Bitcoin Runes: How Do the New Tokens on the Bitcoin Network Differ From BRC-20?

Will find the runes,

And thou shalt comprehend the signs,

The strongest signs,

Hroft colored them,

The gods created them.

And Odin carved them.

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

Runes was launched on April 24, 2024, immediately after Bitcoin's halving. Its launch triggered higher fees and transaction processing delays. Analytic platform Dune says 95,814 runes have been created as of June 08. The total amount of associated fees exceeded $4.5 million.

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

What Are Runes?

Runes is an interchangeable 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 of 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 developer Domo.

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

Runes' main advantages over BRC-20 are direct support for UTXO Bitcoin and the ability to conduct transactions on the Lightning Network. Casey Rodarmor also points out 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 working principle 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-NFTs). 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 several types of transactions by inserting standardized code templates:

• Etching - prescribes basic parameters of the future asset like a general offer or transfer features.

• Minting - creates a certain number of tokens according to the prescribed rules.

• Transferring - allows the sending of assets 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 analog of a smart contract recorded in the blockchain as part of a standard transaction.

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

The protocol sets up its own encryption system for the data contained in the “runestone”, so it is only recognized by compatible wallets. If you view a transaction using Runes in a normal browser, the OP_RETURN opcode field will show only 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 top of the Ordinals protocol. It uses “numbered” Satoshi to store data, which means a separate, specially labeled output needs to be tracked with each transaction.

This architecture requires more UTXOs to be created and tracked. Runes do not need “tagged” outputs. The protocol inscribes data as part of the overall transaction. This reduces the number of outputs created and eliminates the risk of accidentally spending a “numbered” satoshi, which results in the loss of associated data.

However, comparing the technical documentation of Runes and BRC-20 reveals that the opcodes of the standards used for token transactions have much 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 Runes and BRC-20, at the time of token creation, the owner can set how many units of the asset can be issued or transferred at a time. Because of this, Runes are sold on marketplaces in “bundles” of several hundred or thousands of units, as was the case with 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 to deploy and manage tokens. Full-fledged smart contracts for Bitcoin, which would allow the creation of programmable digital assets similar to Ethereum, are still under development or testing.

As a result, Runes, like BRC-20, is mainly used to create memcoins. However, the compatibility of Runes with the Lightning Network could attract users' attention and give it an impetus for further development.

Runes Market and Ecosystem

Standard Bitcoin wallets are unsuitable for interacting with Runes, as they will not display additional transaction information, and their UIs are not adapted to the protocol. To conduct any transactions, 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 UnisatWallet and OKX Wallet, which also support both Runes and Ordinals-based tokens.

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

Issued tokens can be offered for sale on specialized trading platforms. I recommend you:

• UniSat. Once, it gained fame as one of the first trading services for Ordinals. Now, it also supports tokens based on Runes.

• OKX Web3. The trading platform of the eponymous crypto exchange with support for Runes and Inscriptions.

• MagicEden. It is formerly the largest NFT marketplace of the Solana ecosystem. Today, it is a cross-chain NFT trading platform.

It is important to note that the Runes marketplace is highly fragmented, so liquidity, trading volumes, and prices may vary across platforms. Before making a transaction, it is worth evaluating the available offers on several platforms.

Is the Ordinals Protocol No Longer Needed?

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

Analytics platform Dune says the total number of Inscriptions on the Bitcoin network is over 67 million as of June 08, 2024. BRC-20 tokens account for over 54 million “inscriptions” or about 80% of the total.

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

The emergence of Runes could end the undivided monopoly of Ordinals and establish a clear separation of technical standards for interchangeable and unique tokens, which were previously linked in one way or another to ordinal Satoshis.

It is important to remember that the infrastructure for Inscriptions is generally compatible with Runes as well, as seen in wallets and trading platforms. Therefore, we probably don't need to create an alternative ecosystem - Runes may eventually displace Ordinals on existing platforms and services. Still, the differences will not be noticeable at the user level.

Runes vs. BRC-20 vs. Bitcoin-NFT

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