What are Bitcoin Runes - Sensation and hype

Bitcoin Runes are a new token standard on the Bitcoin blockchain, finally making Bitcoin fungible tokens (such as memecoins) scalable. This could cause a real craze, but also congestion and high transaction costs on the Bitcoin network. Will it be either or both at once?

Summary:

• Bitcoin Runes is a new token standard on the Bitcoin blockchain, similar to ERC-20 or BEP-20, which now makes it possible to easily create fungible tokens on Bitcoin, allowing a veritable hype of Bitcoin memecoins to follow
• Leading up to the 2024 Bitcoin halving, Bitcoin transaction fees went through the roof, this was very reminiscent of Ethereum gas fees in the DeFi heyday, will Bitcoin follow this model?
• Ordinals were the predecessors of Runes, from the same developer, Casey Rodarmo
• A sample of Bitcoin Runes' concise white paper
• The impact of Bitcoin Runes on the Bitcoin network is difficult to predict
• The operation of Bitcoin Runes briefly explained
• A closer look at the Bitcoin ecosystem and the Bitcoin Runes ecosystem
• How will Runestones affect the Bitcoin network?

Inhoudsopgave

1. What are Bitcoin Runes?
2. High Bitcoin transaction fees
3. What are Bitcoin Ordinals?
4. Bitcoin Runes white paper
5. Creating a Bitcoin Rune
6. Effects of Bitcoin Runes on the Bitcoin Network
7. How do Bitcoin Runes work?
8. The Bitcoin ecosystem
9. The Bitcoin Runes ecosystem
10. The Consequences of Bitcoin Runes

What are Bitcoin Runes?

Runes is a new token standard on the Bitcoin blockchain, somewhat similar to ERC-20, BEP-20 and BRC-20. Bitcoin Runes were created to create new tokens easily, efficiently and cheaply on Bitcoin. By far, this technique will most often be used when creating memecoins or funcoins (or scamcoins).

Runes will make the Bitcoin network more accessible to the general public and allow fungible (redeemable) tokens to be made easier, making memecoins and other community-driven projects simple to implement on the Bitcoin blockchain.

Casey (@Rodarmor on X), who already has the Ordinals protocol to his name, which allows the creation of NFT Inscriptions on the Bitcoin blockchain, has been brooding on Bitcoin Runes for a while.

Bitcoin Runes have been available since the Bitcoin halving of 2024.

High Bitcoin transaction fees

Transaction fees on the Bitcoin network skyrocketed leading up to the halving, as the launch of Bitcoin Runes was coming and many activities on the network, such as the creation of memecoins intended for Runes, drove up the number of transactions. Via Runes, transaction costs are now much lower because of improved technology, but before the halving of Bitcoin in 2024 this technique was not yet available. Consequently, after the halving, you can see that transaction costs on the Bitcoin network are going down significantly.

The reason for these high transaction fees were also driven up considerably by the popularity of Ordinals, such as PUPS, which cause a big increase in transaction fees because they have a lot of influence on the size of a Bitcoin block. Bitcoin Runes are likely to make Ordinals a lot less popular for this reason and some of these Ordinals will switch to the Runes protocol.

What are Bitcoin Ordinals?

Bitcoin Ordinals are a way to create Bitcoin NFTs through Inscriptions.

Bitcoin developments can be called slow, this will certainly be partly due to the fact that there are no central players in it, such as Vitalik Buterin of Ethereum or Anatoly Yakovenko of Solana, for example. The story of Bitcoin Runes is not complete without mentioning its predecessor.

Layer2 networks like Stacks and Counterparty have paved the way to make Bitcoin NFTs possible.

The introduction of Ordinals.

In January 2023, the Ordinal was introduced by Casey (@Rodarmor), creating an opportunity to create a Bitcoin in a new way. NFT making. These BRC-20 tokens were made without smart contracts , as is the case with ERC-20 tokens , and were developed by DOMO, a pseudonym, like Satoshi Nakamoto .

Without going into too much depth, we can say that Ordinals are a way to create Bitcoin NFTs by linking such an NFT to an individual satoshi, the smallest unit of a Bitcoin. These are called Inscriptions.

Ordinals have a subdivision that does seem to be borrowed from the card game Magic the Gathering. A satoshi can be common, uncommon, rare, epic, legendary and mythical. These have a value associated with their scarcity.

Predecessors of Ordinals

Ordinal stands on the shoulders of previous updates to the Bitcoin network, namely SegWit and Taproot.

Ordinals are a system for ordering satoshi based on order of mine , making a Bitcoin NFT possible. Inscriptions are the technique for creating the content of an NFT, such as a painting, music or text.

Bitcoin innovation with scalability issues

Benefits of Ordinals are renewed interest in Bitcoin innovations. However, opponents say Ordinals abuse scarce resources on the Bitcoin network and cause delays and higher transaction costs because of large amounts of information contained in an Ordinal. It also has very little to do with a peer-to-peer electronic payment system, Satoshi Nakamoto's original vision.

We have seen that transaction costs did indeed go up significantly, but whether that is purely because of Ordinals is highly uncertain. What is true, however, is that Ordinals are an inconvenient way because of the pressure on the Bitcoin network.

Since the creator of Ordinals did see these problems, he therefore initiated Bitcoin Runes.

Bitcoin Runes white paper

Casey has a kind of whitepaper written with the objectives of the Runes protocol.

At his blog of 25-9-2023 he let the world know that he plans to create a new fungible token (one token is exchangeable for another) protocol for Bitcoin. He clearly has his doubts regarding its use. It will create a lot of memecoins that will be largely scams are, but he puts it into perspective with the fact that casinos will always exist, too, even though everyone knows you always lose to them in the end.

Runes will also bring many users, developers and revenue in the form of transaction fees to the Bitcoin network (the latter became quickly apparent in the last days before Runes' implementation, around the 2024 halfway mark).

Its new protocol should meet simplicity in adaptation, low UTXO usage and there should be no need for a native token.

Advantages Runes with predecessors

He goes on to compare Rune tokens to existing protocols, such as BRC-20 and RGB.

• BRC-20: Not based on UTXO (Unspent Transaction Output, a component of a Bitcoin block). Complex and creates too much "junk UTXO," making transactions expensive quickly and requiring the Bitcoin network to work overtime.
• RGB: Very complicated, needs off-chain data, has been in development for a while without significant adoption.
• Counterparty: Needs a native token, not UTXO-based.
• Omni Layer: ditto.
• Taproot Assets: Somewhat complicated, needs off-chain data.

What would a simple, UTXO-based fungible token look like for Bitcoin with a user-friendly experience? Runes, because it sounds cool!

I won't go into too much detail about the technical side of Runes, but some background is necessary here.

Runes technology

Rune balances are in a UTXO, which indicates how much unspent Bitcoin your address has left and that you can spend with your private key. A UTXO can contain any amount of Runes. UTXO is a technique that ensures privacy much better than traditional account balances, for example, because with UTXO it only reveals how much you spend and not how much you have.

With a Rune, you can quickly think of an ERC-20 token, returning usual standard numbers to put together a logical token that has clear rules and is easy to create.

Runes are not an adaptation of the Bitcoin protocol. Bitcoin nodes can't even see them; only Rune indexers can. Thus, the Runes protocol runs on top of Bitcoin.

Parts of a Runestone:

ID, Output, Amount, Symbol, Decimals. This allows you to have a Bitcoin token on the market in no time, just like an ERC-20 token on Ethereum. Runestones work completely on-chain. A Runestone is the complete information about a token or Rune created on Bitcoin.

With Runes, it is possible to start all kinds of activities on the Bitcoin blockchain, which can help Bitcoin itself gain much greater adoption. Rodarmor ruefully admits that Runes is not a lofty project that will increase acceptance of cryptocurrency and blockchain or any lofty goal. He indicates that a range of scams and memes on Bitcoin may also be coming now as you see on Solana and other networks. Time will tell.

Creating a Bitcoin Rune

Nowadays, it has become much easier to create a coin or token. Memecoins in particular are made in no time. So is a Bitcoin Rune, which you can make at Bitcoin Rune's site can create. You fill in some variables and you create your own memecoin or NFT using the Bitcoin Rune protocol.

There are already many sites where you can create multiple tokens within a short period of time on well-known networks such as Ethereum, Solana, Binance Smart Chain, et cetera, and now on Bitcoin with a new protocol. Many people are extremely excited about this new possibility and predict that Bitcoin NFTs, Runes and Ordinals will become the new hype.

Effects of Bitcoin Runes on the Bitcoin Network

The huge distance the Bitcoin network had from popular networks like Ethereum and Solana can be greatly reduced with Runes. Once a memecoin and NFT mania begins to take place on Bitcoin, it could greatly expand Bitcoin's ecosystem.

Memecoins seem to be playing some kind of tag. The first ones were launched on Ethereum like Dogecoin, then it was a wild time on Solana with BONK and the like. When there were some problems on Solana, Base (Ethereum roll up from Coinbase) did sound good with their DEGEN and now Bitcoin Runes might be on the way.

However, the question is whether it will be as easy as other networks. In any case, several Rune projects are already in the pipeline, such as Uncommon Goods by Rodarmor (has no max number), Runestone by Leonidas, PUPS (runes) and RSIC.

Limitations of the Bitcoin network

Whereas Ethereum has layer2 networks like Optimism, Arbitrum and the like, to be used via zk rollups its speed up and its transaction costs down, Solana is scalable by design, hardly anything has actually happened at Bitcoin in this area. Bitcoin also still works with Proof of Work. .

The implications are somewhat predictable, though. While Runes have little impact on a Bitcoin block size, Ordinals do. Since Bitcoin's scalability is comparable to Ethereum's during the DeFi hype, transaction fees can also be compared. Leading up to the Bitcoin halving, there were even transaction fees of over 150 euros! It must be said that this was mainly because there were many preparations for the introduction of Runes, so there were many transactions on Bitcoin's poorly scalable network.

Impact Runes on the Bitcoin Network

Runes' prediction is that in principle it will have little impact on the speed and cost of the Bitcoin network, as long as massive amounts of memecoins and NFTs are not traded on the Bitcoin network. We know from experience that this could still be disappointing, or not so disappointing if you will. Solana can relate to that! Once a few popular memecoins are launched on Bitcoin and a few popular NFT series are launched, congestion on Bitcoin and thus skyrocketing transaction costs can move quickly.

In fact, Bitcoin just needs layer2 networks to offload their main chain via zk rollups and the like. As long as that is not the case, this could become a major problem for the Bitcoin network, which then becomes slow and expensive. A visit to Vitalik might help, as he has first-hand experience of how to solve something like this.

How do Bitcoin Runes work?

The Bitcoin Runes protocol works with two basic aspects:

1. Bitcoin UTXO transaction model. After each transaction, the new balances of receiver and sender are calculated via the UTXO. Each UTXO can hold an unlimited amount of Runes.
2. ON RETURN opcode. This allows users to add additional information to a Bitcoin transaction without any impact on the efficiency of the network. Bitcoin users can add 80 bytes of data to a non-spendable (unspendable) transaction. In such Runes protocol messages, things like ID, name, symbol and other mandatory information can be put, which together have been named Runestone.

In the so-called etching, or minting, of a new Rune, all variabals must be filled in by the creator. Things like quantity, name, symbol, but also how new ones will be made by minting, premining, airdropping , et cetera.

After a number of years, the intention is that the most popular symbol names (3 characters, such as SOL, BTC) will only become available to prevent the so-called symbol squatting. So you can't snap up all available symbol names right away and sell them for a lot of money!

The Bitcoin ecosystem

For a very long time, pretty little happened on the Bitcoin network. You could buy and sell Bitcoin, then you were pretty much done.

Smart contracts on Bitcoin

At some point you could also run smart contracts on it with some help from Stacks. Then it started to look like something in terms of Bitcoin's usability for purposes other than simply a store of value.

Non Fungible Tokens on Bitcoin

In recent years before the Bitcoin halving of April 20, 2024, it has also become possible to create non-fungible and fungible tokens (NFTs) on the Bitcoin network. With a market cap of more than $2 billion, this is no longer a sideline battle. Miners are rubbing their hands because there will be substantially more revenue, after all, the Proof-of-Work protocol hasn't changed yet, like Ethereum, which now uses Proof-of-Stake.

With the advent of BRC-20 (4MB), which uses the Ordinals protocol, where information can be added to Bitcoins sats (satoshis, Bitcoin's smallest unit) memecoins could be created, enabling a new development on the Bitcoin blockchain. However, this application was expensive and cumbersome, creating a need for a simpler and cheaper variant was.

Scalable Bitcoin

This came in the form of Bitcoin Runes (80 bytes) and was implemented exactly on the day of the Bitcoin halving. It soon became clear that this solution was working well, the fees for a Bitcoin transaction went down from about $130 to just under $30. The prediction is that these will continue to drop significantly, making both Bitcoin Runes and other applications to Bitcoin more popular again, and an outright new memecoin mania may emerge because of the new features. An Ordinal can also choose to migrate to Runes.

After the explosion of memecoins based on ERC-20 and BEP-20, it was Solana's turn. Then other networks followed and now Bitcoin. A lot of crypto traders are raving about Bitcoin-based memecoins, as Bitcoin is still by far the most popular blockchain and thus offers great opportunities on both developments and profits.

The Bitcoin Runes ecosystem

Source: Doggfather on Twitter

As you can see, this has already become quite a network in a short time. Before you know it, you have an explosion, as happened with Ethereum and Solana. You would say this is a natural course of events, but without Bitcoin's scalability, this path can also quickly become a dead end.

Those in possession of Runestones can expect an airdrop of several memecoins under certain conditions.

Runestone Launchpads are also available, as are present on many exchanges. Binance Launchpad and the like do the same for new cryptocurrencies that want to be launched through a centralized exchange.

To trade or own Bitcoin Runes you need a hot wallet needed that can handle these tokens, as well as BRC-20 tokens, such as the Xverse wallet.

The Consequences of Bitcoin Runes

With the introduction of Bitcoin Runes, the Bitcoin network may start to grow significantly. However, we are only at the beginning of a very long road to walk before Bitcoin can count itself among the larger networks. A Bitcoin Runes memecoin explosion is definitely a possibility. I suggest Hachi, a memecoin based on the Akita Inu dog!

Bitcoin blockchain integrity

Another rather murky consequence is that miners can start doing all sorts of tomfoolery with Bitcoin blocks. For example, they can fish out the special satoshis to bake an expensive Inscription with.

They can also mine a block on demand, paying them handsomely for delivering the first Runes. In doing so, the integrity of the Bitcoin blockchain is compromised, because they have to do this "on the cheap," filling in a block with all the transactions and new Bitcoin themselves, without knowing if they are going to mine this block themselves! These miners will not accept the valid halving block and hope that they will catch up with the right blockchain with their own chain. This could well cause a split in the community and thus a fork!

Priority transactions will also be able to take place, allowing Bitcoin transaction fees to skyrocket, as happened with Ethereum in the past, where miners allowed the highest bidders to make a transaction first.

Bitcoin popularity without many developments

Bitcoin is hugely popular among investors, but in terms of networking, there are many coins that are miles ahead of Bitcoin. This is mainly due to Bitcoin's lack of centralization. Where Ethereum has Vitalik Buterin and his team, Solana has Anatoly Yakovenko and team, Bitcoin actually has no ringleader.

This makes an innovation on the Bitcoin network a "gift from God" rather than a logical progression. The fact that Casey Rodarmor has already been at the forefront of this twice with first the Ordinals and now a very important one, the Bitcoin Runes(tones), is definitely a breakthrough.

Need Bitcoin developments

However, Bitcoin's developer community certainly cannot rest on its laurels. If there follows an explosion of memecoins and NFTs, Bitcoin's scalability may come painfully into focus. If transaction fees start to rise to the point where this network becomes much less popular, Runes is shooting Bitcoin in the foot.

If there is no "help from above" and no help coming from layer2 protocols either, then the Bitcoin network will more than likely have to step up to the plate to finally address Bitcoin's scalability in a big way. Although Runes is therefore a small "attack" on Bitcoin's blockchain, many small things also make one large one.

Without question, the introduction of Bitcoin Runes can be called a downright sensation. It could kick off much more innovation (and greed) on the Bitcoin blockchain. However, the effects of Runes on the Bitcoin blockchain and the Bitcoin ecosystem are very difficult to predict.