Understanding SRC-20 Tokens: Powering Bitcoin Stamps and Their Unique Features

Discover SRC-20 tokens and their role in Bitcoin Stamps, enabling tradeable art on the blockchain amidst community debates on Bitcoin's purpose.

Key Takeaways

SRC-20 tokens enable the embedding of secure, tradeable art on the Bitcoin blockchain, similar to NFTs.
These tokens are built on the principles of colored coins and further developed through the Ordinals protocol.
The minting process for SRC-20 tokens is unique, utilizing the Counterparty protocol to ensure permanent blockchain storage.
The rise of SRC-20 highlights a significant evolution in Bitcoin's use cases, despite some opposition from Bitcoin purists.
The future of SRC-20 and Bitcoin Stamps could lead to broader adoption or even potential community division.

Understanding SRC-20 Tokens: Powering Bitcoin Stamps and Their Unique Features

Recently, SRC-20 tokens, the underlying token standard for Bitcoin Stamps—a protocol designed for secure and tradeable art—are drawing considerable interest. This innovation enables data embedding in Bitcoin transactions, somewhat akin to what the BRC-20 standard accomplishes, but with different methodologies. SRC-20 tokens have gained the nickname “Bitcoin's non-fungible tokens (NFTs)” and are inspired by earlier projects like Counterparty, a peer-to-peer platform associated with Bitcoin.

Similar to Ethereum's ERC-20 tokens, SRC-20 tokens allow users to create tokens on the Bitcoin blockchain, which was originally tailored for a decentralized financial system. The advent of technologies like Ordinals and SRC-20 tokens is reshaping Bitcoin's role from a mere store of value into an active platform with varied applications. However, this shift is met with resistance from some in the community, who argue that it strays from Satoshi Nakamoto's original vision.

The Evolution from Colored Coins to Ordinals

The backstory of SRC-20 tokens can be traced to the colored coins concept, which attempted to make specific units of Bitcoin distinct from regular transactions by associating them with additional information. Although colored coins did not succeed as a standalone solution, they paved the way for innovative protocols like BRC-20, and subsequently SRC-20.

The introduction of the Bitcoin Ordinals protocol by Casey Rodarmor in January 2023 allowed digital content, including images and text, to be inscribed directly onto the Bitcoin blockchain. Rodarmor's vision was to create a stable, unverifiable identity for digital content akin to NFTs on Ethereum. Ordinals leverage "Ordinal theory," assigning unique identities to individual satoshis, thereby enabling them to carry and track content.

The BRC-20 standard further promotes tokenization by allowing the assignment of tokens to specific satoshis using a distinct script, differing from Ethereum's smart contract-based minting process. Since the launch of BRC-20 tokens in March 2023, their popularity has surged, with notable tokens like ORDI expanding beyond their meme origins to gain traction in the market.

How SRC-20 Tokens Distinguish Themselves

Developed by the user Mike In Space, Bitcoin Stamps allow for the permanent storage of data such as images or texts using Unspent Transaction Outputs (UTXOs). Unlike BRC-20 and Ordinals, where metadata can be altered, SRC-20 ensures data immutability, a crucial factor valued by the Bitcoin community, prompting the search for more robust solutions like ORC-20 and the current SRC-20.

The Mechanics of Minting Stamps

The minting process for Stamps utilizes the Counterparty protocol, which was introduced in 2014 as an open-source method to extend Bitcoin’s capabilities. To mount a Stamp, users burn BTC to acquire Counterparty (XCP) tokens necessary for executing the smart contracts. The protocol can store up to 80 bytes of data using the “OP_Return” function. Any data exceeding this limit is distributed over multiple outputs, ensuring comprehensive coverage.

The minting process involves converting an image into a text base64 format, prepending it with “Stamp:”, and broadcasting the encoded file to the blockchain for validation and reconstruction.

Steps for Acquiring SRC-20 Tokens

To purchase SRC-20 tokens, users will need to visit two websites: stampsrc.github.io and stampchain.io/src20. It’s also essential to download the Hiro Wallet, a browser extension tailored for Bitcoin applications.

Once users navigate to "Receive" in their wallet, they’ll be directed to obtain their Bitcoin Stamps. They then copy the provided wallet address and input it on stampchain.io/src20. Users can select from a variety of token options — for instance, they might choose the ticker “Kevin,” request a total of 10 tokens, and click "Quote."

The platform then displays the total cost in BTC and associated fees in satoshis, allowing users to proceed by clicking "Stamp." Subsequently, they receive instructions to send the specified BTC amount, allowing SRC-20 tokens to be credited to their address.

What Lies Ahead for SRC-20 Tokens

SRC-20 tokens represent a nascent technology with potential for unprecedented growth and varied applications in the digital art space. The process of acquiring Stamps can be likened to gradually downloading a large image file, where users spend BTC to obtain data stored in UTXOs.

Should SRC-20 tokens gain mainstream acceptance, we might witness a hard fork of Bitcoin due to fragmented views within the community. A faction may push to retain Bitcoin as solely a store of value, potentially leading to a split amongst users advocating for innovation.