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Security
- Bitcoin BRC-20 tokens have skyrocketed over the past few days, with their combined market value rising to over $923 million as of 8 May, 2023.
- Mintlayer CEO Enrico Rubboli has highlighted some of the flaws and issues plaguing the BRC-20 token standard.
- Apart from not aligning with the “axioms of the core Bitcoin community,” flaws and issues mean users are likely to be rug pulled.
Crypto news this week indeed has the skyrocketing transactions of BRC-20 tokens as one of the reasons the Bitcoin network experienced massive congestion amid rising fees.
As CoinJournal highlighted on Monday morning, the crypto market was down as Binance halted BTC withdrawals amid the network congestion. Some of the trending BRC-20 tokens include ordi, pepe, meme, piza and domo.
Enrico Rubboli, the CEO of Bitcoin sidechain Mintlayer, says that while BRC-20 tokens continue to create a frenzy, there are flaws and other issues that plague the tokens and offshoot decentralised applications that try to connect with smart contracts.
What are BRC-20 tokens?
BRC-20, or “Bitcoin Request for Comment,” is a token standard for Ordinals. The tokens allow for the issuance and transfer of fungible tokens on Bitcoin and hit the market soon after the mainnet launch of the Ordinals Protocol.
With BRC-20 tokens, one can etch digital art references into small Bitcoin transactions. The tokens are a creation of a pseudonymous crypto developer known as Domo.
According to market data for the token category, the combined value of all 11,705 BRC-20 tokens was $923 million as of Monday, 8 May 2023.
BRC-20 tokens plagued by speed and transaction costs issues
Among the insights Rubboli shared with CoinJournal on Monday is that while people pour BTC into minting BRC-20 tokens, there’s a need to realise that the technology behind these assets is “heavily flawed.” He also notes that BRC-20 tokens aren’t “in line with the axioms of the core Bitcoin community.”
Rubboli said that some of the issues currently plaguing the tokens and offshoot dApps within the ecosystem include speed, transaction costs and security.
On the issue of speed, he explains that transactions have to wait for Bitcoin block confirmation before settlement, which when combined with network congestion, has resulted in users waiting hours for transactions to clear.
Mintlayer CEO says BRC-20 tokens are potential rug pulls
According to Rubboli, the use of token bridges and wrapped BTC could expose users to exploits, with DeFi bridges seeing more than $1.4 billion lost to hackers that targeted crypto bridges in 2022. Rubboli believes the entire concept for BRC-20 was designed to confuse and mislead potential investors, with the creators leeching off the popular ERC-20 token standard.
Saying this could be an opportunity for scams, he added:
“The entire ecosystem was set up to be confusing and misleading. BRC-20 was chosen not because it was the 20th proposed standard, but to leech off the popularity of Ethereum’s ERC-20 token. The developers of the standard and the tools are not affiliated with Bitcoin, they are anonymous, and their software has not been thoroughly tested in this application.”
Besides, the hundreds of BRC-20 tokens might not just be totally worthless, but also minted specifically to rug pull later investors. BRC-20 token standard creator Domo has previously warned of the shortcomings of the software, including minting balances to intermediary wallets.
Regulatory issues also arise, with the minting of BRC-20 tokens likely to lead to regulatory concerns around commingling of user-generated tokens with BTC.
“If users mint unregulated securities, it could expose the Bitcoin blockchain to further regulatory scrutiny, which in turn exposes every BRC-20 to regulation due to 1 bad actor. A layer 2 solution fixes this problem as tokens are not commingled with Bitcoin,” he opined.
A layer 2 solution is a protocol that runs on top of a layer 1 blockchain, for instance Bitcoin or Ethereum. The key features that these protocols bring to the L1 include improved scalability and privacy among others.
In blockchain, common layer 2 solutions include state channels, sidechains, and zero knowledge roll-ups.