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Knowledge

What Is BRC-21, The New Token Standard Bases On BRC-20?

May 22, 2023 - Around 6 mins mins to read

Key Points:

  • The BRC-21 token standard is used for minting and redeeming tokens on the Bitcoin network, as well as facilitating Lightning transactions.
  • The standard for minting and redeeming BRC-20 tokens to and from Bitcoin was originally produced on other “source” networks.
  • Moreover, decentralized stablecoins will handle advanced minting, redeeming, and liquidation needs.
With the emergence of BRC-20, a number of alternative asset standards based on the Bitcoin network, notably BRC-21, have started to develop.
What Is BRC-21, The New Token Standard Bases On BRC-20?
What Is BRC-21, The New Token Standard Bases On BRC-20? 3

On May 7, Alexei Zamyatin, inventor of the Interlay cross-chain interoperability project, suggested the creation of the BRC-21 standard, which would establish completely decentralized cross-chain assets on the Bitcoin network and utilize them in the Lightning Network.

The proposal specifies the protocol for minting and redeeming BRC-20 tokens to and from Bitcoin that were issued on other “source” chains like Ethereum, Cosmos, Polkadot, or Interlay. So, BRC-21 is a token standard that allows tokens from other chains to be produced and redeemed on the Bitcoin Blockchain.

What is BRC-21?

According to Zamyatin, the proposed standard would enable the deployment of decentralized stablecoins into the Lightning Network or any other comparable payment protocols, which is the primary use case. BRC-21 assets, on the other hand, may be used to represent ETH, DOT, SOL, and other cryptocurrencies on Bitcoin.

The proposed method does not require trust in any 3rd party.

Interlay Labs has also released document V 0.1 on the BRC-21 Token Standard. According to the document’s description, BRC-21 content is still essentially BRC-20 content, but unlike BRC-20 content that is “born out of the air,” BRC-21 needs to be generated by the initial asset key (such as ETH, DOT, ATOM, and DAI, etc.), in other words, the BRC-21 standard provides the ability to mint the BRC-20 version of ETH, DAI, and other online assets on Bitcoin network.

Use cases

Although it is feasible to utilize BRC-21 assets to represent ETH, DOT, SOL, and other cryptocurrencies on Bitcoin, the key use case that will arise from this standard is the deployment of decentralized stablecoins on Lightning Network or comparable payment protocols.

To keep their peg, decentralized stablecoins like MakerDAO, Liquity, or RAI need complex minting, redemption, and liquidation processes. Due to a lack of programmability, these protocols cannot be installed directly on Bitcoin. Instead of spending effort designing protocols for Bitcoin that can be represented by a few lines of code elsewhere, the proposal claims that this totally decentralized approach of minting and redeeming cross-chain assets to/from Bitcoin has a far better chance of attaining universal acceptance.

Technical requirements

From a technical point of view, the cross-chain of BRC-21 assets only needs to rely on three components to complete, and the whole process is expected to achieve complete decentralization:

  • Custom indexer: Modify BRC-21 mint, transfer, and redeem activities on Bitcoin, as well as contract status on the SOURCE chain.
  • SOURCE chain contract: Handles SOURCE chain mint and redeem procedures.
  • BTC-Relay: A BTC-light client application deployed as a smart contract on the source chain, capable of validating and interpreting BTC transactions.

See, for example, here for specifications, here for a proof-of-concept implementation on Ethereum, and here for an audited production implementation in Rust on Interlay.

BRC-21 protocol

Deploy on the Bitcoin network

While Interlay Labs did not illustrate the deployment of the BRC-21 asset on the beginning chain in the paper, it is worth mentioning how it is deployed on the Bitcoin network.

In general, the implementation of BRC-21 and BRC-20 tokens is similar, however, there are some variances in specifics, such as:

  • The “max” parameter, which was formerly used to indicate a maximum supply, is no longer necessary but may be selected to fill in; however, since the maximum supply of the original BRC-21 asset is normally already determined before the sequence begins, choosing just adds an additional layer of safety.
  • The “lim” parameter, which was used to identify limit mints, has been eliminated since all BRC-21 assets are subject to tight mint and redeem restrictions, therefore, there is no need to limit the number of tokens that may be minted in a transaction.
  • The “source” parameter is introduced to define the text from which the token is “importing.” It might be a string like “Ethereum” or a unique numerical identification (will require an agreed directory)
  • Add an “id” field to the source chain to define the target token, which may be filled with the contract address of that token.
{
"p": "brc-21",
"op": "deploy",
"tick": "30sResearcg",
"max": "10000000" (optional),
“src”: “CHAIN”,
“id”: “contract-address-on-CHAIN”
}
What Is BRC-21, The New Token Standard Bases On BRC-20?
What Is BRC-21, The New Token Standard Bases On BRC-20? 4

Deploy on SOURCE chain

The DEPLOY procedure is dependent on the SOURCE chain’s implementation. The smart contract CONTRACT criteria are as follows:

  • Lock COIN and generate the “Lock” event
  • Unlock COIN only if the relevant “redeem” procedure is included in a Bitcoin transaction. To verify and validate (i.e. parse) the related Bitcoin transaction, use BTC-RELAY.

This presupposes that a BTC-RELAY contract has been implemented on the chain or that the chain has Bitcoin Lite client capability built in.

Mint

Locks X COIN tokens on CHAIN and mints X bCOIN BRC-21 tokens on Bitcoin

The “mint” operation on Bitcoin is defined as follows (inscription):

{
"p": "brc-21",
"op": "mint",
"tick": "bCOIN",
"amt": "100",
"src": "CHAIN"
}
  • On Bitcoin, record BRC-21 minting activity, specifying the mined amount in the “amt” column and the source chain in the “src” field.
  • Lock 100 coins on the network and provide the inscription or transaction ID with evidence of transaction inclusion to the CONTRACT side.
    The easiest method is to transmit a Bitcoin wrap transaction and a Merkle-Tree route verifying the inclusion of a Bitcoin block, which is then followed by a call to CONTRACT BTC-RELAY to complete the verification.
  • BRC-21 bCOIN will be accepted as legitimate by the indexer.

Transfer

TRANSFER operation remains the same as specified in the BRC-20 . standard:

{
"p": "brc-21",
"op": "transfer",
"tick": "30sResearch",
"amt": "100",
}

Redeem

X bCOIN tokens are burned on Bitcoin, and X COIN is unlocked on CHAIN.

The operation “redeem” is defined as follows:

{ 
"p": "brc-21", 
"op": "redeem", 
"tick": "bCOIN", 
"amt": "1000",
“dest”: “CHAIN”,
“acc”: “account-on-CHAIN” 
}

The dest field specifies the destination CHAIN and MUST be the same as the src field in the mint operation. The acc field specifies the recipient account of COIN on CHAIN.

  • Inscribe “redeem” operation on Bitcoin, specifying amt, dest, and ACC
  • Submit raw BTC transaction and transaction inclusion proof to CONTRACT, which in turn calls BTC-RELAY to complete verification
  • If BTC-Relay returns “true”, the CONTRACT unlocks X COIN to the account specified in the acc field. BRC-21 indexers will now consider the X bCOIN burned and no longer track them on Bitcoin.

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

Join us to keep track of news: https://linktr.ee/coincu

Harold

Coincu News

BRC-20

BRC-21

DOT

ETH

Lightning Network

SOL

Token Standard

Avatar of Harold

Author

Harold

With a passion for untangling the complexities of the financial world, I've spent over four years in financial journalism, covering everything from traditional equities to the cutting edge of venture capital. "The financial markets are a fascinating puzzle," I often say, "and I love helping people make sense of them." That's what drives me to bring clear and insightful financial journalism to the readers of Coincu.
Knowledge

What Is BRC-21, The New Token Standard Bases On BRC-20?

Key Points:

  • The BRC-21 token standard is used for minting and redeeming tokens on the Bitcoin network, as well as facilitating Lightning transactions.
  • The standard for minting and redeeming BRC-20 tokens to and from Bitcoin was originally produced on other “source” networks.
  • Moreover, decentralized stablecoins will handle advanced minting, redeeming, and liquidation needs.
With the emergence of BRC-20, a number of alternative asset standards based on the Bitcoin network, notably BRC-21, have started to develop.
What Is BRC-21, The New Token Standard Bases On BRC-20?
What Is BRC-21, The New Token Standard Bases On BRC-20? 7

On May 7, Alexei Zamyatin, inventor of the Interlay cross-chain interoperability project, suggested the creation of the BRC-21 standard, which would establish completely decentralized cross-chain assets on the Bitcoin network and utilize them in the Lightning Network.

The proposal specifies the protocol for minting and redeeming BRC-20 tokens to and from Bitcoin that were issued on other “source” chains like Ethereum, Cosmos, Polkadot, or Interlay. So, BRC-21 is a token standard that allows tokens from other chains to be produced and redeemed on the Bitcoin Blockchain.

What is BRC-21?

According to Zamyatin, the proposed standard would enable the deployment of decentralized stablecoins into the Lightning Network or any other comparable payment protocols, which is the primary use case. BRC-21 assets, on the other hand, may be used to represent ETH, DOT, SOL, and other cryptocurrencies on Bitcoin.

The proposed method does not require trust in any 3rd party.

Interlay Labs has also released document V 0.1 on the BRC-21 Token Standard. According to the document’s description, BRC-21 content is still essentially BRC-20 content, but unlike BRC-20 content that is “born out of the air,” BRC-21 needs to be generated by the initial asset key (such as ETH, DOT, ATOM, and DAI, etc.), in other words, the BRC-21 standard provides the ability to mint the BRC-20 version of ETH, DAI, and other online assets on Bitcoin network.

Use cases

Although it is feasible to utilize BRC-21 assets to represent ETH, DOT, SOL, and other cryptocurrencies on Bitcoin, the key use case that will arise from this standard is the deployment of decentralized stablecoins on Lightning Network or comparable payment protocols.

To keep their peg, decentralized stablecoins like MakerDAO, Liquity, or RAI need complex minting, redemption, and liquidation processes. Due to a lack of programmability, these protocols cannot be installed directly on Bitcoin. Instead of spending effort designing protocols for Bitcoin that can be represented by a few lines of code elsewhere, the proposal claims that this totally decentralized approach of minting and redeeming cross-chain assets to/from Bitcoin has a far better chance of attaining universal acceptance.

Technical requirements

From a technical point of view, the cross-chain of BRC-21 assets only needs to rely on three components to complete, and the whole process is expected to achieve complete decentralization:

  • Custom indexer: Modify BRC-21 mint, transfer, and redeem activities on Bitcoin, as well as contract status on the SOURCE chain.
  • SOURCE chain contract: Handles SOURCE chain mint and redeem procedures.
  • BTC-Relay: A BTC-light client application deployed as a smart contract on the source chain, capable of validating and interpreting BTC transactions.

See, for example, here for specifications, here for a proof-of-concept implementation on Ethereum, and here for an audited production implementation in Rust on Interlay.

BRC-21 protocol

Deploy on the Bitcoin network

While Interlay Labs did not illustrate the deployment of the BRC-21 asset on the beginning chain in the paper, it is worth mentioning how it is deployed on the Bitcoin network.

In general, the implementation of BRC-21 and BRC-20 tokens is similar, however, there are some variances in specifics, such as:

  • The “max” parameter, which was formerly used to indicate a maximum supply, is no longer necessary but may be selected to fill in; however, since the maximum supply of the original BRC-21 asset is normally already determined before the sequence begins, choosing just adds an additional layer of safety.
  • The “lim” parameter, which was used to identify limit mints, has been eliminated since all BRC-21 assets are subject to tight mint and redeem restrictions, therefore, there is no need to limit the number of tokens that may be minted in a transaction.
  • The “source” parameter is introduced to define the text from which the token is “importing.” It might be a string like “Ethereum” or a unique numerical identification (will require an agreed directory)
  • Add an “id” field to the source chain to define the target token, which may be filled with the contract address of that token.
{
"p": "brc-21",
"op": "deploy",
"tick": "30sResearcg",
"max": "10000000" (optional),
“src”: “CHAIN”,
“id”: “contract-address-on-CHAIN”
}
What Is BRC-21, The New Token Standard Bases On BRC-20?
What Is BRC-21, The New Token Standard Bases On BRC-20? 8

Deploy on SOURCE chain

The DEPLOY procedure is dependent on the SOURCE chain’s implementation. The smart contract CONTRACT criteria are as follows:

  • Lock COIN and generate the “Lock” event
  • Unlock COIN only if the relevant “redeem” procedure is included in a Bitcoin transaction. To verify and validate (i.e. parse) the related Bitcoin transaction, use BTC-RELAY.

This presupposes that a BTC-RELAY contract has been implemented on the chain or that the chain has Bitcoin Lite client capability built in.

Mint

Locks X COIN tokens on CHAIN and mints X bCOIN BRC-21 tokens on Bitcoin

The “mint” operation on Bitcoin is defined as follows (inscription):

{
"p": "brc-21",
"op": "mint",
"tick": "bCOIN",
"amt": "100",
"src": "CHAIN"
}
  • On Bitcoin, record BRC-21 minting activity, specifying the mined amount in the “amt” column and the source chain in the “src” field.
  • Lock 100 coins on the network and provide the inscription or transaction ID with evidence of transaction inclusion to the CONTRACT side.
    The easiest method is to transmit a Bitcoin wrap transaction and a Merkle-Tree route verifying the inclusion of a Bitcoin block, which is then followed by a call to CONTRACT BTC-RELAY to complete the verification.
  • BRC-21 bCOIN will be accepted as legitimate by the indexer.

Transfer

TRANSFER operation remains the same as specified in the BRC-20 . standard:

{
"p": "brc-21",
"op": "transfer",
"tick": "30sResearch",
"amt": "100",
}

Redeem

X bCOIN tokens are burned on Bitcoin, and X COIN is unlocked on CHAIN.

The operation “redeem” is defined as follows:

{ 
"p": "brc-21", 
"op": "redeem", 
"tick": "bCOIN", 
"amt": "1000",
“dest”: “CHAIN”,
“acc”: “account-on-CHAIN” 
}

The dest field specifies the destination CHAIN and MUST be the same as the src field in the mint operation. The acc field specifies the recipient account of COIN on CHAIN.

  • Inscribe “redeem” operation on Bitcoin, specifying amt, dest, and ACC
  • Submit raw BTC transaction and transaction inclusion proof to CONTRACT, which in turn calls BTC-RELAY to complete verification
  • If BTC-Relay returns “true”, the CONTRACT unlocks X COIN to the account specified in the acc field. BRC-21 indexers will now consider the X bCOIN burned and no longer track them on Bitcoin.

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

Join us to keep track of news: https://linktr.ee/coincu

Harold

Coincu News