Analyst Sounds Alarm: Proliferation Of Token Standards In Bitcoin A Big Problem

While the Bitcoin community fixates on the upcoming halving and wavy interest in spot exchange-traded funds (ETFs), a looming threat could hinder its growth and adoption of the world’s most secure network: fragmentation of token standards.

Token Issuing Standards On Bitcoin Fragmented

In a post on X, one analyst pointed out the proliferation of competing token issuance standards in Bitcoin. Some popular ones, including the BRC-20 and Inscriptions, are vying for dominance ahead of the planned launch of Runes after Halving. 

In essence, token standards, regardless of the network, ensure compatibility and help harmonize the broader ecosystem. Through the BRC-20 standard, for instance, project developers planning to issue tokens know the rules and guidelines that guide token creation and management. With clear token standards, it is easy for developers to enable new functionalities and expand use cases.

The problem with the current setup is that there are no rules barring the creation of new token standards. A standard will depend on the creator’s innovativeness and whether it finds support from the community. This leeway, as it is emerging, can create a problem.

Because of the many token issuance standards, the analyst predicts user experience (UX) will rapidly deteriorate. Accordingly, based on this assessment, wallets, indexers, market makers, developers, and other ecosystem participants will face the brunt the most. 

This outlook is because BRC-20, Inscriptions, and Runes—once deployed—will become increasingly intertwined with a growing number of decentralized applications (dapps) and even layer-2 protocols tapping into Bitcoin’s superior security. It should be noted that Inscriptions and Runes are built by the same developer and even share the same code base. Runes will diverge from Inscriptions, aiming to create a template for issuing fungible tokens on Bitcoin.

Is This Diversification A Mark Of Strength?

Meanwhile, others, responding to the analyst, think multiple token standards on Bitcoin don’t lead to fragmentation. Instead, they are complementary, mirroring Ethereum’s ERC-20 and ERC-721 standards. 

Specifically, they see the current perceived fragmentation as a mark of strength. The lack of a central authority dictating standards allows users to choose standards that best suit their needs. Supporters argue that network effects will solve the issue by favoring the most widely adopted standard.

It remains to be seen how the network will evolve in the coming months and how user preferences will change. In 2023, the widespread adoption of Inscriptions pushed transaction fees higher, impacting user experience.