Since the creation of Bitcoin in 2009, blockchain technology has evolved significantly, enabling the creation of various types of tokens. Tokens are digital representations of value, used for a variety of purposes, such as transactions, systems management, project financing or representation of physical assets. The ERC-20 standard on the Ethereum platform played a key role in the development of the token market, but there was a need to develop more advanced and secure standards.
Blockchain has become the foundation for many financial innovations, and digital tokens are one of the most fascinating aspects of this revolution. SRC-20 tokens are a new class of tokens on the market, introducing a standard for secure contracts in the Bitcoin ecosystem. In this article, we will have a closer look at what SRC-20 tokens are, how they work, and the benefits they bring to users and blockchain projects.
What is the SRC-20 standard?
Token standards exist to assure users that a given token is created and managed in a consistent manner, according to the associated smart contracts. In practice, this means that tokens can be easily stored, sold and transferred between different ecosystems and wallets.
SRC-20 is a token standard inspired by the popular ERC-20 standard on Ethereum. However, in this case, the standard is used to manage and create tokens on the Bitcoin blockchain. A particular variety of SRC-20 tokens are Bitcoin Secure Tradeable Art Maintained Permanently (Stamps), which are unique digital artworks that were launched relatively recently, in March 2023.
Bitcoin Stamps are actually SRC-20 tokens, which represent collectible items stored on Bitcoin’s blockchain. They initially used the Counterparty protocol to convert images into files, which were then uploaded to the Bitcoin network.
However, the introduction of the SRC-20 standard significantly expanded Bitcoin’s functionality, making it a more versatile platform. SRC-20 tokens must meet certain criteria to be properly created. This means that they can only encode certain types of image files and are limited in size – 24×24 pixels. Each Bitcoin Stamp must have its own unique identifier and is created by adding a “stamp” in a new transaction.
Bitcoin Stamps – definition
Bitcoin Stamps, as mentioned, are SRC-20 tokens and are a type of NFT (Non-Fungible Token), built on the Bitcoin blockchain. SRC-20 tokens are distinguished by a unique method of embedding data in the blockchain. They convert image information (in formats such as GIF, PNG or SVG) into a base64 string, which is integrated into the transaction description key. This way of storing data directly in blockchain transactions ensures immutability, making it permanently integrated into the blockchain, meaning it cannot be deleted.
The technology behind SRC-20 tokens is compared to ERC-1155 tokens on Ethereum, which can support different types of tokens in a single transaction. SRC-20 tokens have their own unique features, but due to their high cost and block space limitations, they can only store small images (24×24 pixels). This limitation differentiates them from Ordinals, which allow the storage of larger data.
Advantages and disadvantages of the SRC-20 standard
Advantages:
Simplified implementation: The SRC-20 standard does not require burning BTC or other tokens, and the data is contained directly in blockchain transactions.
Greater accessibility: Users unfamiliar with cryptocurrencies can have a stake in an asset without the need for large investments.
Streamlined transactions: They use smart contracts to create images and text, which speeds up the entire process without the need for a separate NFT.
Disadvantages:
Scalability: The rise in popularity of SRC-20 tokens may strain Bitcoin’s blockchain, delaying transactions and increasing transaction fees.
Security: Gaps in smart contracts could create security risks, which could lead to financial losses for users.
Regulatory challenges: The evolving regulatory framework for cryptocurrencies may create legal and regulatory uncertainty for users.
Bitcoin Stamps vs. Bitcoin Ordinals
Bitcoin Stamps and Bitcoin Ordinals are two innovative approaches to embedding data into the Bitcoin blockchain. Each has different features and functions that can be compared:
Bitcoin Stamps: Secure data embedding in Bitcoin’s blockchain, minimal impact on network performance, ideal for applications requiring data durability.
Bitcoin Ordinals: An innovative approach based on storing data on individual satoshi, but with greater impact on blockchain performance and scalability.
Summary
The SRC-20 standard introduces new possibilities for the Bitcoin blockchain by enabling the creation of digital artwork and other assets in the form of tokens that are permanently integrated into the blockchain. Despite their growing popularity, SRC-20 tokens carry performance, security and regulatory challenges. Bitcoin Stamps, representing digital collectibles, open up new opportunities for creative uses of blockchain technology.
