What Are Bitcoin Runes? A New Fungible Token Protocol on Bitcoin | CoinGecko

What Are Runes on Bitcoin?

Runes is a new token standard on Bitcoin that makes it easier and more efficient for users to create fungible tokens on the blockchain.

Key Takeaways

Runes is a new protocol to create fungible tokens on the Bitcoin blockchain.
By using Bitcoin’s UTXO model and the OP_RETURN opcode, Runes will simplify the creation and management of fungible tokens.
Runes will improve Bitcoin’s efficiency around fungible tokens, while expanding the Bitcoin network’s utility to appeal to a wider audience by making it easier to create meme coins and other community-driven projects on the blockchain.
At time of writing, the most popular Rune by market cap is RSIC•GENESIS•RUNE, with a market cap of over $325 million.

Over the past two years, the Bitcoin ecosystem has evolved to include fungible and non-fungible tokens on the Bitcoin network. These tokens have already reached a market cap of over $2 billion and generated hundreds of millions in revenue for miners on the network. With the release of Runes, a token protocol that will revolutionize the creation of tokens on Bitcoin, there is plenty of anticipation around what it’ll bring to the Bitcoin ecosystem – like meme coins.

Runes were built for degens and memecoins, but the protocol is simple, efficient, and secure. It is a legitimate competitor to Taproot Assets and RGB.
The protocol is self-contained and has no dependencies on ordinals or inscriptions, making it extremely simple.
Balances are…
— Casey (@rodarmor) April 1, 2024

Runes was released following the fourth Bitcoin halving, which took place on 20 April 2024. Following its launch, the Rune with the largest marketcap at time of writing is RSIC (RSIC•GENESIS•RUNE) at over $325 million based on OKX data. The launch of Runes also sent Bitcoin transaction fees soaring to new heights on the day of launch on 20 April, with average transaction fees reaching over $127.

Source: BitInfoCharts

Understanding Bitcoin Runes

Casey Rodarmor, the creator of the Ordinals protocol that lets users create NFT-like inscriptions on the Bitcoin blockchain, is releasing Runes, a new protocol that lets users easily create tokens on top of Bitcoin like Solana and Ethereum. While the BRC-20 and SRC-20 token standards already exist, these are based on Ordinals theory, which can result in UTXO proliferation that spam Bitcoin,

In an attempt to create a healthier way of etching tokens on the Bitcoin network, Rodarmor announced Runes in September 2023 and has been working on this since then. As the protocol nears its launch date, there is an increase in interest around Runes and what it could mean for Bitcoin.

“Creating a good fungible token protocol for Bitcoin might bring significant transaction fee revenue, developer mindshare, and users to Bitcoin.”

– Casey Rodarmor, creator of Runes

Bitcoin Runes will launch on Block 840,000, following the Bitcoin halving in April 2024. The creator clarifies that the arrangement is of no significance to the operation of the protocol, although it adds to the excitement that follows the fourth Bitcoin halving. Rodarmor states that Bitcoin Runes’ simplicity and overall architecture will aid the primary reason for its development – the creation of fungible tokens on the Bitcoin blockchain.

There is plenty of anticipation around Runes, with Franklin Templeton stating:

“Currently the fungible token market for Bitcoin is quite small in comparison to ETH and SOL; however, with the launch of more efficient token standard (Runes), Bitcoin is positioned well to to close the gap between its fungible market cap versus that of other blockchains.”

Bitcoin Runes are tokens created on the Bitcoin blockchain. They are a set of executable data that allows specified assets to be created and spent on the network. Just like BRC-20 and SRC-20 tokens, Runes rely on the Bitcoin blockchain to operate, however, Runes are designed to be simpler, not dependent on Ordinals, and are healthier and more efficient than both other token standards and adopts key (existing) models of the Bitcoin blockchain like the UTXO model and the OP_RETURN opcode. Moreover, unlike other existing fungible token protocols on Bitcoin, Runes will not rely on off-chain data as in the case of RGB and Taprot Assets, and doesn’t require a native token for operations like Omni Layer and Counterparty.

Now let’s take a closer look at how Bitcoin Runes work;

How Bitcoin Runes Work

Two terms are essential to understanding how the Bitcoin Runes protocol works;

In a UTXO (Unspent Transaction Output) transaction model, the total asset held in a user’s ledger is consumed for each transaction, where the algorithm computes the new balance after transferring the intended amount of tokens to the recipient. Each UTXO can hold any amount of any number of Runes.

The OP_RETURN opcode enables users to attach extra information to Bitcoin transactions without impacting the network’s efficiency. The OP_RETURN opcode enables Bitcoin users to add up to 80 bytes of data to an unspendable transaction. This data includes information about the token, including the name, ID, symbol, command for specific actions and other required data. Runes protocol messages stored in the OP_RETURN area of a Bitcoin transaction can also be referred to as the Runestone.

Each Rune transaction can specify multiple operations across different Runes. In the event of a token transfer, the Runes protocol will split the UTXO into multiple new UTXOs based on the instructions in the OP_RETURN data. Each UTXO represents different amounts of the token, which are then sent off to their recipients.

If a Rune transaction fails due an invalid protocol message, the Runes will be burned to prevent any accidental creation of Runes.

Etching and Minting Runes on Bitcoin

The process of creating a new Rune is known as Etching. Users who wish to etch a new Rune specify the name, symbol, ID, supply amount, divisibility, and parameters related to the generation and distribution of the Rune in the OP_RETURN output. Creators can also include a “premine” in the etching process, where a set amount of the Rune is allocated to the creator before it’s available to the general public.

After etching, Runes can be minted through open or closed mints. Open minting allows anyone to mint a Rune after the initial etching, where anyone can create a mint transaction to mint a fixed amount of new Runes. Closed mints only allow the creation of new tokens when predetermined conditions are met, such as a specific time period, after which the minting process is ended, capping the token supply.

Edicts define how Runes can be transferred after etching or minting. Using the edict function, batch rune transfers, airdrop and transfer of all minted Rune to a single account can be performed.

Possible Symbol Squatting on Bitcoin Runes

The Runes protocol will not regulate symbol squatting to keep the protocol simple. This means that squatters can hold onto desirable symbols, which can be of any length utilizing the alphabet (A-Z). Rodarmor suggests solutions like only allowing assignments of symbols above a certain length upon launch, with the length decreasing over time, and based on information available on Ordiscan, the first three-character rune will only be available about three years later.

Benefits of Bitcoin Runes

Runes aim to simplify fungible token creation on the Bitcoin blockchain, along with other goals like minimizing on-chain footprint and improving UTXO management. Let’s take a closer look at some of the benefits Runes will bring to users and the Bitcoin network.

Simplicity

Bitcoin Runes are expected to offer users a simpler way of creating fungible tokens on the Bitcoin network, relative to other alternatives like BRC-20, RGB, and Taproot. With Runes, users can create multiple tokens and manage them easily on-chain, without needing to rely on off-chain data…