Bitcoin Runes Protocol Sees Drop In Activity And Fee Revenue

Key Points

• The Bitcoin Runes protocol decreases in activity and fee revenue following the initial surge post-Bitcoin halving.
• The protocol’s slowing in momentum triggers uncertainty in the Bitcoin ecosystem impact.

Over the past week, the activity on the Bitcoin Runes protocol has seen a decrease and this signifies that it was not able to generate meaningful traction among users.

Last month, when the Runes protocol launched on April 20, the same day as the Bitcoin halving event, it sent fees soaring and users rushed to mint tokens.

Runes is similar to Ordinals, allowing people to etch and mint tokens on-chain and the most important difference between the two is that Ordinals are non-fungible, while Runes function more like memecoins.

Also, Runes takes the Ordinals protocol a step further via cheaper and faster transactions. Ordinals involve embedding data into the Bitcoin blockchain by inscribing references to digital art into small Bitcoin-based transactions.

Regarding the 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.

Fees, new Runes and user activity dropped over 50% in the past 2 weeks

After an impressive start, following Runes protocol launch on the Bitcoin halving day on April 20, according to the data tracked by Dune Analytics, in the first 10 days, the protocol managed to rack up over 85,000 token issuances.  Also, it generated over $3 million in fees.

On the other hand, during the past two weeks, all the metrics including fees, new Runes, and user activity have gone down by more than 50% according to the same data.

Since May 1, only 5,000 new Runes have been issued and these generated about $100,000 in fees.

During the peak, Runes was the leader in transactions and fees in the Bitcoin ecosystem. Runes accounted for about 80% of all the network activity. Now the number dropped to 20%.

This downturn came amidst a general decline in the crypto market marked by high BTC price volatility and a slow growth in alternative tokens.

Runes are an innovative way to build on the Bitcoin ecosystem, but it seems that there is still more work to be done in order to regain the success the protocol saw post-launch.

CryptoQuant’s head of marketing, Ho Chan Chuang said that the success of the Bitcoin L2 project based on OP-RETURN is “doubtful” because the UTXO-based blockchain network is different from the smart contract-based network.

He also believes that the current notion of Bitcoin narrative as a digital currency, together with the difference in the blockchain network fundaments are the most significant hurdles that Bitcoin L2 projects still need to work on and overcome.

An unspent transaction output (UTXO) means the amount of digital currency that is left after a crypto transaction. UTXO refers to a transaction output that can be used as input in a new transaction.

OP_RETURN is a section of a Bitcoin transaction that allows data storing, and it’s where the runestone resides.

Casey Rodarmor on Bitcoin L2s

Casey Rodarmor, who is also the mastermind behind the Ordinal Protocol, created the Runes Protocol as an alternative to the earlier BRC-20 token standard.

On May 13, he shared a post on his X account, saying that 90% of the investment going into Bitcoin L2s would be better spent going into normal “centralized” Bitcoin startups.

He explained that decentralization is the best, but not everything can be or needs to be decentralized.

Rodarmor explained that although market forces and competition are imperfect when they do work, they will end up forcing businesses to offer high-quality, reasonably proceed goods and services. Otherwise, they would end up being replaced by businesses that deliver better outcomes.

Easily 90% of the investment going into Bitcoin L2s would do be much better spent going into normal "centralized" Bitcoin startups.

How fucking lit would it be if there was a @River or @Coinkite or two in every country?

Decentralized is best, but not everything can be or needs…

— Casey (@rodarmor) May 13, 2024

Anyway, there are new opportunities brought by the Runes Protocol to Bitcoin and blockchain technology, and innovative possibilities emerge for the Bitcoin ecosystem.

All these are making it more resilient and safer, with higher economic potential while keeping a small on-chain footprint and encouraging responsible UTXO management.

Bitcoin miners received a high dose of optimism from the launch of Runes protocol, together with other important factors such as Bitcoin ETFs, and switching interest towards AI computing to boost their revenue.