Exploring the BRC-20 Token development Standard: Transformative Impact of Smart Contracts on Bitcoin

Bitcoin , created by a person or group of people under the pseudonym Satoshi Nakamoto, is the world's first decentralized cryptocurrency , launched in January 2009. Contrary to what is commonly thought, Bitcoin is more than just a digital currency; it is an innovative payment system and new form of money that uses a distributed ledger technology called blockchain to facilitate secure and anonymous transactions.

Bitcoin is based on a decentralized network of nodes that maintain a copy of the ledger, known as the blockchain. This technology allows transactions to be verified by network participants (miners) through a process known as proof of work (PoW). Each transaction is grouped into a block, which is then added to the blockchain after being validated, creating a permanent, immutable record of all transactions made.

Unlike centralized systems, the Bitcoin blockchain is not controlled by any entity or government, which offers advantages in terms of security, privacy, and resistance to censorship. However, to the claim that "it is not a blockchain as such," it is crucial to make clear that Bitcoin does in fact use a blockchain. It is specifically this blockchain technology.that underpins the operation of Bitcoin, allowing its decentralized operation.

Ethereum (ERC-20) and its launch in 2015:

Ethereum, on the other hand, is a decentralized platform that allows the creation of smart contracts and decentralized applications (DApps) without the risk of fraud, censorship, or third-party interference. It was proposed in 2013 by Vitalik Buterin and officially launched in July 2015, not 2017. Unlike Bitcoin, which focuses on being a medium of storage and transfer of value, Ethereum expands the use of blockchain technology by allowing Developers write code that runs on the blockchain, known as smart contracts.

These smart contracts are automatically executed when certain pre-established conditions are met, without the need for intermediaries. This has opened up endless possibilities for process automation, from creating transparent voting systems to automating financial workflows and executing legal agreements.

• Purpose and application: Bitcoin was created as a digital alternative to money, primarily focused on being a means of payment and storage of value. Ethereum, instead, was designed as a platform to facilitate smart contracts and decentralized applications, significantly expanding the uses of blockchain technology beyond financial transactions.
• Consensus technology: Both platforms initially used the proof-of-work consensus mechanism, although Ethereum has been moving towards a proof-of-stake (PoS) model with its upgrade to Ethereum 2.0, seeking to improve scalability and reduce energy consumption.
• Programmability: Ethereum introduces the concept of a Turing-complete programming language (Solidity) that runs on the blockchain, allowing the creation of smart contracts and complex applications.

What is BRC-20?

The BRC-20 standard represents an important milestone in the evolution of the Bitcoin network, ushering in a new era of tokenization on the world's oldest and most secure blockchain. Through technological innovation and the implementation of Ordinals and the upgrade of Taproot, Bitcoin has extended its capabilities beyond simply being a digital currency to becoming a platform where both fungible and non-fungible tokens (NFTs) can be issued, without need to modify your original code.

BRC-20 tokens are a category of digital assets that are issued and managed on the Bitcoin blockchain, taking advantage of new functionalities that allow the creation of smart contracts and the tokenization of assets within this network. This innovation opens the door to a wide range of applications and use cases, from the creation of new cryptocurrencies to the digital representation of physical assets, to the issuance of NFTs that can represent art, collectibles, intellectual property rights, and much more. further.

The Taproot update , deployed in November 2021, plays a crucial role in this development as it introduces significant improvements to the privacy, efficiency, and flexibility of the Bitcoin blockchain. Taproot makes it easier to create smart contracts that are more complex and less expensive in terms of space and fees, which is essential for the efficient functioning of BRC-20 tokens . On the other hand, the Ordinals initiative inscribes digital information, including BRC-20 tokens, directly into Bitcoin transactions, leveraging the data capacity of Satoshi, the smallest unit of bitcoin, to embed these assets within the blockchain.

Because BRC-20 tokens present new prospects for investment and development within the Bitcoin ecosystem, they have excited investors, developers, and cryptocurrency fans. With a market capitalization already exceeding $1.4 billion for certain tokens, it is clear that this new tokenized ecosystem is finding fertile ground for growth and adoption.

Moreover, the BRC20 token development standard strengthens Bitcoin's standing as a cutting-edge and? dynamic network while also extending its potential as a blockchain platform. Bitcoin is expanding beyond its initial function as a pure digital money by permitting tokenization on its network, transforming into a deeper and more varied ecosystem that can support a range of decentralised applications and digital token use cases.

Taproot explained in detail

Taproot is a significant update to the Bitcoin network, implemented in November 2021, designed to improve privacy, efficiency, and flexibility in creating and executing transactions on the Bitcoin blockchain. This improvement primarily focuses on the way transaction scripts are managed and disclosed, allowing for greater complexity in Bitcoin operations without compromising its security or efficiency.?

Privacy Enhancement

Taproot introduces a technique called “Merkleized Abstract Syntax Tree” (MAST), which allows the complexity of a Bitcoin script to be hidden until the conditions for its execution are met. This means that only the part of the script used for a specific transaction is revealed, improving user privacy by making all transactions appear externally the same, regardless of their complexity.

Efficiency and Lower Cost

By compacting the information needed to verify a transaction and making complex and simple transactions appear identical at the blockchain level, Taproot reduces the space that transactions take up in a block. This not only improves efficiency in terms of processing space and time, but can also help reduce transaction fees, as these are often calculated based on the size of the transaction.

Greater Flexibility with Schnorr Signatures

Taproot introduces Schnorr signatures, replacing the ECDSA (Elliptic Curve Digital Signature Algorithm) digital signature algorithm previously used in Bitcoin. Schnorr signatures offer several advantages, including the ability to combine several signatures into one ("signature aggregation"). This not only improves privacy by making it more difficult to distinguish complex transactions from simple ones, but also increases security and further reduces the space that transactions take up in a block.

Potential for More Complex Smart Contracts

Although Bitcoin does not offer as advanced a smart contract system as Ethereum, Taproot makes it possible to create more complex and efficient contracts on Bitcoin. By allowing complex transactions to be presented and processed in the same way as simple transactions, Taproot opens up new possibilities for deploying decentralized financial applications and other types of smart contracts on the Bitcoin network.

What Will Happen to Bitcoin If It Halved in 2024?

The Bitcoin halving is a scheduled event that occurs approximately every four years, where the block reward miners receive is cut in half. This mechanism is built into the Bitcoin code to control inflation, ensuring that the issuance of new bitcoins is reduced over time until the maximum limit of 21 million units is reached. The next halving is scheduled for 2024, and as on previous occasions, it is expected to have a significant impact on the market and adoption of Bitcoin.

Reducing the block reward decreases the rate at which new bitcoins are generated, which reduces the supply of new bitcoins entering the market. Historically, halvings have preceded periods of rising Bitcoin price, as decreasing supply, coupled with constant or increasing demand, tends to drive the price higher. For miners, halving directly reduces their bitcoin income, which can lead to a temporary decrease in the network's hashrate if market prices do not increase to compensate for the lower reward. However, the expected rise in Bitcoin price after the halving may help keep mining profitable and ensure long-term network security.

The halving increases public awareness about Bitcoin, as it often generates significant media coverage and discussions in the cryptocurrency community. This increase in attention can attract new investors and users, driving adoption. Furthermore, the perception of Bitcoin as a scarce asset may strengthen, often comparing it to precious metals such as gold, reinforcing its value as a store of value and “digital gold.” In the long term, the halving reinforces Bitcoin's economic fundamentals, promoting its scarcity and appreciation potential. This can positively contribute to its adoption as an investment asset and store of value, in addition to its use in international transactions and remittances.