The introduction of Ordinals in 2023 brought significant momentum to the growth of native Bitcoin assets. Casey Rodarmor, the creator of the Ordinals protocol, announced plans to launch the Runes protocol around the time of the Bitcoin halving in April 2024.
This guide provides a clear understanding of what Bitcoin Runes are and how they are likely to influence the broader Bitcoin ecosystem.
What Is the Runes Protocol on Bitcoin?
The Runes protocol is a token standard designed for issuing fungible tokens on the Bitcoin blockchain. It aims to provide users with a more efficient method for creating fungible tokens.
Runes is scheduled for release in April 2024, coinciding with the upcoming Bitcoin halving event.
Who Created the Runes Protocol?
Bitcoin developer Casey Rodarmor introduced the concept of the Runes protocol in September 2023. He proposed it as an optimized token standard for issuing fungible assets on Bitcoin.
Since then, he has been dedicated to developing the protocol with the goal of launching it in April 2024. Rodarmor is a well-known figure in the cryptocurrency space, particularly as the creator of the Ordinals protocol. Developers have used Ordinals to create various token standards for native asset issuance on Bitcoin.
Although the Runes protocol has not yet been launched on Bitcoin mainnet, several developers are already building projects based on its framework. Some early examples include Runealpha, PipeBTC, and RSIC.
Why Was the Runes Protocol Created?
In his blog post, Rodarmor described Runes as a simple protocol with a minimal on-chain footprint and responsible UTXO management.
UTXO, which stands for Unspent Transaction Output, refers to a unit of Bitcoin value associated with a specific address on the blockchain. It represents funds that have not been spent and can be used as input in new transactions.
Runes differs from the BRC-20 token standard, which is complex and not based on the UTXO model. This characteristic of BRC-20 leads to the generation of excessive "junk" UTXOs, contributing to network congestion on Bitcoin.
The goal of Runes is to replace the inefficient Ordinals-based BRC-20 token standard.
Furthermore, the Runes protocol aims to improve upon other existing Bitcoin fungible token protocols like RGB and Taproot Assets. These alternatives often rely too heavily on off-chain data.
For example, Taproot Assets stores asset metadata off-chain, separating asset information from the Bitcoin main layer. Other options, such as Omni Layer and Counterparty, require native tokens to operate. In short, Rodarmor believes these limitations make existing protocols cumbersome and less user-friendly.
How Does the Runes Protocol Work?
Runes is built on a UTXO-based model, which allows for natural integration with Bitcoin's own UTXO system. This design helps minimize the creation of junk UTXOs that can lead to network congestion.
A UTXO represents a specific amount of Bitcoin you haven't spent yet and can use for new payments. It is the output of a previous Bitcoin transaction and remains spendable until used as an input in a new transaction.
A Rune is assigned to a UTXO through a protocol message that uses OP_RETURN to specify the output, ID, and amount.
OP_RETURN is a unique feature for Bitcoin data storage. OP_RETURN outputs do not occupy the UTXO set because they are provably unspendable.
The ID is a numeric identifier for the Rune, while the output specifies which output index receives the Rune tokens. The amount determines how many Rune tokens will be transferred.
All Rune messages—whether creating new Runes (etching) or transferring existing ones—are encoded within the OP_RETURN output of a transaction. Divisibility, Rune name, and other metadata are included in the same OP_RETURN within the same transaction.
The token supply of a Rune is contained within a single UTXO. The supply or transfer amount is a 128-bit unsigned integer, allowing a maximum value of 340282366920938463463374607431768211455. Each Rune has a "divisibility" setting that determines how many decimal places it can have, up to a maximum of 38.
UTXOs are used to track balances of Runes tokens. Interestingly, the Runes protocol does not link token balances to wallet addresses but instead keeps them within UTXOs.
Runes are transferred through a Bitcoin transaction with an OP_RETURN output that specifies the amount of Runes moving from inputs to UTXOs.
What Is the Difference Between BRC-20 and Runes?
The following are key differences between the BRC-20 and Runes token standards:
- Architectural Foundation: BRC-20 is built on the Ordinals protocol, which inscribes data on satoshis. Runes is a UTXO-native protocol that uses Bitcoin's existing transaction output model.
- Efficiency: Runes is designed to generate far fewer junk UTXOs compared to BRC-20, which is known for creating UTXO clutter that can congest the network.
- Data Handling: BRC-20 relies on off-chain data and indexers for balance tracking and transfers. Runes manages token balances on-chain through the UTXO set, requiring less external data reliance.
- User Experience: Due to its simpler and more Bitcoin-aligned design, Runes has the potential to offer a more straightforward user experience compared to the more experimental BRC-20 standard.
What Is the RSIC Metaprotocol?
Rune Specific Inscription Circuit (RSIC) is a metaprotocol that combines Bitcoin Ordinals with yield farming mechanics.
The team behind the RSIC metaprotocol used the Ordinals protocol to create 21,000 Bitcoin-based digital artifacts, often called "NFTs," known as RSICs. Each RSIC features ancient runic symbols (from old Germanic alphabets) and is linked to early inscriptions.
The goal of RSICs is to distribute a future "Rune Coin" to holders. RSIC is a project that emerged directly in response to the proposal of the Runes protocol.
RSICs Airdrop
In January 2024, the RSIC project airdropped 90% of the 21,000 RSICs. The airdrop targeted Ordinals wallet addresses that had been active since the protocol's launch.
Holders of popular Ordinals collections like Bitcoin Frogs, NodeMonkes, and Bitcoin Puppets were among the lucky recipients of free RSICs. The current floor price for an RSIC is approximately 0.1 BTC (around $6,100 USD). The project distributed RSICs to over 9,000 wallets.
RSICs enable their holders to accumulate or "farm" Runes until the halving event in April.
After the halving, each RSIC will enter a lottery phase where 210 billion Rune tokens will be distributed. Holders of these inscriptions can activate them by transferring them to either the same wallet or a different one to begin earning Runes.
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What Could Runes Bring to the Bitcoin Ecosystem?
Let's explore the potential benefits of the Runes protocol.
Increased User Adoption
The Runes protocol will enable projects to issue various types of fungible tokens directly on the Bitcoin blockchain, such as security tokens, stablecoins, and governance tokens. This could significantly expand Bitcoin's utility, attracting a wider range of users. Due to the protocol's potential compatibility with the Lightning Network, users could enjoy near-instantaneous and low-cost transactions. In other words, Runes could help Bitcoin move closer to its goal of mass adoption.
Additional Revenue for Miners
As more people interact with Runes tokens, it will lead to an increase in transaction fees. This will provide additional revenue for miners, incentivizing them to continue securing the Bitcoin network. With block rewards set to decrease again in April 2024, Bitcoin miners will need more sources of fee revenue. Runes could be the protocol that helps maintain miner engagement and profitability.
Fostering Innovation
As we've already seen with the RSIC example, the Runes protocol encourages developers to innovate in exciting new ways. It offers users opportunities to engage in activities on the Bitcoin blockchain that were previously unforeseen. It will also open doors for developers who wish to build and innovate on the world's most stable and secure public blockchain.
Efficient Fungible Token Issuance
The Runes protocol is designed to enable asset issuance directly on Bitcoin with minimal negative impact. As mentioned earlier, the protocol improves upon current fungible token protocols that rely on native tokens or off-chain data. Furthermore, its design is more considered than the BRC-20 standard, which was initially launched more as a demonstration of Ordinals' capabilities. The serious technical foundation of Runes may lead to greater success and stability compared to BRC-20 tokens.
Frequently Asked Questions
What is the main purpose of the Bitcoin Runes protocol?
The primary purpose of the Runes protocol is to provide a efficient and native method for creating and transferring fungible tokens on the Bitcoin blockchain. It aims to improve upon existing standards by minimizing network clutter and leveraging Bitcoin's core UTXO model.
When is the Runes protocol expected to launch?
The Runes protocol is scheduled for launch around April 2024, coinciding with the next Bitcoin halving event. This timing is set by its creator, Casey Rodarmor.
Do I need a special wallet to hold Runes tokens?
While full details will be confirmed at launch, it is expected that you will need a wallet that supports the specific technicalities of the Runes protocol and UTXO management. Many existing Bitcoin wallets will likely add support.
How does Runes differ from creating tokens on Ethereum?
Runes is built directly on Bitcoin's base layer, leveraging its security and UTXO model. Ethereum tokens use an account-based model and smart contracts. Runes aims for simplicity and minimal on-chain footprint, contrasting with Ethereum's flexible but sometimes complex smart contract environment.
What are the potential risks associated with Runes?
As with any new protocol, potential risks include unforeseen technical bugs, market volatility of new tokens, and the need for widespread wallet and exchange support to achieve liquidity. Always conduct thorough research.
Can Runes tokens be integrated with the Lightning Network?
The protocol's design allows for potential future integration with the Lightning Network, which could enable fast and cheap microtransactions for Runes tokens. However, this would require additional development work after the main protocol launch.