Bitcoin Runes: How do the new tokens on the Bitcoin network differ from BRC-20?

I will find the runes,

And you will understand the signs,

The strongest signals

Hroft colored them,

The gods created them.

And Odin carved them.

This is more or less the description of the runes given by ancient Scandinavian mythology in Elder Edda. I think Casey Rodarmor was inspired by this aesthetic when designing a new protocol for creating exchangeable tokens on the Bitcoin network.

Runes was launched on April 24, 2024, right after the Bitcoin halving. Its launch resulted in higher fees and delays in processing transactions. Dune analytics platform says 95,814 runes have been created as of June 8, 2008. The total amount of associated expenses exceeded $4.5 million.

I want to delve into the peculiarities of Runes to understand how this protocol is superior to the existing technical standard BRC-20 and whether it can really foster the further development of Bitcoin.

What are runes?

Runes is an exchangeable token standard for the Bitcoin network introduced by Casey Rodarmor in September 2023. Casey Rodarmor is also the founder of the Ordinals protocol, which is associated with the boom in so-called Bitcoin-NFTs in the spring of 2023.

Runes is positioned as a further evolution of the BRC-20 standard introduced in March 2023 by the developer Domo.

Like BRC-20, the Runes protocol uses the RETURN OP function to record token information in a separate Bitcoin transaction output that cannot be spent. However, it presupposes some technical differences that simplify transactions with new assets and reduce the load on the blockchain.

The main advantages of runes over BRC-20 are direct support for UTXO Bitcoin and the ability to transact on the Lightning Network. Casey Rodarmor also highlights this that the new protocol promotes more responsible UTXO management and requires less I/O than BRC-20, allowing for less “clogging” of the blockchain.

How do runes work?

Since Runes partially uses the same solutions as BRC-20, the technical part of the protocol will be more understandable if you are already familiar with this standard and the general principle of operation of the UTXO system.

Runes is based on the OP_RETURN command, which allows you to attach additional data to a Bitcoin transaction. Ordinals use it to create inscriptions (Bitcoin-NFT). At the same time, instead of files, Runes adds a special message (runestone) to the transaction, containing several lines of code that define or change the parameters of a new token.

With OP_RETURN the user can perform different types of transactions by inserting standardized code templates:

• Etching: Prescribes the basic parameters of the future asset such as a general offering or transfer characteristics.

• Minting: Create a certain number of tokens according to the prescribed rules.

• Transfer: Allows sending resources from the user’s balance to another address.

• Burning: “destroys” a certain number of tokens through a special edict or by creating a “runestone” with an error in the code (cenotaph).

Thus, a “runestone” is a kind of analogue of a smart contract recorded in the blockchain as part of a standard transaction.

The main feature of Runes is that the protocol allows the transfer of the “runestone” from the transaction input to the output so that transactions can be made in the same way as normal Bitcoin transactions, while BRC-20 tokens require additional actions .

The protocol sets its own encryption system for the data contained in the “runestone”, so it is recognized only by compatible wallets. If you view a transaction using Runes in a regular browser, the OP_RETURN opcode field will only show a numeric combination.

Runes and BRC-20: differences and commonalities

So how are Runes fundamentally different from BRC-20, which also writes transaction data to OP_RETURN?

BRC-20 is a standard built on the Ordinals protocol. It uses “numbered” Satoshis to store data, which means you need to track a separate, specially labeled output with each transaction.

This architecture requires the creation and monitoring of multiple UTXOs. Runes do not need “labeled” output. The protocol enters data as part of the overall transaction. This reduces the number of outputs created and eliminates the risk of accidentally spending a “numbered” satoshi, resulting in the loss of associated data.

However, comparing the technical documentation of Runes and BRC-20 shows that the operational codes of the standards used for token transactions have a lot in common. The protocols support the same types of transactions and similar parameter setting logic, although Runes offers users more options.

For example, for both Rune and BRC-20, when creating the token, the owner can set how many units of the asset can be issued or transferred at a time. For this reason, runes are sold on the markets in “packages” of several hundred or thousands of units, as in the case of BRC-20.

While Runes simplifies the process of writing data to the blockchain and expands the number of customizable parameters, it does not create a fundamentally new way of distributing and managing tokens. Full-fledged smart contracts for Bitcoin, which would enable the creation of programmable digital assets similar to Ethereum, are still in development or testing.

As a result, runes, such as BRC-20, are mainly used to create memcoins. However, Runes’ compatibility with Lightning Network could attract users’ attention and give it impetus for further development.

Rune market and ecosystem

Standard Bitcoin wallets are not suitable for interacting with Runes, as they will not show additional transaction information and their user interfaces are not adapted to the protocol. To conduct any transaction, you will need a specialized service.

The most universal option is Xverse. It is available as a mobile app or browser extension and supports several token standards in the Bitcoin network based on the Runes, Ordinals, and Stacks protocols.

Alternatively, you can check out Unisat Wallet AND OKX walletwhich also support both rune- and ordinal-based tokens.

You can keep track of new collections and create, mint and send “runes” using the file Luminex. You just need to connect to a compatible wallet to access all basic operations.

The issued tokens can be offered for sale on specialized trading platforms. I recommend:

• UniSat. It once became famous as one of the first commercial services for Ordinals. Now also supports rune-based tokens.

• OKXWeb3. The trading platform of the cryptocurrency exchange of the same name with support for runes and inscriptions.

• MagicEden. It is formerly the largest NFT marketplace in the Solana ecosystem. Today it is a multi-chain NFT trading platform.

It is important to note that the Runes market is highly fragmented, so liquidity, trading volumes and prices may vary from one platform to another. Before making a transaction, it is worth evaluating the offers available on different platforms.

Is the ordinal protocol no longer necessary?

Since Runes is positioned as an improved version of the BRC-20 standard, which is, in turn, built on the Ordinals protocol, the question arises: how much demand remains for the Ordinals protocol?

Analytics platform Dune says the total number of signups on the Bitcoin network is over 67 million as of June 8, 2024. BRC-20 tokens represent over 54 million “signups,” or about 80% of the total.

Will this figure start to decline? The decline in the number of new “enrollments” and the formation of a plateau in overall volume indicate that the process has already begun. However, this does not mean that Ordinals will cease to exist. The remaining 20% ​​of registrations come from Bitcoin-NFTs. As of June 2024, there are no alternative tools for creating unique digital objects in the Bitcoin ecosystem.

The emergence of runes could put an end to the undivided monopoly of ordinals and establish a clear separation of technical standards for interchangeable and unique tokens, which were previously connected in one way or another with ordinal Satoshis.

It is important to remember that the membership infrastructure is generally compatible with runes as well, as seen in wallets and exchanges. Therefore, we probably don’t need to create an alternative ecosystem: runes could eventually replace ordinals on existing platforms and services. However, the differences will not be noticeable at the user level.

Runes vs. BRC-20 vs. Bitcoin-NFT

The following comparison table will help you better understand the differences between asset types in the Bitcoin network.

Runes

BRC-20

Bitcoin-NFT

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