Bitcoin Runes
The latest Fungible Token protocol on Bitcoin
TLDR:
Runes is a fungible token protocol buit on Bitcoin by Casey Rodamor, who also created Bitcoin Ordinals that were intended as a non-fungible token protocol.
Runes tokens are stored in Bitcoin UTXOs, this is different from Ordinals that uses ordinal theory and assign data to individual satoshis.
Runes are currently traded as “bundles” on marketplaces like Unisat where a seller’s UTXO holds a certain amount of tokens at a given BTC price.
Casey likens Runes to memecoins and ultimately created them to drive more usage of Bitcoin and increase the BTC transaction fees that miners earn.
With the 4th Bitcoin Halving complete on last Friday April 19th on block 840,000 we also had the release of Runes by Casey Rodamor, which has generated a lot of interest.
Today I decided to take a dive into how Runes works and explain how you can buy your first Runes.
Bitcoin Runes
Runes is a fungible token protocol built on Bitcoin by Casey Rodamor the same creator of Bitcoin Ordinals.
Ordinals was intended as a way to create NFTs on Bitcoin, but it was taken one step further by the community and used to create a fungible token standard called BRC20, inspired by Ethereum’s ERC20.
However, since Ordinals was not intended for fungible tokens, BRC20 is awkward to use because simple actions like minting require two transactions, making for a less than ideal user-experience.
Casey saw the growing popularity of the BRC20 standard and thought he could do something better that made effective use of Bitcoin’s underlying UTXO structure, so he created Runes!
Just by looking at how each is defined you can see certain similarities. With BRC20s a token is defined as such:
Meanwhile Runes has its own simple language where for example to mint, also known as “etching” a Rune, looks like this:
The ruleset for creating Runes is quite minimal on purpose, there are less than 20 key words, and the main ones are as above mainly intended to define basic things like the name, premint and total tokens to be minted. For a deeper look at the Runes ruleset I’d take look in the Ordinals documentation here.
Interestingly Casey also made it so that at the start only names with 13-26 characters can be etched. After every 4 months names with 1 character less will be available sequentially, so first it’ll be 12 character names, then at 8 months 11 characters, and so on all the way down to 1 character names by the next Halving 4 years from now!
One of the key differences between Runes and Ordinals is how they are actually stored on Bitcoin, which is what makes Runes far more efficient than BRC20s.
UTXOs
In Ethereum if you have 1 ETH in your account it’s simply 1 ETH. However, in Bitcoin if you have 1 BTC you may have that split up into an infinite possible number of combinations, anything from a single 1 BTC to 0.1 BTC plus 0.9 BTC to thousands of tiny 0.00001 BTCs all adding up together to 1 BTC.
These units of BTCs held in a user’s wallet are known within the Bitcoin system as UTXOs, which stands for “unspent transaction outputs”. UTXOs are nothing more than the result of a previous transaction that’s currently yet to be spent and ready to be used in a new transaction by their holder.
Ordinals work on “ordinal theory” that Casey created as a way of numbering satoshis in Bitcoin, meanwhile Runes works by using UTXO’s together with an op-code called “OP_RETURN” that allows 80 bytes of additional data to be written into a UTXO that the Bitcoin system essentially ignores.
This means in Ordinals you assign data to an individual satoshi, however in Runes you assign data to a UTXO.
UTXOs then carry their main Bitcoin balance as well as additional Runes token balances that can be used up just like a Bitcoin balance can if you are using a wallet that supports Runes!
If you read back my original post on Ordinals you’ll learn that the great invention of Ordinals was the ability to not be limited by OP_RETURN and take up a much larger chunk of data in a transaction than just 80 bytes, which was the big limitation of previous Bitcoin token protocols like Counterparty.
However, for fungible tokens, this additional space is totally unnecessary and so Runes goes for the more efficient usage of OP_RETURN. Meaning Runes essentially creates a very simple and elegant fungible token standard that works hand in hand with Bitcoin’s UTXO model.
Bitcoin’s core protocol itself is totally unaware of all of Ordinals and Runes though, it just regards all of this data as junk that’s been saved onto the blockchain that it can ignore. But with the Ord client we can interpret this data saved on-chain as these fascinating new fungible and non-fungible tokens.
Buying Runes
Since Runes have come out people have started “etching” all sorts of new tokens non-stop. We already have some great token names like Satoshi-Nakamoto, Wall-Street-Bets and Dog-To-The-moon! Plus Casey’s hardcoded one token called Uncommon-Goods as the very first token to have been created in Runes.
To buy these tokens you can go to a marketplace like Unisat’s and have a browse around the list of available Runes.
The marketplaces are still in their infancy and so trading Runes is a little bit unusual in comparison to tokens in other ecosystems, especially because of the way they are tied to UTXOs.
Runes are listed on the marketplace as a “bundle” of tokens that can hold anything from 1 token upwards. Below you can see an example of 1,000,000 “The-Ticker-Is-Elsa” tokens being listed at $0.0043 each for a total of $4306.77, as well as listings of just 100,000 tokens but at a higher price of $0.0057 for a total of $565.67.
In this case, if you want to buy at a lower price you’ll need to buy a bigger chunk of tokens, meanwhile if you want to spend less money overall, you can risk less money by paying a higher price per token.
Under the hood, what’s happening is that UTXOs are being partially signed by the seller, and they are waiting for you the buyer to sign and broadcast that you’re willing to send the seller the BTC they are asking for in return for these tokens.
Assuming you already have Bitcoin in a wallet like Xverse (if not then check my post on wallets), buying is then just a case of connecting your wallet, selecting a coin bundle you want, then selecting “confirm” and confirming the associated transaction.
You can then view all the Runes you currently have on the same page you bought your Runes from by clicking on the “My Assets” tab as such.
Memecoins
Runes tokens in Casey’s own words are essentially memecoins and are just there for fun and speculation. Curiously he’s openly criticised speculative activity in crypto as a net-negative, but since he can’t stop people speculating then he at least hopes to have them do it on Bitcoin, which he sees as the most important blockchain in the space.
Through this speculative behaviour he hopes to inject a bit more fun back into Bitcoin, and through it’s increased usage grow the Bitcoin fee market so that even as BTC mining rewards become smaller over time, miners are still well incentivised to mine blocks through transaction fees.
And if you’ve been in crypto long enough you’ll know that where there’s the possibility to speculate there will be crypto degens speculating!
We have already seen massive gains in certain coins like “Satoshi-Nakamoto” that’s got over $90m in market-cap and was created less than a week ago! To find your favourite Runes’ marketcap the best site right now is Runesmarketcap.com.
As a quick comparison if you look at BRC20 tokens by marketcap, which can be found at brc-20.io, there are already several coins with over $100m in market cap. When you consider that Runes is likely to be more widely adopted than BRC20, then you can guess that there’ll also be several Runes tokens above $100m market cap too.
Runes is still an incredibly early protocol so it’s likely we’ll see a lot more interesting things appear over time. Perhaps as more layer-2s on Bitcoin emerge these Runes tokens will also traverse several layers, and we may even get to see DeFi protocols built making use of these tokens.
Today though these are just memecoins on Bitcoin, and as I said before in my “Solana Memecoin Season” post, memecoins don’t have any fundamental value so don’t risk more than you can afford to lose. Yet people are certainly having a lot of fun out there right now and it’s worth buying some Runes to get in on the fun too!