the whole Bitcoin Cash debacle.
Life… finds a way
One of the most interesting aspects of all this is that it’s sort of like hacking bitcoin.
Not in a bad way. But in a good way. Basically getting the bitcoin network to do something it was never designed to do by using creative thinking.
While researching this feature, I came across the “can it run DOOM?” subculture. This is a community of programmers who hack ordinary electronics and get them to play the famous 90s shoot-em-up DOOM.
They’ve made DOOM play on microwaves, fax machines, treadmills, digital cameras, calculators, ATMs… you name it.
So I guess it was only fitting that before long someone made a very basic version of DOOM play on a Bitcoin ordinal – link.
What’s my point here? Even when you have a supposedly closed system, ingenious people will eventually find a way to open it up.
Or, as Jeff Goldblum said in Jurassic Park: “Life, uh, finds a way.”
Okay, that’s all for today.
Thanks for reading.
Full disclosure: At time of writing, I held the following cryptos: Ethereum, IOTA, Radix, Mina Protocol, Aleph Zero.
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