What Are Bitcoin Runes?
Bitcoin Runes are among the most hyped events in the cryptocurrency sector for 2024. Bitcoin Runes are a new token standard that simplifies the creation of fungible tokens on the Bitcoin blockchain.
Bitcoin Runes are among the most hyped events in the cryptocurrency sector for 2024. Bitcoin Runes are a new token standard that simplifies the creation of fungible tokens on the Bitcoin blockchain.
Launched in the aftermath of Bitcoin's fourth halving on April 20, 2024, the introduction of Bitcoin Runes dramatically impacted transaction fees, which spiked to new records on the same day, with the average cost hitting over $127.
The creator of Bitcoin Runes is Casey Rodarmor, a renowned developer who also introduced Ordinals in September 2023. Ordinals is another innovation on the Bitcoin blockchain that allows the embedding of NFTs directly onto Bitcoin through inscriptions—pieces of data integrated into satoshis, the smallest units of Bitcoin.
In this article, we’ll explore what is Bitcoin Runes, how it functions and how it solves the limitations of the Bitcoin blockchain.
What Problem Does Bitcoin Runes Solve?
Bitcoin was initially created to serve as a secure, decentralized method for storing and transferring value, and it has excelled in this role for more than a decade.
When Bitcoin launched in 2009, the Bitcoin (BTC) blockchain was designed to support just its native cryptocurrency, BTC. In contrast, the Ethereum network included a virtual machine in its infrastructure, which facilitated the creation of smart contracts, decentralized applications (dapps), and both fungible and non-fungible tokens. These capabilities spurred the development of entire ecosystems centered around decentralized finance and digital art, among other areas.
As Bitcoin gained recognition as a prime store of value and the leading crypto asset by market cap, the limitations of its scripting language restricted the development of smart contracts and other types of tokens. However, this began to change in 2023.
By early 2023, a significant innovation, Ordinals, transformed the landscape of the world's largest blockchain. Created by developer Casey Rodarmor, this protocol enables users to embed various types of data—ranging from text and images to videos and even smart contracts—directly onto the Bitcoin blockchain.
Following the advent of Ordinals, in early March 2023, a pseudonymous developer known as Domo introduced the BRC-20 standard. Mirroring Ethereum’s ERC-20 standard, BRC-20 allowed for the creation and transfer of fungible tokens directly on the Bitcoin network through Ordinal inscriptions.
Despite its innovative approach, the BRC-20 standard faced considerable criticism from many in the Bitcoin community, partly because these tokens led to network congestion by generating a high volume of unspent transaction outputs (UTXOs), which overwhelmed the network. UTXOs represent the remnants of Bitcoin left after transactions, akin to the change received from a cash purchase.
Addressing these issues, Casey Rodarmor unveiled another groundbreaking solution in late 2023: Runes. This technology not only supports the development of fungible cryptocurrencies on Bitcoin but also tackles the inefficiencies associated with the BRC-20 standard.
How Does Bitcoin Runes Work?
Runes is an initiative designed to make the creation of fungible tokens on the Bitcoin blockchain more streamlined. Before delving into how Bitcoin Runes operates, it's essential to grasp the fundamentals of Bitcoin transactions. Each transaction on the Bitcoin network necessitates inputs and outputs in the form of Unspent Transaction Outputs (UTXO). Essentially, a UTXO represents a certain amount of digital assets that resulted from a previous transaction and is awaiting further use.
Put simply, UTXOs are comparable to the change left over after a cash transaction—they are the amounts of BTC remaining after a transaction has been processed. If you have previously tried to mint a BRC-20 token or an Ordinal NFT and were beaten to it by another collector, you likely ended up with a UTXO instead of the asset you wanted. Nonetheless, this UTXO remains usable for future transactions, even if you did not acquire the sought-after collectible.
The Runes protocol manages token issuance and tracking through the use of UTXO, employing the OP_Return function, which allows tagging each asset with critical data. OP_Return is a specific function tailored for storing data within Bitcoin, which adds a distinctive aspect to Bitcoin Runes. It enables users to mint runes and insert specific data onto UTXO assets—including names, symbols, or limits on supply—without affecting the asset's ability to be spent.
Most notably, the Runes protocol’s implementation of OP_Return limits users to adding up to 80 bytes of data to an asset. This constraint is considerably more efficient than the BRC-20’s large memory requirement, which allows up to 4MB. Ultimately, this makes the Runes system more resource-efficient on the network, enhancing its overall effectiveness.
How to Buy Bitcoin Runes?
The Bitcoin Runes protocol does not have its own dedicated token. However, there are several innovative Runes-themed Bitcoin NFT collections that utilize the Bitcoin Ordinals protocol, such as Satoshi Nakamoto, RSIC, Genesis Rune, Meme Economics, and Dog Go To The Moon.
If you're interested in buying or selling Runes, you can follow these steps:
Select a Bitcoin wallet that supports Runes (XVerse and Magic Eden).
Since Bitcoin Runes operates within the Bitcoin network, you will need to have some BTC to manage Runes transactions and to pay for any associated fees.
Access a marketplace that supports Bitcoin Runes, like UniSat, OKX, or Magic Eden. Within the marketplace, choose a Runes project, examine its trading metrics such as volume, order book, and price history, understand the transaction fees, and proceed with trading.
Final Words
At its core, the Runes protocol provides a highly efficient method for creating and issuing fungible tokens on the Bitcoin blockchain. It is significantly less demanding on resources compared to older protocols like BRC-20, leveraging unspent residual assets to store data and token information.
Opting for Runes over BRC-20 tokens helps alleviate congestion on the Bitcoin network by recycling and repurposing UTXOs, which would otherwise remain unused and contribute to network clutter.
An additional advantage of Bitcoin Runes is their compatibility with the Bitcoin Lightning network. This allows for the potential issuance and trading of Runes in seconds, while also benefiting from the substantially lower fees of Bitcoin’s Layer 2 solutions.
Bitcoin Runes offer a broad spectrum of applications. Similar to how ERC-20 tokens function on the Ethereum network, Runes can be used to initiate various fungible token projects. However, they not support smart contracts due to the protocol’s limited programmability, which might restrict some potential uses of Runes.
