Classification of Bitcoin Ecological Assets and Explanation of the Technical Differences Behind ARC-20, SRC-20, and Others in Plain Language

In addition to Ordinals and BRC-20 protocols, what are the other emerging asset protocols being developed in the Bitcoin network? What are their principles and advantages? Encrypted venture capital ABCDE has compiled a comprehensive report covering ARC-20, SRC-20, BRC420, Taproot Asset, and RGB.

Table of Contents
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Bitcoin Begins to Truly Have an Ecosystem
Diverse Development of Bitcoin Ecosystem Asset Protocols
Ordinals
BRC-20
Atomicals (ARC-20)
Runes
SRC-20
BRC-420
Taproot Asset
RGB
Bitcoin Ecosystem Grows Through Experimentation
Before the Ordinals protocol emerged, Bitcoin was not even remotely associated with an “ecosystem” because Bitcoin’s design was inherently incompatible with supporting Turing-complete computers.

The Ordinals protocol introduced the concept of inscriptions, making it possible for the Bitcoin ecosystem to exist. Recently, the market’s enthusiasm for Ordinals has surpassed many other smart contract public chains, and even similar inscription projects have begun to appear on other networks. This indicates that inscriptions have become a hot topic in the market.

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(The inscription market frenzy of major public chains brings real stress tests to network performance)

Taking advantage of the momentum of the Bitcoin ecosystem, many other protocols (ARC-20) that attempt to create new types of assets based on different principles have emerged recently, or past projects (SRC-20) have resurfaced. What are the differences between these protocols and BRC-20? Besides speculation, what technical aspects can be used for evaluation?

Before understanding other projects, it is important to understand the Ordinals protocol.

Thanks to the Taproot upgrade of the Bitcoin network, which removes the data size limit in segregated witness (SegWit), the Ordinals protocol has the opportunity to utilize this space. It stores NFT image and other metadata directly in the signature data (witness data), allowing for images of up to 4MB to be stored, similar to being “engraved” on a specific satoshi (the smallest unit of Bitcoin). This is the origin of inscriptions.

Of course, the original design of segregated witness was not intended for this purpose. However, the Ordinals protocol passively transforms the Bitcoin network into a “tamper-proof, permanently stored” cloud space.

Unlike other ecosystems that may store metadata in networks such as IPFS, the Ordinals protocol makes the Bitcoin network more similar to Arweave, enabling permanent storage of information. Therefore, besides the 4MB size limit, it seems that there is no network more suitable than BTC as a platform for NFTs.

BRC-20 is actually a type of Ordinals protocol. Domo uses the Ordinals protocol as a foundation and has successfully simulated a homogenous token mechanism similar to ERC-20, naming it BRC-20.

The implementation of BRC-20 is also clever. Since Ordinals have no restrictions on file formats, JSON file format is also acceptable. Domo simplifies the implementation of the deploy, mint, and transfer operations by utilizing the JSON file format and relies on an external indexer for reading and execution. This achieves similar minting and transfer functionality as the ERC-20 standard.

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(BRC-20’s three main operation codes)

The role of the indexer is a temporarily relatively centralized infrastructure that provides BRC-20 lookup on the Bitcoin chain and indexes the quantity of BRC-20 tokens held by each wallet based on the deploy, mint, and transfer operations.

However, BRC-20 has obvious drawbacks. Since it relies on an external indexer, the security of the protocol is at a significant risk and is not protected by the consensus of the Bitcoin network.

(What are the security risks generated by the incomplete infrastructure of Bitcoin and BRC-20?)

The Atomicals protocol (ARC-20) adopts a technique similar to colored coins, directly binding tokens to Bitcoin’s UTXO ledger, truly “engraving” them on satoshis.

Although ARC-20 also requires an indexer to index the existence of ARC-20 inscriptions, its transfer transactions rely entirely on the operation of the BTC mainnet UTXO ledger, making it independent of the indexer for execution and judgment. Furthermore, because the assets within the UTXO ledger can enjoy the composability of most network infrastructures, ARC-20 has better programmability. For example, in theory, BTC and ARC-20 transactions only require swapping the inputs and outputs of UTXOs to be realized.

Compared to the BRC-20 protocol, which heavily relies on the indexer for minting and transfer, the security of ARC-20 is significantly improved, and it avoids the so-called “garbage UTXO” issue of BRC-20.

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(BRC-20 records data in witness data without binding to satoshis and UTXO ledger)
(ARC-20 truly targets each satoshi)

Additionally, Atomicals has several unique highlights. For example, it introduces a mining mechanism called Bitwork, similar to Proof-of-Work, in the minting process to make it fairer, more decentralized, and more aligned with BTC’s technical characteristics. There is also the possibility of combining the ARC-20 protocol with AVM design to make Bitcoin-exclusive BitVM a possibility, although it remains a concept at present.

Of course, everything comes at a cost. While Atomicals achieves greater decentralization, security, and programmability compared to BRC-20, it also brings higher issuance costs and the risk of assets being spent and lost along with UTXOs. Additionally, the infrastructure is still severely lacking compared to the BRC-20 protocol (fortunately, UniSat has started supporting Atomicals). Therefore, Atomicals still has a long way to catch up with Ordinals.

Casey, the founder of the Ordinals protocol, has always been displeased with the continuous generation of junk data by BRC-20 but couldn’t do much about it because the market would not stop speculating on it. Therefore, he took a compromise approach and developed a safer and more efficient homogenous token protocol called Runes, hoping to reduce the burden on the Bitcoin network caused by speculators.

(What impact will the Runes protocol have on market speculation besides inscriptions?)

Technically, Runes is very similar to Atomicals. Both protocols write TokenID, output, and quantity information in the UTXO ledger, leaving the execution and security to Bitcoin Layer1, with less dependency on the indexer.

The difference lies in the fact that Runes writes the specific quantity of tokens in its data, rather than the 1 sats = 1 token paradigm in ARC-20. The advantage is that Runes has higher precision than ARC-20, but the disadvantage is that it becomes more complex and difficult to directly utilize the composability of BTC UTXOs like ARC-20.

(What impact will the Runes protocol have on market speculation besides inscriptions?)

However, the Rune protocol is only a concept, and Casey has not implemented it into a product. Instead, the Trac team has taken the concept and created the first usable Runes protocol, issuing PIPE runes.

SRC-20 originated from the BTC Stamps protocol, which competes directly with the Ordinals protocol and is used for NFT issuance applications. The difference is that Ordinals stores data in segregated witness fields, while BTC Stamps stores data in the transaction outputs of BTC UTXOs.

SRC-20 is the homogenous token version of BTC Stamps, corresponding to BRC-20 of the Ordinals protocol. Compared to the data stored in segregated witness, which may be pruned by nodes, SRC-20 utilizes the Counterparty protocol to store data in multiple UTXO ledger outputs, ensuring more certain permanent storage of data.

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(SRC-20 data more certainly permanently stored)

However, the downside of SRC-20 is the high cost. The minting cost of SRC-20 is approximately ten times higher than that of BRC-20.

Additionally, SRC-20 seems to be more favored and pursued by Western developers, serving as a weapon to counterbalance the Eastern BRC20 system.

BRC-420 is a Bitcoin metaverse protocol introduced by the Recursiverse team. Unlike the other asset issuance protocols mentioned above, BRC-420 focuses more on application aspects and is more complex.

(Bitcoin ecosystem not only has inscriptions and BRC-20, but also gaming projects)

BRC-420 defines more complex asset formats through recursion. By combining multiple inscriptions recursively, a complex inscription is formed, allowing anyone to create their own metaverse inscriptions, including but not limited to game avatars, game DLC, HTML, music, videos, etc. This ultimately achieves modular inscriptions on the blockchain. Additionally, BRC-420 supports on-chain royalties as one of its basic application development functions.

When discussing BRC-420, it is necessary to mention the Nostr Asset Protocol, which utilizes the Nostr protocol to control custodial wallets, allowing users to send and receive Taproot Asset assets through public-private key pairs in the Nostr protocol layer.

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(Nostr Asset Protocol transmits assets using the Nostr protocol)

RGB missed the current hot trend in the Bitcoin ecosystem, but from a long-term perspective, it is still one of the best solutions for Bitcoin scalability. Its support for smart contracts gives it an advantage over Taproot Asset in terms of scalability and flexibility, and even Tether intends to issue USDT on the RGB protocol.

However, integrating RGB with the Lightning Network is currently challenging, so in the short term, integrating with the Liquid sidechain may be a temporary option for RGB. The founder, Maxim, also intends to create a network to support RGB.

Although it may seem that the Ordinals and BRC-20 protocols, which seem speculative, are affecting the normal operation of the Bitcoin network, they may end up losing meaning and value like the NFTs on Ethereum that lack innovation. However, these recent protocols are fundamentally no different from past experimental projects on Bitcoin applications, such as colored coins or the Counterparty protocol. They are attempts to apply experiments to the Bitcoin network and have indeed left a historical impact on the Bitcoin network, inspiring many projects, including ARC-20, SRC-20, BRC-420. They fill the gaps before the maturity of the Taproot Asset and RGB protocols and have successfully brought attention back to the controversy of Bitcoin’s scalability. It can be felt that the Bitcoin ecosystem is truly growing through a process of continuous trial and error.

BRC-20 is no longer just a toy but a catalyst that brings multiple perspectives and experiments to the Bitcoin ecosystem.

For those who are not happy with these new protocols affecting the Bitcoin network, perhaps they should give them more understanding. But for those who recognize inscriptions and even invest in them, they need to understand that these are still early-stage projects with many security issues and market risks.

ARC-20
BRC-20
BRC-420
RGB
SRC-20
Taproot Assets

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(Additional reading)
“The Truth Behind the Speculation and Technological Illusion of BRC20”
“Can Taproot Assets Make the Bitcoin Ecosystem Safer and Faster?”