There has been a recent surge of hype surrounding BRC20 tokens, which are believed to be driving up Bitcoin transaction fees. However, there are valid reasons to suggest that this hype may not last very long.
While the Bitcoin community is known to occasionally exaggerate the significance of certain developments, some believe that BRC20 tokens pose a serious threat to the existence of Bitcoin. They argue that these tokens are responsible for driving up fees and should be censored immediately. Others see BRC20 tokens as a long-term solution for financing miners on the blockchain. This hype has resulted in a mix of fear, uncertainty, and enthusiasm, all of which can be overwhelming.
However, it is possible that the hype around BRC20 tokens is unwarranted. These tokens are not new or innovative, and tokens on Bitcoin have existed since 2014 with Mastercoin, Counterparty, and Omni. Even the most successful token, Tether (USDT), started out as a token on Bitcoin. But these tokens never really made their way into wallets until Ethereum emerged in 2016.
The Ethereum Virtual Machine (EVM) became the cross-blockchain standard, and the entire token economy, including developers, entrepreneurs, and investors, relocated enthusiastically to Ethereum. This marked the beginning of ICOs, DeFis, and automated NFT auctions. Ethereum’s integration with smart contracts introduced something new to the market, which was in high demand.
Now, Bitcoin is reinventing tokens with BRC20, based on Taproot and Ordinals. While the technical aspects of BRC20 tokens are fascinating and appear to be successful, they do not introduce anything new. The inscriptions add nothing to the concept of NFTs, and the BRC20 token is not similar to the token on Ethereum. The applications are correspondingly unoriginal, such as trading images as NFTs and memecoins. These types of applications were already available by 2021.
So, why should the token economy switch to Bitcoin? The BRC20 tokens have no technical advantages, only disadvantages. They lack smart contracts, which are less compatible with the ones that already exist. They do not have a unique selling point, or a USP. Only maximalists argue that only Bitcoin is decentralized and truly secure. The Bitcoin community built a myth around the currency, but this should only be relevant for a few tokens.
It is possible that BRC20 tokens or other tokens on Bitcoin will find a niche in which they are relevant in the future, such as collectibles. However, this does not apply to the current tokens. The enthusiasm for them will quickly dry up.
Meanwhile, there is a banking crisis in the United States, which has claimed victims like First Republic Bank. The chief investment officer from J.P. Morgan Asset Management, Bob Michele, believes that this crisis is not over yet. He argues that the banking industry is one of the most heavily regulated and capitalized industries on the planet, and the collapse of First Republic Bank should never have happened. The regional banking system is vital to the US, and the regional banks are heavily dependent on the FDIC and the Federal Home Loan Bank to get additional cash. Michele believes that we do not know how they will operate when these two programs expire.
In conclusion, the hype around BRC20 tokens is likely to subside quickly. These tokens do not introduce anything new to the market, and they have no technical advantages over other tokens. The enthusiasm for them will quickly dry up. Meanwhile, there is a banking crisis in the US that is not over yet, and it is unclear how the regional banking system will operate when the FDIC and Federal Home Loan Bank programs expire.