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Launched in 2009, Bitcoin was conceived to support only one digital asset – its native cryptocurrency. Looking ahead to early 2023, a groundbreaking innovation altered the cryptocurrency community: Ordinals. Casey Rodarmor launched Ordinals on the Bitcoin mainnet on January 20, leading to a robust ecosystem of NFTs. Ordinals are Satoshis minted and embedded (inscribed) with rare pieces of information, such as images, text, videos, and so on; they’re numbered in the order they were first mined and entered circulation, so each Ordinal has its own rarity level. NFTs have expanded Bitcoin’s utility beyond financial transactions, introducing digital collectibles to the platform.
The trend in Bitcoin Ordinals is rapidly unfolding, with a surge in interest and adoption across the cryptocurrency space. Casey Rodarmor, the Ordinals protocol founder, advanced a proposal for the replacement of the BRC-20 token standard, referred to as Runes. If you’re curious to know what Runes are, how they work, and what the underlying technology is, please continue reading.
Ordinals Are Directly Responsible for Network Congestion and High Fees
In spite of its innovative nature, the BRC-20 token standard has attracted a lot of criticism from Bitcoiners, who blame it for network congestion and high fees. Ordinals enable various functionalities like DeFi apps and smart contracts, and as more users adopt BRC-20 tokens, the transaction volume on the Bitcoin blockchain experiences additional strain. Only transactions with large enough fees can access the mempool, which reduces transaction spam. Be that as it may, it increases transaction costs for genuine transactions. Addressing these concerns, Casey Rodarmor suggested Runes, a new technology for streamlining the issuance of fungible tokens on Bitcoin while addressing the shortcomings of the BRC=2- standard.
Runes Aims to Replace the Less Efficient Ordinals and the BRC-20 Standard
Runes is a UTXO-based alternative to the current tokenization protocol, namely BRC-20, enabling the issuance, management, and transfer of fungible tokens on the Bitcoin blockchain. Poised to supercharge the Bitcoin ecosystem, Runes will be launched in April 2024, at the same time as the highly anticipated halving. It doesn’t rely on off-chain data or require a native cryptocurrency because UTXOs hold balances, so transactions are identified using specific script conditions. This minimizes the creation of junk tokens, enabling a more responsible management and smaller on-chain footprint. The launch of Runes could increase miners’ fees, so they’ll receive an even higher revenue.
Magic Eden, one of the first major NFT marketplaces to join the Ordinals craze, recently announced it intends to support the upcoming Runes standard on Bitcoin. Ordinals could be replaced by Runes, which are simple, efficient, and secure. Still, the independence from Ordinals translates into the fact that Runes doesn’t have the user base and decentralization Ordinals have, making the launch more challenging. Runes will be officially activated on block 840,000. UNCOMMONGOODS is the genesis Rune – it’s hard-coded by Casey Rodarmor. For the time being, Runes supports public casting but is reserved by the project.
Tokenization schemes like Ordinals add extra data to the Bitcoin blockchain, which is designed as a minimal and efficient ledger for the transfer of value. As opposed to BRC-20, Runes inscribes metadata onto individual Satoshis, therefore enhancing efficiency and optimizing the process. Rather than storing data in the witness part of the transaction, Runes stores data in OP_RETURN, so arbitrary data can be stored inside transactions. Once a Runes token is minted, it’s ascribed to a specific UTXO via a standard protocol message; it can hold any number of Runes token balances (a billion, a million, or less).
Runes Is Directly Compatible with The Lightning Network, A State Channel L2 Network
A key feature of the Runes protocol is its compatibility with the Lightning Network, the Layer 2 payment and communication network built on top of the Bitcoin blockchain. In case you didn’t already know, the Lightning Network allows parties to transfer funds to one another without informing the main blockchain, which speeds up transactions. Essentially, users can add Runes to different multi-signature wallets and settle their balances with providers. Each partner locks a certain number of Bitcoins into a multi-signature transaction and receives one of the two required keys. Even if one of the keys is compromised, it’s not possible to access the funds without the other signature.
The integration with the Lightning Network (and other scalability solutions) might lead to Runes tokens being used for cost-effective asset transfers. Off-chain transactions incur minimal fees, making Bitcoin more viable for everyday transactions. Generally speaking, transactions on the Lightning Network cost $0.001 but can vary based on market conditions and demand. By contrast, Bitcoin transaction fees have crossed over $10 at times of high network congestion. The Lightning Network aims to increase Bitcoin’s transactional throughput and doesn’t interact directly with Ordinals or BRC-20 tokens. According to Casey Rodarmor, Runes can be lifted on the Lighting Network.
Concluding Thoughts
Although the Runes protocol hasn’t been officially released, developers are already building projects based on its principles, setting the stage for integration into diverse applications. Examples include but aren’t limited to RuneAlpha, PipeBTC, and RSIC. RuneAlpha is an experimental block explorer, a forked version of the official Ord release. The number of projects being developed only goes to show the growing anticipation of the Runes launch, which promises groundbreaking solutions and new use cases. It offers an interesting approach to tokenization – it’s not a redundant effort that fragments the ecosystem.
All in all, it’s important to understand that the Runes protocol might have some limitations. We’re talking about smart contract functionality. The use of smart contracts is an integral part of the DeFi ecosystem, automating processes, streamlining trustless transactions, and enforcing rules. Much like the BRC-20 protocol, Runes facilitates crypto asset operations without smart contracts, which might limit its potential use cases. Data is inscribed directly on-chain. All in all, it remains to be seen how much of an impact Runes will have on Bitcoin’s ecosystem and the cryptocurrency community at large. What’s certain is that it will open up new possibilities on the network, even if limited.
