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What is SRC-20?
SRC-20 is a technical standard for creating and managing tokens on the Bitcoin blockchain. It is inspired by the ERC-20 tokens on Ethereum.
Token standards exist to ensure that tokens are created and managed in a consistent and compatible manner with the smart contracts associated with them. It means that these tokens can be easily stored, traded, and moved between various applications and wallets without any issues.
Techopedia Explains
SRC-20 is a standard that sets the specifications for Bitcoin Secure Tradeable Art Maintained Permanently (Stamps) – unique digital artworks launched in March 2023 that are stored on the blockchain.
Bitcoin Stamps initially used the Counterparty protocol, a peer-to-peer (P2P) platform built on the Bitcoin blockchain in 2014, which burns BTC in exchange for Counterparty’s XCP coin to execute smart contracts.
Minting, or creating, Bitcoin Stamps converts an image into text, adds “Stamp:” before the text, and encodes it as a Base64 file. It then sends the encoded file to the Bitcoin network to be validated and recompiled into the original.
SRC-20 transactions are now created directly on the Bitcoin blockchain and are no longer supported as Counterparty transactions. Such tokens do not need to burn BTC or use alternative cryptocurrencies (altcoins), facilitating seamless payments for BTC transactions with embedded data.
This standard is similar to the BRC-20 standard, which governs token creation on the Binance blockchain, but takes a different approach to embedding data.
Bitcoin Stamps are often referred to as Bitcoin’s non-fungible tokens (NFTs), but the data is added directly to a Bitcoin transaction’s unspent transaction outputs (UTXOs) rather than attached to a token. This is designed to ensure that art is stored on the blockchain permanently and impossible to prune.
SRC-20 tokens must include the required fields for a Bitcoin Stamp number to be created correctly. Otherwise, the transaction will be invalid and, thus, not appear in the Bitcoin Stamps Protocol index or application programming interface (API).
The Stamp Wallet for Chrome allows users to mint, deploy, and transfer SRC-20 tokens. Rarestamp can also deploy SRC-20 tokens, and holders can trade them through Openstamp.
Advantages of SRC-20
| Advantages | Description |
| Simplified Token Creation | The SRC-20 standard does not require burning BTC or other tokens and includes data directly in blockchain transactions. |
| Increasing Accessibility | It enables fractional ownership so that individuals can own a portion of an asset without having to invest a large amount of money upfront. This creates new opportunities for a broader range of users. |
| Streamlining Transactions | It uses smart contracts to attach images and text to a blockchain transaction rather than creating a separate NFT. |
Limitations of SRC-20
| Limitations | Description |
| Scalability | As with many blockchain-based systems, the Bitcoin blockchain on which SRC-20 operates faces scalability challenges. As the number of transactions rises, the network can become congested, delaying settlement and increasing transaction fees. |
| Security Risks | Vulnerabilities in the coding of smart contracts and protocols can create security risks, which can result in token holders suffering financial losses. Developers must stay up to date on the latest security threats and best practices. |
| Regulatory Challenges | The attitudes of regulators around the world to digital assets are constantly changing, creating uncertainty surrounding regulatory frameworks and compliance requirements. |
The Bottom Line
SRC-20 is an emerging standard for embedding artwork in the form of images on the Bitcoin blockchain. Such tokens have the potential to enhance accessibility and increase liquidity by enabling fractional ownership and streamlining transactions.
Cryptocurrency tokenization is dynamic, and SRC-20 specifications are already demonstrating ongoing innovation in the way they operate.
