Anand Sinha
+1 authors
4min read
Published on: Jun 5, 2024
#Blockchain
#Crypto 360
Bitcoin Runes is revolutionising how Bitcoin transactions are handled to improve functionality and user engagement.
KEY TAKEAWAYS
• Bitcoin Runes is a new way for users to create and control tokens on the Bitcoin network.
• It employs a part of the Bitcoin protocol known as the UTXO model and a code called OP_RETURN.
• Some of Bitcoin Runes' benefits include ensuring a smooth and effective way of dealing with tokens.
• It improves how Bitcoin interacts with these tokens to increase their usability, which increases the chances of people joining the network since launching meme coins, and other community-centric projects will be easier.
Bitcoin is not only a cryptocurrency but the first innovation to open the way to many other virtual assets. This started with Bitcoin Ordinals and now includes something new: Bitcoin runes. Below, we will explore how Bitcoin Runes work and why they have taken the spotlight in the crypto sphere.
Bitcoin blockchain is the basis for new virtual assets, including Ordinals, BRC-20 tokens, Runes, and more. Initially, we saw the emergence of Bitcoin Ordinals by Casey Rodarmor. These unique art pieces fit into extra spaces available in Bitcoin’s structure. Next, there was the BRC-20 token standard, which is not held on the blockchain, but its transactions are recorded using bits of Bitcoin known as satoshis.
In September 2023 Rodarmor didn’t stop there, he introduced Bitcoin Runes. He saw them as an opportunity to raise transaction fees, attract more developers, and attract more people to the Bitcoin blockchain. The main distinction between Ordinals and Runes is that the former are unique assets similar to collectables, while the latter are standardised, similar to a currency.
Bitcoin Runes appeared at the fourth halving of Bitcoin on April 20, 2024, when the blockchain reached 840,000 blocks. This event made it possible to create meme coins and other assets with Bitcoin Runes.
Bitcoin Runes use two key parts of the network: the Unspent Transaction Outputs (UTXO) model principles and the OP_RETURN opcode.
Image: How the Bitcoin runes protocol works, by QuillAcademy
A UTXO is the amount of BTC remaining in your account when making a transaction. Consider the UTXO model as a process of tracking your change.
For example, suppose you decide to make a purchase for 0.5 BTC. How cryptocurrency transactions work is that the network will send 1 BTC to the seller and will automatically return 0.5 BTC to you. You are left with a UTXO of 0.5 BTC. Using Bitcoin Runes, each UTXO can contain not one but several types of these virtual assets.
Next, there is the OP_RETURN opcode. This specific feature of Bitcoin allows you to include additional information with a transaction. It is a method of sending a message alongside a Bitcoin transaction without changing the amount of BTC.
Another essential concept is etching. This is akin to creating a new kind of Bitcoin, known as the Rune token, and then assigning specific properties to it, such as name and symbol, with the help of the OP_RETURN opcode. Picture this: You have a piece of paper, write a nice message, and then put it on the wall where others can see it. A Rune creator can now prepare some of these tokens before allowing others to acquire them.
Minting is when regular individuals can create their own Bitcoin Runes. It is as if you have that paper with that excellent message and make copies to post it.
The Bitcoin Runes protocol was created by Casey Rodarmor, an influential personality in the cryptocurrency space, in September 2023. Rodarmor, who is also behind the Ordinals Protocol, has been working on Runes, with the goal of making it easier to mint tokens on Bitcoin. However, the development of Runes has not yet begun on the Bitcoin mainnet, but some developers are already using it to create projects such as Runealpha, PipeBTC, and RSIC.
Rodarmor mentions that Bitcoin Runes is a simple protocol that does not add unnecessary data to the Bitcoin blockchain. It also effectively deals with UTXOs, which are unspent transaction outputs, meaning portions of bitcoins that have not been used and are available to be spent in the next transaction.
Runes differs from the earlier BRC-20 token standard, which is complex and does not involve the UTXO model. This older standard can be a bit of a hog and flood the network with more information than it needs.
The Runes model seeks to enhance not only the BRC-20 standard but also other token systems on Bitcoin, such as RGB and Taproot Assets that rely on off-chain data storage. For example, Taproot Assets does not store information about its tokens on the main blockchain, which can be cumbersome. Omni Layer and Counterparty, for example, function using their tokens, which Rodarmor argues makes them clunky and less convenient to use.
RSIC, which stands for Rune Specific Inscription Circuit, is a unique system that combines elements of Bitcoin Ordinals with a concept known as ‘yield farming.’
A group that created this system minted 21,000 individual Bitcoins, called RSICs, using the Ordinals protocol. Each RSIC has some Runic symbols, which are the early Germanic alphabets, and each is associated with an early form of writing. RSICs, one of the new projects emerging from the planned Bitcoin Runes protocol, are primarily intended to distribute Rune Coin in the future.
In January 2024, the RSIC project distributed 90% of the 21,000 RSICs for free to some of the Ordinals wallet addresses used since the protocol's inception. Owners of the Bitcoin Frogs, Nodemonkes, and Bitcoin Puppets Ordinals also got these free RSICs, which are currently worth approximately 0.1 BTC ($6,100).
The project held RSICs with over 9,000 wallets. After the Bitcoin halving in April, each RSIC will was assigned in a raffle, where 21 billion Rune tokens were distributed. The owners of these inscriptions have received their “NFTs” and started generating Runes by transferring them to the same wallet or a different one assigned by them.
Below are some possible advantages of the Bitcoin Runes protocol:
More Users: Projects will be able to develop various types of tokens, including security tokens, stablecoins, and governance tokens, using the Bitcoin Runes protocol on the Bitcoin blockchain. This could increase Bitcoin's user base, and more people will use it for fast and cheap transactions because the new protocol is expected to be compatible with the Lightning Network. In essence, Runes can assist Bitcoin in reaching more people and becoming more accepted.
Increased Revenue: The more people use Runes tokens, the more transaction fees will be collected. This revenue increase will benefit miners and encourage them to continue protecting the Bitcoin network. Since the block reward halved in April, miners are searching for other revenue sources, and Runes might be the solution they need.
Innovation: This has been evident with the RSIC example, where the Bitcoin Runes protocol is encouraging developers to come up with new and exciting ways of using the Bitcoin blockchain and allowing users to do things that were previously impossible. It also opens up a chance for more developers to become part of Bitcoin, leveraging its stability and security to create new applications.
Proper Delivery of Fungible Tokens: The Bitcoin Runes protocol is designed to enable the development of assets on the Bitcoin network with benefits and as few drawbacks as possible. It builds on previous token protocols that rely on native tokens and additional information. Its design is also more advanced than the BRC-20 token standard, which was developed more as a proof of concept for the Ordinals protocol. Therefore, due to the severe approach of Runes, it can outperform other BRC-20 tokens.
Bitcoin Runes is revolutionizing the cryptocurrency process of the Bitcoin blockchain by developing a new model of handling transactions. This innovation increases the use of Bitcoin, making it more adaptable and interactive for the user. Below, we will explain what is so special about Bitcoin Runes.
Simplicity | Bitcoin Runes is an application that makes trading in BTC easy. What’s more, it is friendly to use, making Bitcoin use open to anyone, including those with little knowledge of technology. |
Productivity | Runes are based on the UTXO model, which is incredibly efficient. This means you can generate as many tokens as possible without clogging the Bitcoin blockchain. The OP_Return opcode assists by storing all the information on the blockchain without consuming more space. |
Utility | Rodarmor dismissed Runes as just for fun or as memecoins of Bitcoin as there is much more to them. We are eager to know how people will creatively use them. Rodarmor aimed to increase activity and fees on the Bitcoin blockchain because miners' earnings have been low. |
User Base | Memecoins on Runes have contributed to the growth of users in the Bitcoin blockchain, encouraging miners to dedicate more time and resources to the network. Altogether, this has created an enthusiastic user base for Bitcoin Runes. |
From the metrics, the following can be concluded about Bitcoin Runes:
Bitcoin Runes set a record for transactions on their launch, marking the fourth halving of Bitcoin, surpassing the usual Bitcoin tokens, BRC-20 tokens, and Ordinals.
Dune Analytics reported that Bitcoin Runes had as much as 753,584 transactions on April 23rd. This number was much higher than the 171,401 transactions for regular Bitcoin tokens, 1,335 for BRC-20 tokens, and 690 for Ordinals. This day was the highest activity for runes so far.
When Runes were introduced on April 20, they accounted for 73. One in every twenty Bitcoin transactions, hence 5% of all the transactions. By April 23rd, this number had risen to 81.3% is the highest stress level experienced in the survey's history.
In the future, Rodarmor aims to allow trading directly between users, minimise reliance on centralised cryptocurrency exchanges, and tackle issues like replace-by-fee (RBF). RBF allows users to replace an unconfirmed transaction with a new one with a higher fee to encourage miners to include it.
Also, Rodarmor expects that the OP_CAT Bitcoin Improvement Proposal (BIP) will be approved, enabling Runes tokens to be connected with Layer 2 networks. He believes that this BIP will be accepted into Bitcoin within the next one yearOP_CAT, an original opcode in Bitcoin’s script that means “concatenate,” was removed by Satoshi Nakamoto to prevent DoS attacks. Despite the potential security threats of reintroducing OP_CAT, some developers think it could add new dimensions to Bitcoin by allowing connections to other blockchains.
New token issuance on the Bitcoin network now has another gateway through Bitcoin Runes. Bitcoin was not developed for this, but witnessing new activities around the oldest blockchain model lively is rather interesting.
What has been done in Bitcoin Runes is quite interesting as the project relies on some of the network’s native characteristics to provide what might turn out to be another significant entrant into the already crowded blockchain space. With this growing enthusiasm, the usage and adoption of the Bitcoin network are on the rise. The market has yet to see how the traditional investor will receive it, but for those who are well acquainted with the crypto world, more use cases of the Bitcoin network are always good.
However, Bitcoin Runes is currently in its early stages. As with any new technology, its performance could be affected by considerable changes and fluctuations. The projects starting to use this technology are currently not the most trustworthy. Thus, it is crucial to do your research on investing in any cryptocurrencies.
We recommend you to do your own research and trade carefully. The primary launchpad of Bitcoin Runes is Bitcoin Rune. A few marketplaces, such as Magic Eden, have also started platforming Runes tokens. Runes is a relatively new asset segment that has generated a lot of noise in the crypto community. However, trading Runes tokens is quite expensive and risky.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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