Bitcoin is considered by many to still be the top dog in the world of crypto. However, as mentioned in our initial Bitcoin Runes article, usage and utility of Bitcoin have been limited. Up until this point, Bitcoin has been primarily viewed as a store of value that can be mined.
But with the introduction of the Runes protocol, many argue that BTC has expanded its utility and potential to match other chain offerings.
Taking Notes from Ethereum’s Success
If we look at Ethereum, its popularity can be mainly attributed to its utility as the first smart-contract capable blockchain. Adding L2 and L3 support over the years has solved many of the inherent scaling issues with L1, and now ETH has a strong backing of users, projects, and developers.
Lastly, with so many projects, games, and more built on the Ethereum network (and increasingly, Solana as well), its current dominance in the market is hardly surprising. ETH has been a textbook example of a chain’s successful adoption, so how can Bitcoin, the “OG of crypto”, do something similar?
Many say that the Runes protocol is the answer – let’s find out why below.
From Bitcoin Ordinals to Bitcoin Runes
Back in 2022, Runes’ predecessor Ordinals showed the potential for the Bitcoin blockchain. This project proved that Bitcoin had the potential for greater utility outside of a store of value. Innovation for the Bitcoin blockchain has been a goal for many, which in turn, can attract new developers and users. Ordinals allowed data to be inscribed on the smallest unit of Bitcoin (aka satoshi), turning them into unique, identifiable assets.
Runestones was a Bitcoin Ordinals project that was airdropped during the first-year anniversary of Ordinals. Bitcoin Runes aims for greater accessibility which, in turn, would result in wider adoption. With Runes, founder Casey Rodarmor hopes to provide a more efficient, native token standard that also is fully on-chain.
First, Runes Protocol is built on the UTXO (Unspent Transaction Output) model; as it is the same system that BTC uses for transactions, akin to picking up unused BTC pieces that are unspent.
OP_RETURN is the traditional method to embed data onto the BTC chain, and the protocol uses this to mint fungible tokens. The message format aka “Runestone” stored in the OP_RETURN output supports additional functions, such as “etching”. Etching is the process of creating a Bitcoin Rune; naming, symbol, its supply quantity, and other characteristics.
Runes Protocol Versus BRC-20
BRC-20, while novel in its time, has its downsides. Bitcoin does not natively support it. While both require indexing tools, Runes’ tools are far less complicated. Runes uses a Bitcoin-native methodology. Without any external elements, it can provide greater efficiencies while sticking with BTC’s consensus mechanisms.
Furthermore, BRC-20 has limitations in open-minting procedures, while for Runes, both open (anyone meeting previous set conditions can mint new tokens) and closed (only if certain rules and conditions are met) are options. Runes also allows pre-mining prior to public release, as seen in the case of the project Z•Z•Z•Z•Z•FEHU•Z•Z•Z•Z•Z. After the Bitcoin halving in April of this year, scores of projects were minted on Bitcoin using Runes.
Another issue seen in earlier variants of ETH and BRC-20 is their heavy footprint. With some arguing that “junk” UTXOs generated by BRC-20 are clogging up the network and becoming a burden to the BTC blockchain, Bitcoin Runes solves this with completely on-chain data, and its transactions are lightweight too (1 transaction for a transfer, versus 3 for 1 with BRC-20).
Due to its lightweight and native attributes, Runes’ ease of use is the goal for creating and managing fungible tokens. Remember the OP_Return we mentioned above? When used here with on-chain methods, transactions result in less junk fragments, and therefore, it poses less of a liability for the Bitcoin network.
Key Takeaways
- By employing the UTXO model intrinsic to Bitcoin, Runes is a more thought-out method to create fungible tokens without sacrificing the efficiency and security of the BTC blockchain.
- Bitcoin Runes provides an easier, cheaper, and accessible option for building projects.
- In short, Runes seeks to enable greater utility for Bitcoin and the BTC ecosystem.
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