The advent of Ordinals and Inscriptions marked a turning point in the story of Bitcoin, welcoming in a new era for the flagship cryptocurrency. We saw all types of Bitcoin NFTs, and the community even found a way to put fungible tokens on top of Ordinals with BRC-20 tokens.
Most recently, the builder behind Ordinals (Casey Rodarmor) launched a new and more efficient way to put fungible tokens on Bitcoin. Enter the Runes Protocol.
The Runes Protocol utilizes Bitcoin’s unique UTXO model in order to bring fungible tokens to the chain. Bitcoin’s UTXOs, which hold piles of Satoshis (sats), are extended to also hold balances of arbitrary fungible tokens, called Runes.
There is no change to Bitcoin’s software or consensus rules. Everything required to reconstruct Runes exists inside the Bitcoin chain, with no third-party or off-chain components.
Runes are completely unrelated to Ordinals, Inscriptions, and BRC-20 tokens, and are directly competitive with BRC-20s. Runes are much more efficient at using blockspace compared to BRC-20s (and contribute less to state bloat). They are also likely to be more compatible with Bitcoin protocols (wallets, bridges, and scalability solutions), as they simply exist on UTXOs (like Bitcoin). In contrast, BRC-20s usually required Ordinal-supported infrastructure in order to interoperate.
At launch, only 13- to 26-character Rune names are available. Every four months until the next Halving, a shorter character limit will be unlocked, e.g., all 12-character names will be unlocked by August 2024. This will culminate in the unlocking of one-character Rune names in 2028, creating an intrinsic hype cycle for Runes over the next four years.
Runes have had a visible impact on Bitcoin’s fees and transaction count, responsible for over US$145M in fees and around 45% of all Bitcoin’s transactions since launch.
Runes have internal airdrop mechanics (such as delayed minting) and more features in development. Bitcoin soft fork proposals have also been gaining more traction in recent months. Runes’ infrastructure improvement will be key, especially if they aim to dethrone the incumbent BRC-20 standard.
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