ORC-20: The Evolution of Bitcoin Token Standards

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In the constantly evolving world of crypto, new advancements and standards are continually emerging, each aiming to address the limitations of predecessors. One of the latest developments in this space is ORC-20, a new token standard for the Bitcoin network.

Introduced as a successor to the BRC-20 standard, ORC-20 is designed to improve adaptability, scalability, and security, all while maintaining backward compatibility with BRC-20. This blog post delves into the newly developed ORC-20 standard. Join us as we explore its history and fundamental principles, compare it with the BRC-20 standard, examine its usage of Bitcoin's UTXO model, and take a look at both its potential and challenges.

Whether you're a developer, user, or investor, this guide will give you the essential information and understanding needed to navigate this new frontier in the Bitcoin blockchain ecosystem.

A Brief History Of Token Standards & BRC-20

The concept of token standards really took off thanks to Ethereum and its ERC-20 token standard, which was first proposed in November 2015. This defined a set of rules for tokens to follow on the Ethereum blockchain, and was a milestone because it allowed developers to create tokens with a predictable interface, simplifying the process of integrating new tokens.

However, ERC-20 was designed for Ethereum, and not other blockchains. In March 2023, BRC-20 was developed to bring a similar standard to the Bitcoin ecosystem. First introduced by a programmer known as Domo, it aimed to provide a standard that would allow developers to create new fungible tokens on top of the existing Bitcoin network. This token standard only became possible thanks to the launch of the Ordinals protocol in January 2023.

In short, these fungible BRC-20 tokens can be deployed, minted, and transferred on the Bitcoin network using something called Ordinal inscriptions — a concept that gives individual identities to satoshis, the smallest unit of Bitcoin. Please see our Beginner’s Guide To BRC-20 for more.

The Limitations Of BRC-20

Despite its advances, BRC-20 has a number of limitations. For example:

  1. Immutability After Deployment: Once a BRC-20 token has been deployed, its supply and maximum mint limit cannot be altered. This constraint can limit flexibility in responding to changing circumstances or needs.

  2. Limited Naming Space: BRC-20 tokens are restricted to a four-letter naming convention. This can be a limitation when it comes to unique token identification and differentiation. Such a limitation could result in conflicts and restrict branding opportunities.

  3. Dependence on External Centralized Indexers: BRC-20's "inscribe transfer" and "bookkeeping" heavily rely on external centralized indexers. This reliance can lead to potential double-spending issues, where a token is spent more than once.

Understanding The ORC-20 Standard

The limitations of BRC-20 led to the development of ORC-20, a new token standard on the Bitcoin blockchain designed as an upgrade offering greater flexibility, scalability, and security, while addressing the issue of potential double-spending. The ORC-20 token standard addresses the limitations of BRC-20 through several new features.

Here's how each one advances the token standard:

  1. Enhanced Security: Leveraging the Unspent Transaction Output (UTXO) model, ORC-20 ensures every transaction specifies the exact amount being sent, with the remaining balance returning to the sender, thus invalidating the previous balance and preventing double spending. A more detailed explanation of the UTXO model follows below.

  2. Upgradability: ORC-20 tokens can be upgraded after initial deployment. This feature, absent in BRC-20 tokens, allows token parameters such as supply and max mint to be changed according to evolving requirements.

  3. Flexible Naming Space: ORC-20 does not impose a size constraint on token tickers or names, allowing for more unique and descriptive token identifiers.

  4. Partial Transactions and Cancellation: ORC-20 allows for partial transactions and cancellations, enhancing the flexibility of token transfers.

  5. Migration: ORC-20 allows for migration from the BRC-20 standard. This migration is irreversible, but it allows people to benefit from the advances of the ORC-20 standard.

A Basic Explanation of Bitcoin’s UTXO Model

The Unspent Transaction Output (UTXO) model is the transactional model used by Bitcoin. Each transaction starts with coins used as "inputs" and ends with coins created as "outputs".

In the Bitcoin UTXO model, a transaction output contains the "address" of the new owner and the amount of coins that owner has. The term "unspent" means that the output can later be used as an input for new transactions. To create a new transaction, the user must provide a transaction input, which refers to a previous unspent transaction output (UTXO).

In other words, when you send bitcoin, you are sending a reference to some UTXOs, which, when added together, cover the total amount of bitcoin you are intending to send. Any excess is sent back to yourself as "change" and becomes a new UTXO for future transactions.

This model allows for clear tracking of transactions and ensures that each coin can only be spent once — as once a UTXO is spent, it cannot be used again.

How ORC-20 Uses UTXO To Prevent Double-Spending

Double-spending refers to the risk that a digital currency can be spent twice, a problem unique to digital currencies because digital information can be reproduced relatively easily. This is where the UTXO model comes in, and why ORC-20 has adopted this model.

In the ORC-20 token standard, the transaction model is based on the UTXO model. When an ORC-20 token is transferred, the sender specifies the amount to be received by the receiver and the remaining balance to be sent back to the sender's address. This ensures that the same token isn't spent more than once and thus, eliminates the possibility of double-spending.

In summary, ORC-20 leverages the UTXO model to enhance the security of token transactions, ensure token integrity, and prevent double-spending, thereby enhancing BRC-20.

Final Thoughts

This article has explored ORC-20, a new and experimental standard for creating fungible tokens on the Bitcoin network. Born from the limitations of the pre-existing BRC-20 standard, ORC-20 aims to address these by introducing key improvements, such as a more robust mechanism to prevent double-spending, flexible naming, and upgradeable parameters.

The new standard is certainly interesting. However, it’s also experimental and comes with uncertainties, including potential bugs, and no guarantee of value or utility for the tokens created. Some also argue that what ORC-20 offers could be incorporated into BRC-20 without the need for a new standard, and that the added complexity may not outweigh the benefits.

Anyone interested in ORC-20 tokens, whether as a developer, user, or investor, should approach with caution. Do your own research, and make sure you fully understand the tech and its risks. While the ORC-20 standard represents yet another step forward in the world of Bitcoin and blockchain, it's essential to make informed decisions when navigating this evolving space.

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