Bitcoin Runes
Bitcoin is the first cryptocurrency and is widely viewed as a digital store of value with decentralization and blockchain at its core. Bitcoin’s mysterious creator, Satoshi Nakamoto, launched an open-source distributed network with a shared ledger, the blockchain, that tracks every transaction.
As Bitcoin gains popularity as a store of value and the leading crypto asset by market cap, the scripting language limitations on the Bitcoin blockchain have hampered the development of smart contracts and other fungible tokens. As a result, alternative blockchain networks such as Ethereum, Solana, Cardano, Polkadot, etc. have become increasingly popular, providing developers with the opportunity to create decentralized applications (DApps) and a more adaptable environment to attract a wider audience.
However, this changed with the launch of the BRC-20 token in 2023, followed by the release of Bitcoin Runes in April 2024, opening the door for the creation of fungible tokens and community-driven projects directly on the Bitcoin network.
This article explores the latest innovations on the Bitcoin blockchain, including token standards and development, the Bitcoin Runes protocol, how Runes differ from BRC-20 tokens and Bitcoin Ordinals, and the advantages Runes offer. It also includes a detailed step-by-step guide on how to buy Bitcoin Runes.
How do Bitcoin Runes differ from BRC-20 tokens and Bitcoin Ordinals?
To understand the Runes protocol, you may want to first study Bitcoin ordinals and the BRC-20 token standard.
Bitcoin Ordinal Protocol
Bitcoin Ordinals were launched on the Bitcoin mainnet by Bitcoin developer Casey Rodarmor on January 20, 2023, marking an important milestone in the tokenization of the Bitcoin blockchain.
The protocol allows users to burn various types of data, including text, images, videos and even smart contracts, directly onto the Bitcoin blockchain. Ordinals, also known as Bitcoin non-fungible tokens (NFTs), have piqued the interest of the cryptocurrency community with a mixture of enthusiasm and skepticism.
Ordinals were made possible by key upgrades to the Bitcoin network, namely the 2017 Segregated Witness (SegWit) upgrade and the 2021 Taproot upgrade. These upgrades enhanced Bitcoin’s smart contract capabilities by allowing large amounts of data to be burned on the blockchain. Burning refers to information integrated into satoshis, the smallest unit of Bitcoin.
Ordinals introduces a new way to add utility and value to Bitcoin beyond its role as a store of value through this unique system of recording data in satoshis, allowing the creation of Bitcoin NFTs. This adds a new layer of functionality to the network, enabling people to securely create, own, and transfer unique digital assets on the blockchain.
BRC-20 Tokens
Following the launch of Ordinals, the BRC-20 standard was created by anonymous developer Domo in early March 2023. Like Ethereum’s ERC-20 standard, the BRC-20 token standard allows for the generation and transfer of fungible tokens directly on the Bitcoin network through Ordinal inscriptions.
Within three months, the BRC-20 token price grew exponentially, reaching a market cap of $1 billion. However, the network became clogged due to excessive unspent transaction outputs (UTXOs) being generated, which caused congestion.
UTXO is the amount of BTC left after a transaction, similar to the change left after a cash purchase.
Bitcoin Runes
Bitcoin Runes aims to simplify the creation of fungible tokens on the Bitcoin blockchain and alleviate challenges such as the UTXO bloat problem caused by BRC-20 tokens. On Runes, each transaction first identifies unspent UTXOs (similar to collecting loose change) and then creates new transactions using those UTXOs.
How do Bitcoin Runes work?
Essentially, the Runes protocol uses Bitcoin’s UTXO model and the OP_RETURN opcode to simplify the process of creating fungible tokens on the Bitcoin blockchain. A Rune is a unique digital asset that is assigned to a UTXO using a protocol message that contains specific details such as the Rune ID, output index, and amount, all of which are stored in the OP_RETURN output.
Compared to protocols that rely on off-chain data or dedicated tokens, the Runes protocol leverages Bitcoin’s inherent on-chain data storage capabilities. This approach minimizes the emergence of bad “junk” UTXOs, which can cause network congestion, resulting in slower transactions, increased costs, and reduced reliability.
Additionally, Rune balances are tracked within UTXOs rather than being linked to wallet addresses. Runes are transferred using Bitcoin transactions, with an OP_RETURN output specifying the transfer details.
Runes can be etched (created), minted (generated), and transferred via runes, which are messages stored in Bitcoin transaction outputs. Etching involves setting properties such as name, divisibility, and symbol. Minting creates new tokens based on the etched properties. Transferring a rune involves fiat, specifying transfer details such as output number, rune ID, and amount.
How to buy Bitcoin Runes?
The Bitcoin Rune Protocol does not have its own specific token. Also, it should not be confused with THORChain’s RUNE token, which is a separate, unique cryptocurrency used within the THORChain ecosystem.
The pioneering rune-themed Bitcoin NFT collection based on the Bitcoin Ordinal Protocol includes Satoshi•Nakamoto, RSIC•Genesis•Rune, Meme•Economics, Dog•Go•To•The•Moon, and more.
To buy or sell runes, follow these steps:
Step 1: Choose a Bitcoin wallet that is compatible with Runes. Popular wallet options include XVerse and Magic Eden.
Step 2: The Runes protocol runs on the Bitcoin network, so you need to own BTC to send Runes and pay transaction fees.
Step 3: Connect to a Runes-supported marketplace such as UniSat, OKX, or Magic Eden. Select a Runes project to view its trading activity (e.g., volume, order book, and price history) and fees, then proceed to trade.
It is important to note that runes cannot be purchased individually; instead, they must be purchased in "bags," which usually come in packs of at least 100. However, this may change in the future.
The Future of the Bitcoin DeFi Ecosystem
The future of the Bitcoin decentralized finance (DeFi) ecosystem is bright, driven by significant technological breakthroughs. Implemented in 2021, Taproot enhances Bitcoin’s scalability and privacy, enabling more complex transaction conditions while maintaining efficiency.
Another important upgrade is SegWit, which helps the Bitcoin network increase transaction capacity and reduce fees by optimizing block space utilization. The introduction of Ordinals creates new opportunities for NFT-like applications on the network by engraving digital items directly on Bitcoin.
Additionally, new concepts such as the Bitcoin Runes protocol have introduced the creation of fungible tokens on the Bitcoin blockchain. However, the Runes protocol is in the early stages of development, so it is still likely to undergo significant changes and evolutions. Therefore, it is important to stay up to date with the latest updates before making any investments.
