Bitcoin Runes, a new protocol for issuing NFTs on the Bitcoin network, has raised market interest by accumulating over 2,500 BTC in fees after its introduction less than two months ago. This milestone occurred at the same time as the 2024 Bitcoin halving. This milestone is significant, as it represents a value of more than $163 million based on actual prices and marks a massive shift in the BTCFi ecosystem.
The Bitcoin Runes protocol has surpassed alternative token standards like Ordinal inscriptions and BRC-20 tokens, on the Bitcoin network – as the data shows, Runes-related transactions represented 12.2% of total transactions compared to Ordinal inscriptions, which made up only 0.6%, and BRC-20 tokens which represented 5%. Bitcoin Runes are also relevant for miners, increasing transaction fees, which translates into a financial boost after the halving event that reduced block rewards from 6.25 BTC to 3.125 BTC.
Understanding Bitcoin Runes
Bitcoin Runes represents an interchangeable token standard that Casey Rodarmor ( who’s also the founder of the Ordinals protocol) introduced in September 2023. Runes is a further development of the BRC-20 standard that developer Domo launched in March 2023, but compared to it, Runes is much more practical and efficient, which shouldn’t be surprising given that BRC-20 was thrown together rapidly as more of a proof-of-concept.
The Runes protocol uses the same function as BRC-20, namely OP RETURN, for token information records in a separate BTC transaction output that isn’t accessible for spending. However, it’s worth noting that Runes has some technical differences that make transactions with new assets seamless and lower the burden on the blockchain.
The main advantage of Runes over BRC-20 is that they provide direct support for UTXO Bitcoin and can conduct transactions directly on the Lighting Network. Furthermore, as Casey Rodarmor stated, the new protocol encourages more responsibility in UTXO management while requiring less I/O compared to BRC-20, thus enabling less clogging of the blockchain.
When interacting with Runes, it’s worth noting that standard Bitcoin wallets aren’t suitable because they won’t display any extra transaction data, and their UIs aren’t adapted to the protocol, either. So, anyone who wants to conduct a transaction must use a specialized service. Different mobile apps are available to this end, supporting different token standards based on the Ordinals, the Runes, and Stacks protocols, so we recommend doing your research and choosing the most trustworthy one. Also, issued tokens are sold on specialized trading platforms.
As Bitcoin runes gain popularity, we are seeing their adoption on traditional NFT marketplaces that sell Ethereum NFTs like Magic Eden.
A Look Into How Runes Work
Runes partially uses the solutions of BRC-20, so it’s easier to understand the protocol from a technical perspective if you’re already familiar with the other standard and how the UTXO system works.
Runes uses the OP_RETURN command, enabling you to attach extra information to a Bitcoin transaction (Ordinals rely on the same command to create Inscriptions or Bitcoin NFTs). Also, instead of adding files to a transaction, Runes attaches a special message known as a runestone that contains different lines of code defining or changing a new token’s parameters.
OP_RETURN enables different kinds of transactions through the insertion of standardized code templates, such as:
- Transferring, enabling the sending of assets from the balance of a user to another address;
- Etching, prescribing basic parameters of the future asset such as transfer features or a general offer;
- Burning, destroying a specific number of tokens through a runestone with an error in the code or a special edict;
- Minting uses prescribed rules to create a specific number of tokens.
Therefore, a runestone can be compared to a smart contract in the blockchain that is recorded as part of a standard transaction. An essential feature of the Runes is that they enable the transfer of the runestone from the transaction input to the output. As a result, the transactions can be conducted just as regular Bitcoin transactions – this isn’t the case for BRC-20 tokens, which need additional actions.
The Runes protocol establishes an encryption system for the data within the runestone, which means only compatible wallets can recognize it. So, if a transaction using Runes appears in a normal browser, the OP_RETURN opcode will ensure only a numeric combination will be seen.
The Impact Of The Runes On Bitcoin Mining
As mentioned, Runes has generated more than 2,500 BTC, translating into around $170 million in market value. This is notable because the protocol has only been around for a while and has helped miners maintain their revenues.
On April 23, the BTC network recorded the most significant number of confirmed payments: over 1.6 million transactions. Bitcoin Runes undoubtedly played a massive role in this spike, offering a lifeline for miners. Higher transaction fees from activity related to the Runes protocol could boost miners’ revenue, which is particularly important considering that the block rewards are cut in half every four years.
Despite The Opportunities It Offers, Runes Also Comes With Drawbacks
There’s no doubt that Bitcoin runs the door to some incredible possibilities as well as use cases, but that doesn’t mean they are flawless. First, runes use a distinct approach from Ordinals, meaning developers must re-adapt to the new standard. Furthermore, every new protocol introduced on Bitcoin moves Bitcoin away from its original purpose of a store of value, creating concerns among users.
Like any innovation in the Bitcoin ecosystem, Runes is prone to changes and fluctuations. Once the demand for it rises, the cost of transferring NFTs could likely increase the asset’s cost, affecting users and further adoption.
What Lies Ahead For Bitcoin Runes?
The Bitcoin Runes protocol was introduced alongside the Bitcoin halving, and around 7,000 runes were minted only two days after the launch. Interestingly, the project had already captured the community’s attention even before its official launch.
Regarding what lies ahead for Bitcoin Runes, the future is uncertain, but overall, its potential success will depend on its essential features, including its design as the Bitcoin’s native UTXO model, as well as how the community and users receive it and other external factors in the crypto ecosystem.
