The groundbreaking innovation in token development within the Bitcoin network, Runes protocol possesses unique characteristics designed to reshape blockchain technology and create a new future for the Bitcoin ecosystem.
Runes introduced a new fungible token standard to the ecosystem, and the protocol’s launch was set to coincide with the Bitcoin halving, the most important event in the crypto industry, which halves mining rewards every four years, limiting the new supply.
This article dives deep into the origins of Runes, their unique characteristics, their underlying structure, the streamlined mechanisms and processes for token transfers and issuance, and the overall importance of the innovative emerging protocol.
It also offers insights into the top Runes on Bitcoin and the compatible wallets as well.
What Is the Runes Protocol
Before addressing the Runes protocol, we must first bring up Bitcoin Runes. These are fungible tokens that are issued directly on the Bitcoin network. But why were they created in the first place?
The need for innovation on the Bitcoin network is the main reason that brings along various benefits for the network.
Innovating Bitcoin Network
Bitcoin was created by Satoshi Nakamoto as a secure, decentralized store and transfer of value. For more than 10 years it was able to do this, but since Bitcoin’s launch, the overall blockchain ecosystem has expanded.
For instance, the Ethereum network incorporated a virtual machine (EVM) into the infrastructure.
The EVM allows the creation of smart contracts, and it unlocks dApps and fungible and non-fungible tokens. Such features led to inspiring the creation of entire ecosystems dedicated to DeFi, digital art and more.
Bitcoin does not support complex contracts by design as a long-term store of value, and it does not use a virtual machine, not being able to support dApps. Creating tokens on the Bitcoin network is challenging, and this is where Bitcoin Runes enter the picture.
Before Runes, the first way to create fungible and non-fungible tokens was the Bitcoin Ordinals protocol – it was designed to create a sort of Bitcoin NFTs. The Bitcoin stamps followed and then the BRC-20 protocol.
The Bitcoin ecosystem is set to embrace a new era following its fourth halving via Runes.
Explaining Runes Protocol
Developers or etchers can launch their own Rune tokens that they can name, set terms to, and manage. The creators of Rune tokens create them via etching – the mechanism creates a Rune and sets its properties, which cannot be altered after etching.
Overall, the lifecycle of a rune token involves the following processes:
- Etching – this means creating a new Runes token and setting its rules through a special transaction that includes an OP_RETURN output containing the token’s metadata (name, special attributes).
- Minting – this means making new units of an existing Runes token.
- Transferring Runes tokens – this means sending them from one wallet to another.
Luminex is the leading launchpad for Bitcoin Runes, Ordinals, and BRC-20 projects. Etching, minting, and transferring Runes can be made via the platform.
The first “rune” is “UNCOMMON GOODS,” which is “hard-coded” by Ordinals protocol founder Casey Rodarmor. Casey adjusted his previous plan of “hard-coding” numbers 0-9, that is, the first 10 “runes”, and only made “UNCOMMON•GOODS”. The maximum length of the “rune” ticker is 26 characters. “•” as a separator is not included in the character count, and it only makes the ticker more recognizable.
The Bitcoin network encapsulates a network of technologies, participants, and services that interact to support and facilitate using Bitcoin as a digital asset and financial system as well.
The Runes Protocol is a new token standard for issuing fungible tokens on the Bitcoin network. It aims to offer users a more efficient way of creating fungible tokens.
The Bitcoin Runes protocol was presented first back in September 2023, as a simplified and more effective alternative to the experimental BRC-20 standard for fungible tokens development.
At first, BRC-20 tokens have seen rising popularity following their launch back in March 2023. They reached a market cap of $1 billion within only three months.
Their widespread adoption triggered an accumulation of “junk” UTXOs, which caused network congestion. As a response, the protocol was designed to address the issue by implementing a UTXO-based approach that aims to cut unnecessary UTXOs. An unspent transaction output (UTXO) means the amount of digital currency that is left after a crypto transaction.
More specifically, UTXO refers to a transaction output that can be used as input in a new transaction. In essence, UTXOs define where each blockchain transaction starts and finishes. The UTXO model is a fundamental element of Bitcoin.
Unlike other token protocols for Bitcoin, such as Taproot Assets Protocol and Counterparty, Runes works without the need for off-chain data or a native token.
The Taproot Protocol is used for issuing assets on the Bitcoin blockchain that can be transferred via the Lightning Network (a Layer 2 payment protocol) for instant, high-volume, low-fee transactions.
Counterparty is a peer-to-peer financial platform and distributed, open-source Internet protocol built on top of the Bitcoin blockchain and network.
Who Created the Runes Protocol
The Runes Protocol was created by Casey Rodarmor, who is also the mastermind behind the Ordinal Protocol. Runes has been developed to be an alternative to the earlier BRC-20 token standard, as mentioned above.
In his official blog post about Runes, Rodarmor said that fungible tokens are 99.9% scams and memes, but, as they don’t seem to be going away too soon, creating a good fungible token protocol for Bitcoin is a good idea. This can bring important transaction fee revenue, developer mindshare and users for Bitcoin, according to him.
He also mentioned that if this protocol had a small on-chain footprint and encouraged responsible UTXO management, “it might serve as a harm reduction compared to existing protocols.” He addressed BRC-20, which has “the undesirable consequence of UTXO proliferation.”
He also shared his blog post on X on September 26, 2023.
New terrible idea just dropped: Runes.
A worse-is-better fungible token protocol for Bitcoin.https://t.co/TPVrUvWxm8
— Casey (@rodarmor) September 25, 2023
On April 26, Casey also brought up more issues with Bitcoin, stating that mining is centralized, the FBI is targeting privacy tools, and stablecoins on centralized chains see insane amounts of volume.
He says that the Runes tokens protocol alleviates all these minuses, and trading digital collectibles on Bitcoin and paying miner fees while doing so enhances the network and should not be seen as “turbo haram” – meaning something bad/forbidden.
Please Bitcoiners, I'm begging you, you're going to get brain hemorrhages if you keep being autistically apoplectic over ordinal theory. Like Bitcoin Rothbard (now tied for first for my favorite Rothbard) says, dumb != scam.
Mining is centralized, the FBI is targeting privacy… https://t.co/WAspcKbrLQ
— Casey (@rodarmor) April 26, 2024
When Was the Runes Protocol Launched
The Runes Protocol was launched on April 20, 2024, the same date as the fourth Bitcoin halving. The Bitcoin halving is seen as the most important event in the entire crypto industry, and the date for the Runes Protocol’s launch was picked to coincide with it.
OKX crypto exchange announced the OKX Web3 Wallet Runes Market was officially online. In an official announcement, the exchange reveals that it added support for Runes.
Dropping alpha 👇
Mint, manage & trade #Runes on our Marketplace using #OKXWallet. Proud to be the first to bring this for the Runes fam 💪 https://t.co/6G5UPFMrSw
— OKX (@okx) April 20, 2024
The exchange highlighted that the successful introduction of Runes support is on the same path as the broader vision of OKX of driving innovation and pushing the boundaries of possibilities in the Bitcoin ecosystem.
On the same day, UniSat, a Bitcoin service provider that supports inscription assets, also announced on X the launch of Runes.
🎉 We're excited to announce that #Runes has now officially launched on #UniSat!
✅Key features:
🔸Runes Etching
🔸Runes Mint
🔸Runes Marketplace
🔸Runes Manage📍Start Exploring https://t.co/aG2ZKwONiD pic.twitter.com/QxK3uNO3iw
— UniSat – Inscribe your dream. (@unisat_wallet) April 20, 2024
Runes integration could impact the economic model of Bitcoin, potentially amplifying fee generation. The Runes ecosystem attracted significant attention especially since the launch was scheduled during the same day as the Bitcoin halving event.
Ahead of the launch, CoinMarketCap, listed on X Runes’ overall ecosystem, on April 19:
Where Does the Runes Protocol Operate
The Runes Protocol is used to issue fungible tokens on the Bitcoin network. It acts as a layer top of Bitcoin, enabling users to create and manage multiple types of fungible tokens straight within the Bitcoin ecosystem.
These tokens could represent anything from community currencies and loyalty points to fractional ownership of real-world assets.
By simplifying the token creation process and offering compatibility with Bitcoin’s security infrastructure, Runes is able to open exciting possibilities for expanding the utility and reach of the Bitcoin network.
Why Is the Runes Protocol Significant
The features of Runes Protocol that make it stand out include the following: UTXO-based structure and efficiency, Bitcoin-enhanced security, a streamlined user experience, and compatibility with the existing infrastructure, along with easier token management.
UTXO Efficiency
The Runes Protocol leverages the existing UTXO model which represents a cornerstone for Bitcoin transactions.
Unlike some other methods that burden the blockchain with bulky data, the Runes protocol is able to minimize the data footprint of the tokens, making sure that they do not contribute to blockchain bloat, which represents a huge concern for Bitcoin’s scalability.
Bitcoin Security
Using UTXOs allows the Runes tokens to inherit the robust security mechanisms already established by Bitcoin. Runes tokens can benefit from the same level of security as Bitcoin itself.
UTXOs, or Unspent Transaction Outputs, are vital in Bitcoin and similar digital assets. They track balances during wallet transactions. In token development, UTXOs ensure accurate balance tracking and seamless transfers.
User-Friendly Protocol Design
Unlike more intricate protocols, the Runes Protocol offers a user-friendly approach to token creation. This means higher accessibility that encourages higher developer participation and a more vast array of tokens developed.
A streamlined UX can also bring a wave of new applications and projects within the Bitcoin ecosystem.
High Compatibility With the Existing Infrastructure
The Runes protocol is seamlessly integrated with the tools and wallets that are already used in Bitcoin’s ecosystem. This can eliminate the need for complex workarounds regarding the infrastructure.
Easier Token Management
Other protocols introduce additional data into transactions, but Runes provides an easier method for token management. This way, it addresses scalability and performance concerns.
How Does the Runes Protocol Work
The Runes Protocol leverages the Unspent Transaction Output (UTXO) model that is already inherent to Bitcoin. Such an approach allows the protocol to create fungible tokens with a smaller footprint on the blockchain.
The Runes Protocol acts as a complementary layer that can unlock new functionalities without compromising Bitcoin’s main principles.
Bitcoin mainly operates on a numerical sequencing model regarding the validation of transactions and management of data, and the Runes Protocol brings a novel approach via symbolic representations.
The integration happens at various levels within the Bitcoin network, and the Runes Protocol enhances Bitcoin’s transactional capacity. It does this by introducing symbolic representations of data in the Bitcoin transactions. This leads to higher privacy and security, while, at the same time, enabling the encoding of more complex data structures in the blockchain.
The Runes Protocol is a model in which each transaction consumes one or more UTXOs as inputs and creates new UTXOs as outputs to transfer the sum total of the Bitcoin transaction. Runes uses this structure to assign tokens to specific UTXOs, using a protocol message stored in an OP_RETURN output.
OP_RETURN is a section of a Bitcoin transaction that allows data storing, and it’s where the runestone resides. This part of the transaction enables the inclusion of Runes protocol messages directly on the Bitcoin blockchain.
Runes Protocol vs. Atomicals Protocol
An important aspect of the Atomicals Protocol was the introduction of the ARC-20 token, an interchangeable token. By leveraging Bitcoin’s UTXO feature, the Atomicals protocol ensures transparent and traceable transaction histories for all digital assets. But the downsides of Atomicals include the following:
- Limited Liquidity: Atomicals protocol is relying on counterparties to facilitate swaps. If there aren’t enough users interested in swapping a particular pair of assets, it can be difficult to find a match, hindering liquidity.
- Complexity: Atomic swaps come with more steps and cryptographic processes. This complexity can make them susceptible to errors and vulnerabilities if not implemented correctly.
- Limited Fungibility: Atomicals is focused on swapping between specific tokens. This can limit the fungibility of the tokens being swapped, because they may be seen as less interchangeable compared to established cryptocurrencies.
- Scalability: Atomic swaps can be computationally expensive, and this can affect scalability as the network grows.
Runes, like Atomicals, issues fungible tokens based on the UTXO mechanism, and the protocol aligns with the Bitcoin community’s consensus to avoid redundant data in token transactions. However, Runes differs by using OP-RETURN for data storage, and Atomicals utilizes SegWit’s 4MB space.
Runes Protocol vs. Ordinals Protocol (BRC20)
BRC-20 is an experimental standard for fungible tokens on the Bitcoin blockchain that unlocks new capabilities for the Bitcoin network, such as their use in DeFi protocols and blockchain applications.
BRC-20 is based on the Ordinal Theory. This requires complex procedures that can lead to bloating the blockchain with unnecessary data.
Runes Protocol leverages Bitcoin’s existing UTXO model, keeping its data footprint small while avoiding bloating the blockchain with unnecessary data.
Top 4 Runes on Bitcoin
Four of the most important early Runes on Bitcoin are:
- DOG•GO•TO•THE•MOON
- SATOSHI•NAKAMOTO
- Pepe in the Matrix
- Wall Street Bets
1. DOG•GO•TO•THE•MOON
DOG•GO•TO•THE•MOON is a rune that was etched and minted on top of Bitcoin via the Runes Protocol. Similar to other Runes tokens, DOG is a fungible crypto asset.
It’s one of the thousands of Runes-based assets launched on Bitcoin within the first day of the halving event on April 20. Its goal is to overtake DOGE’s market cap, according to Leonidas, its creator.
You can buy and trade DOG•GO•TO•THE•MOON on OKX.
2. SATOSHI•NAKAMOTO
SATOSHI NAKAMOTO is a rune that was etched and minted on top of Bitcoin via the Runes Protocol. The tokens can be traded on centralized crypto exchanges. The name of the Rune is obviously taken from the creator of Bitcoin.
Satoshi Nakamoto created Bitcoin during a financial crisis with the aim to be used in such financial crises by the world, as an alternative, as a path to freedom. The current supply of tokens is 21,171,200.
The most popular exchange to buy and trade SATOSHI•NAKAMOTO is OKX.
3. BITCOIN•PEPE•MATRIX
This is another meme coin, and according to the official website of the project, it is “designed to set humanity free from the jaws & claws of mediocre, mundane & shit memes by taking the MASK OFF the lies that have enslaved them since the beginning of Memes.”
Pepe in the Matrix is leveraging the theme of the most viral, iconic, and satirical meme on the internet, Pepe.
The team says they are the rebels against mediocre memes and copycats that have failed to unlock humanity’s true potential and get them to the climax of “memeing experience.”
The current supply is 6,943,318,980 tokens.
Buy and trade BITCOIN•PEPE•MATRIX on OKX.
4. WALL•STREET•BETS
WALL STREET BETS is another token on Runes etched on April 20. The current supply is 23,160,000. WallStreetBets was the Reddit forum whose members coordinated to send GameStop stock through the roof. The man who founded WallStreetBets, Jaime Rogozinski.
He chose a name that acknowledged and even celebrated the risk on Wall Street. He was sick of everyone saying Wall Street is just like a casino and people shouldn’t trade stocks because it’s just like gambling.
You can buy and sell WALL•STREET•BETS on OKX.
Top 3 Runes Compatible Wallets
The best three Runes-compatible wallets are:
- Xverse
- OKX
- Unisat
1. XVERSE
Xverse is an important Bitcoin wallet for Web3. It offers support for Ordinals, NFTs, DeFi, and decentralized applications. Its main goal is to become the gateway to all Bitcoin web3 applications powered by Stacks.
Xverse Wallet was developed by Secret Key Labs, a software R&D lab aiming at the development of end-user applications for the Stacks-Bitcoin ecosystem. Created by engineers from the original Stacks team, Secret Key Labs aims to build seamless wallet experiences that empower decentralized apps, including DeFi, NFT collectibles, and more.
Download Xverse wallet for Android, Chrome, and iOS.
2. OKX
OKX is a global crypto pot and derivatives exchange. It is the second biggest crypto exchange by trading volume, and it’s offering services to more than 50 million people around the world. It was founded by Star Xu in 2017, who is also the CEO of the exchange since 2023. The President is Hong Fang, and the CMO is Haider Rafique.
The OKX Wallet is a universal crypto wallet available on various platforms.
You can use OKX Wallet to easily access more than 3,000 cryptos, over 80 networks, thousands of DApps, and the Web3 ecosystem.
Using the wallet, users have complete control over their private keys and cryptos. OKX Wallet is a multi-chain wallet that currently supports both EVM and non-EVM networks. It makes it easier for users to access DApps on different networks without having to switch wallets.
Download the OKX Mobile and Desktop apps to start trading on your phone or desktop – iOS, Android, MacOS & Windows compatibility.
3. UNISAT
Unisat wallet enables users to receive, store, and send NFTs just like any typical Bitcoin transaction. With UniSat Wallet, users can enjoy a seamless and hassle-free experience.
UniSat Wallet is a Chrome plugin wallet created for the BTC ecosystem. Similar to MetaMask, it assists users in storing, minting, and transferring BRC-20 tokens, as well as buying and selling BTC, NFTs, domain names, and more.
Download UniSat wallet here.
FAQs on Bitcoin Runes
What makes Runes different from other protocols on Bitcoin like Ordinals / Atomicals?
An important aspect of the Atomicals Protocol was the introduction of the ARC-20 token, an interchangeable token. By leveraging Bitcoin’s UTXO feature, the Atomicals protocol ensures transparent and traceable transaction histories for all digital assets. However, the downsides of Atomicals include limited liquidity, high complexity, limited fungibility, and scalability.
BRC-20, on the other hand, is based on the Ordinal Theory. This requires complex procedures that can lead to bloating the blockchain with unnecessary data.
Runes Protocol leverages Bitcoin’s existing UTXO model, keeping its data footprint small. Runes protocol has a small on-chain footprint and encourages responsible UTXO management and according to Rodarmor, it might serve as harm reduction compared to existing protocols.
Runes vs. BRC20 | Runes | BRC20 |
---|---|---|
Creator | Casey Rodarmor | Domo |
Date of Launch | 4/2024 | 3/2023 |
Model | UTXO-Based | Ordinal-Based |
Design | Simple | Complex |
On-chain Footprint | Low | High due |
Lighting Compatibility | Yes | No |
Can the Runes Protocol affect Bitcoin’s security or performance?
Utilizing Bitcoin’s robust UTXO model, Runes ensures high security and resistance to fraud within the network. The performance of the network is enhanced, and the protocol is pushing the boundaries of possibilities in the Bitcoin ecosystem.
Is Runes Protocol compatible with existing Bitcoin wallets and tools?
Runes seamlessly integrates with the tools and wallets already used in the Bitcoin ecosystem. This eliminates the need for additional infrastructure or complex workarounds.
What can you do with Runes Protocol that you can’t do with other technologies?
Runes Protocol offers the opportunity to take Bitcoin and blockchain technology to an innovative era, offering a boost to Bitcoin’s economic model. This is important, especially after the fourth halving, which slashed miner rewards from 6.25 BTC to 3.125 BTC.
Rodarmor firmly believes that Runes can have a positive impact on the Bitcoin network, particularly in terms of transaction revenue for miners. In his Bankless interview, he highlighted the importance of transaction fees for the long-term security of the Bitcoin network.
Runes are driving up activity and demand for block space, and miners would see higher transaction fees rolling in, Rodarmor believes.
The Runes Protocol on Bitcoin ensures that the network is ready for a new future, offering higher security and resistance to fraud, a smaller on-chain footprint, and encouraging responsible UTXO management while supporting Bitcoin miners.
Higher transaction fees that come with the Runes Protocol provide a substantial revenue increase for Bitcoin miners, as stated by Nazar Khan, the CEO of TeraWulf.
How can someone participate or invest in the Runes Protocol?
Projects Investors participating in Pre-Runes projects have the opportunity to receive Runes tokens at the mainnet, offering high-profit potential.
Some risks investors may encounter when investing in Pre-Runes include the FOMO phenomenon, which only surges in the initial stage and quickly declines when the market transitions to a new trend.
You can also buy Runes via compatible wallets such as Xverse, OKX, and Unisat.
Overall, with the new opportunities brought by the Runes Protocol to Bitcoin and blockchain technology, innovative possibilities emerge for the Bitcoin ecosystem, making it more resilient and safer, with higher economic potential while keeping a small on-chain footprint and encouraging responsible UTXO management.