ARC-20: What Are Bitcoin Atomicals?

What makes ARC-20 different to other fungible token standards on Bitcoin?

Robot looking into the atom BTC.
Created by Kornelija Poderskytė from DailyCoin

ARC-20, or Atomicals, are yet another cog in Bitcoin’s unstoppable ecosystem. Like the BRC-20 token standard, ARC-20 tokens create fungible crypto assets on the world’s largest blockchain. 

The proliferation of fungible assets on the Bitcoin blockchain has been one of the biggest developments within the BTC ecosystem in many years. Being highly experimental, the potential use cases of these digital assets are wide but also obscure.

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No singular cryptocurrency token standard on the Bitcoin network is perfect, but each brings something new. What are ARC-20 tokens, and how are they different from other Bitcoin fungibles like BRC-20 and Runes?

What Are Atomicals?

ARC-20 Atomicals.
Source: Atomicals

ARC-20 tokens represent groups of fungible cryptocurrency assets on the Bitcoin blockchain. Similar to other blockchains, like Ethereum (ETH) or Solana (SOL), these tokens could represent anything from a crypto project’s governance and utility token to the next viral meme coin.

Sounds familiar? That’s because it is. The technology designed to support fungible tokens on Bitcoin was originally made possible through the BRC-20 protocol. But despite BRC-20’s ingenuity, it still suffered several flaws.

One of the biggest concerns with BRC-20 tokens, and Bitcoin Ordinals in general, is that tokens were inscribed directly onto individual satoshis, the lowest denomination of BTC. That meant that if you sent all the BTC in a wallet to another wallet, you risked accidentally transferring your Ordinal NFTs or BRC-20 assets. Even worse, they might accidentally be assigned to gas payments.

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Atomicals has found a creative way around this issue using a novel technology called colored coins.

How Do Bitcoin Atomicals Work?

The ARC-20 standard offers a new method of minting and organizing fungible tokens and digital objects on the Bitcoin blockchain. While BRC-20 tokens inscribe metadata and information directly onto individual satoshis, the Atomical approach is slightly more complex.

The Atomicals protocol introduces colored coins to the Bitcoin ecosystem. Instead of adding data to existing satoshis, the protocol mints a new asset backed by individual Satoshis.

This arguably gives ARC-20 tokens greater flexibility. Not only does it eliminate the risk of accidentally transferring Atomical assets while sending BTC, but it also allows for greater data storage options for each token.

Every time a colored token is created, it is linked to an individual satoshi. What’s more, created assets also carry a complete record of all their transaction history from the moment they were created until their most recent transfer, giving a far more accurate means of tracking interchangeable token payments than existing fungible standards.

Atomical Minting

Atomical Minting is typically separated into two separate methods: decentralized minting and direct minting.

Decentralized Minting

If you’ve ever taken part in a non-fungible token or Ordinals protocol mint before, this will be familiar. In decentralized Atomical mints, the deployer/creator sets all the pertinent metadata, including the asset’s total supply, ticker, and start block height.

Once the mint is live, willing participants can mint ARC-20 protocol tokens to their Taproot-compatible wallet on the Bitcoin network.

Direct Minting

On the other hand, direct minting is a token distribution style we rarely see in the world of Bitcoin fungibles. In this case, the entire supply can be created in a single output, generally to one wallet, with each token backed by an individual satoshi.

While this method isn’t particularly decentralized, it could be considered a better alternative for private companies and Web3 developers who want to manage and exercise greater control of their token supply.

Bitwork Mining

Another key factor that separates Atomicals from other crypto space fungibles is the Bitwork mining infrastructure. Like Bitcoin’s Proof-of-Work consensus mechanism, Bitwork mining provides an optional mining prefix on minting transactions.

This means that users can customize the PoW mining difficulty by requiring fewer hashes, essentially making ARC-20 minting more accessible. Atomical enthusiasts can mint ARC-20 tokens using typical devices like laptop computers and mobile phones.

ARC-20 vs. BRC-20

Despite having similar use cases, the biggest difference between ARC-20 tokens and BRC-20 is their underlying infrastructure. 

While BRC-20 tokens work by inscribing data directly onto individual satoshis, ARC-20 tokens link arbitrary tokens to satoshis. This creates an inherent value-add similar to how gold is used to back fiat currencies and global treasuries.

Both protocols rely predominantly on Taproot and other UTXO (Unspent Transaction Output) networks; however, ARC-20 tokens offer greater flexibility for data storage. While only one file can be stored using BRC-20 technology, Atomical’s protocol supports multiple.

Benefits of the Atomicals Protocol

The Atomicals protocol may not be Bitcoin’s original fungible token infrastructure, but it still packs plenty of punch and provides some novel use cases for the BTC economy.

  • Enhanced Asset Management – ARC-20 tokens facilitate the streamlined creation and management of native digital assets on Bitcoin.
  • Improved Scalability – Offers a versatile framework for building various tokenized assets, expanding Bitcoin’s utility.
  • Backed by individual satoshis – Satoshis are for token representation, ensuring compatibility with Bitcoin’s existing infrastructure.
  • Flexible Minting Options – Provides decentralized and direct minting methods, catering to diverse asset creation needs.

Where Can I Trade ARC-20 Tokens?

Despite not quite hitting the lofty highs of BRC-20 assets and Bitcoin Ordinals, ARC-20 tokens have still made their presence known on the market. 

Atomicals are integrated into several popular Bitcoin-native marketplaces, including UniSat Marketplace and SatsX, while the the protocol’s larger coins with higher market caps can also be found on some centralized exchanges.

On the Flipside

  • Atomicals are an experimental token standard that is highly speculative. While future use cases will surely be discovered, most ARC-20 tokens don’t have much practical utility at this stage.

Why This Matters

Bitcoin’s expanding ecosystem is one of the biggest narratives in the crypto space. Staying informed on the capabilities of each new protocol will help you stay safe and make educated decisions in the market. 

FAQs

What is ARC20?

ARC-20 is a token standard for issuing and managing fungible tokens on the Bitcoin blockchain.

Where can I buy Atomicals?

You can buy Atomicals on popular marketplaces in the Bitcoin ecosystem, like UniSat and SatsX. Alternatively, top ARC-20 coins are also listed on some centralized exchanges.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

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Finn Miller

Finn Miller is a New Zealand-based blockchain writer for DailyCoin who specializes in simplifying complex blockchain topics. He is experienced in crafting whitepapers, researching on-chain data, and advising emerging crypto projects, and uses his unconventional approach to learning and passion for knowledge to provide cornerstone educational content for readers of all levels. When not exploring the depths of DeFi, Finn can be found exploring his other passion, the great outdoors.