In-depth analysis of the risk factors of BRC-20

Original Title: 《The Dangers Of BRC-20 Tokens》

Written by: Che Kohler, TBM

Compiled by: Web3 Map

In recent years, the growth of the cryptocurrency market has been significant, with numerous tokens and projects emerging. In this market, many other currencies are flowing alongside Bitcoin, diluting liquidity. While many tokens attempt to become the next Bitcoin, most end in failure, bringing wealth to only a few.

Beware of the Risks of BRC20

BRC-20 Tokens: Unrelated to Bitcoin Assets

First, BRC-20 tokens are unrelated to Bitcoin assets; they are merely JSON script files added to the Bitcoin blockchain through the ordinals protocol. Although BRC-20 tokens technically exist on the Bitcoin blockchain, they are a secondary market that requires another set of software for searching, categorizing, and displaying. BRC-20 tokens attempt to attract investors by leveraging their connection to Bitcoin, but they do not possess Bitcoin's security, decentralization, or widespread acceptance.

BRC-20 Token Management is Complex

Compared to Bitcoin's simplicity, BRC-20 tokens introduce unnecessary complexity in managing digital assets. These tokens require separate wallets, protocols, and currency controls, along with additional steps for storage and trading. This complexity confuses users, increases the risk of human error, and may lead to loss of files.

BRC-20 Tokens Encourage Trading on Centralized Exchanges

Due to the complexity of managing BRC-20 tokens, many users are reluctant to invest the effort to manage these tokens and are unwilling to pay on-chain fees for P2P transactions. Moreover, there are no on-chain automated market makers on Bitcoin, so users can only trade on centralized exchanges (CEX). This provides CEX with more opportunities to manage assets and earn transaction fees. However, CEX are susceptible to attacks, fraud, and other security issues, and trading BRC-20 tokens exposes users to these risks.

BRC-20 Tokens are Easy to Create

Although BRC-20 tokens are based on Bitcoin, the Bitcoin blockchain cannot impose rules on them. The cost of creating BRC-20 tokens is merely the addition of files to the blockchain and the movement of UTXOs associated with the tokens in the future. This ease of creation may seem beneficial for the rapid development of new projects and applications, but it also means that the market could quickly become flooded with worthless, low-quality tokens. As a result, investors may find it difficult to distinguish which projects are legitimate and which are merely capitalizing on the hype generated by the BRC-20 standard.

BRC-20 Tokens Confuse Newcomers

For newcomers in the Bitcoin space, the multitude of tokens and projects can be overwhelming. The misleading connection of BRC-20 tokens to Bitcoin further adds to the confusion for beginners. New investors may mistakenly believe they are investing in a secure and stable network like Bitcoin, only to find themselves involved with high-risk, unproven tokens.

BRC-20 Tokens Attempt to Establish an Unregistered Securities Market on Bitcoin

BRC-20 tokens could facilitate an unregistered securities market on the Bitcoin blockchain. By issuing tokens that represent shares in projects, companies, or other enterprises, BRC-20 tokens can bypass regulatory oversight and enable the sale and trading of unregistered securities. This lack of regulation and oversight increases the risk of fraud and market manipulation, exposing investors to significant risks and potentially leading to increased scrutiny of Bitcoin.

BRC: Bitcoin Rug Pulls

While the idea of creating and trading digital assets on the Bitcoin blockchain may seem appealing, BRC-20 tokens are essentially just another altcoin scheme attempting to exploit the next cycle and divert capital that should flow into Bitcoin into the pockets of scammers. The risks of BRC-20 tokens far outweigh their claimed benefits; they are merely a brand new fool's digital gold.

If you enjoy speculation, you may ignore these warnings and try BRC-20 tokens. But if you wish to protect your hard-earned money or hedge against fiat currency devaluation, they are not the right tool for you.

By avoiding these tokens and focusing on Bitcoin, investors can reduce unnecessary risks and contribute to the growth and stability of the broader Bitcoin ecosystem. Real progress is being made in this space, such as establishing circular economies and demand response programs to enhance energy security. By self-custodying Bitcoin, you can enjoy all the innovations in this field; whereas holding BRC-20 tokens only provides exit liquidity for those adding text files to the blockchain and convincing you of their value.

So you can decide which side to stand on.