Runes: how do new tokens on the Bitcoin network differ from BRC-20?

In this article:

What is Runes and why is it needed?

Runes Market and Ecosystem

Is the Ordinals protocol no longer needed?

Runes vs BRC-20 vs Bitcoin NFT

«You will find the runes. And you will comprehend the signs, the strongest signs, the strongest signs, Hroft colored them, and the gods created them. And Odin cut them out».

This is roughly the description of runes given by Old Norse mythology in the Elder Edda and, apparently, Casey Rodarmore was inspired by this very aesthetic when developing the design of a new protocol for creating fungible tokens on the Bitcoin network.

Runes was launched on April 24, 2024, immediately after the Bitcoin halving, causing an increase in fees and transaction processing delays. According to the analytical platform Dune, at the time of writing, more than 11,000 “runes” have been created, and the total amount of commissions associated with them exceeded $3.5 million.

The Incrypted team dug into the features of Runes to understand how this protocol is superior to the existing technical standard BRC-20 and whether it can really give impetus to the further development of Bitcoin.

What is Runes and why is it needed?

Runes is a fungible token standard for the Bitcoin network that was first introduced by Casey Rodarmore in September 2023. Rodarmore is also the founder of the Ordinals protocol, which is associated with the boom in so-called Bitcoin-NFTs observed in the spring of 2023.

Runes is positioned as a further evolution of the BRC-20 standard, introduced in March 2023 by the developer Domo.

Like BRC-20, the Runes protocol uses the OP RETURN function to write token information to a separate Bitcoin transaction output that cannot be spent. However, it involves a number of technical differences that simplify operations with new assets and reduce the load on the blockchain

The main advantages of Runes compared to BRC-20 are direct support for UTXO Bitcoin and the ability to conduct transactions on the Lightning Network. Rodarmore also points out that the new protocol promotes more responsible management of UTXOs and requires fewer inputs/outputs compared to BRC-20, resulting in less blockage of the blockchain..

How Runes work

Since Runes uses some of 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 operating 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 uses it to create Inscriptions (bitcoin NFTs), while Runes, instead of files, adds a special message to the transaction — a runestone (runestone), containing several lines of code that define or change the parameters of the new token.

Using OP_RETURN, the user can perform several types of operations by entering standardized code templates:

etching — prescribes the basic parameters of the future asset such as ticker, general supply, features of mint and transfer; minting — creates a certain number of tokens in accordance with the prescribed rules; transfer — allows you to send assets from the user’s balance to another address; burning (burning) — “destroys” a certain number of tokens using a special instruction (edict) or when creating a “rune stone” with an error in the code (сenotaph).

Thus, a “rune stone” is a kind of analogue of a smart contract that is recorded in the blockchain as part of a standard transaction. To carry out any of the above operations, the user essentially sends a small amount of bitcoins to the counterparty, creating, along with the standard output, an OP_RETURN output into which a “runestone” is inserted.

Opcode OP_RETURN with encrypted runestone code. Data: Mempool.space .

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

For example, to issue one “rune,” the wallet owner sends himself a small amount of bitcoins. Together with this transaction, it creates an output OP_RETURN, which contains data confirming the mint of a certain number of tokens.

If he wants to transfer half of his tokens to another address, he will need to send a small amount of Bitcoin to it, to create a new output OP_RETURN with the transfer operation code.

At the same time, the protocol installs its own encryption system for the data contained in the “rune stone”, so they are recognized only by compatible wallets. If you look at a transaction using Runes in a regular browser, then only the digital combination will be reflected in the OP_RETURN opcode field, as in the screenshot above.

Runes and BRC-20: differences and similarities

So how are Runes fundamentally different from BRC-20, which also records transaction data in OP_RETURN?

BRC-20 is a standard that is built on top of the Ordinals protocol. To store data, it uses a “numbered” satoshi, that is, a separate, specially marked output that needs to be tracked for each transaction.

This architecture requires the creation and tracking of more UTXOs. Runes don't need «labeled» exits. The protocol writes the data as part of the overall transaction, which not only reduces the number of outputs generated, but also eliminates the risk of accidentally spending a “numbered” Satoshi, which leads to the loss of the data associated with it.

However, if you compare the Runes and BRC-20 technical documentation, you will notice that the standard opcodes used for token operations have a lot in common in both cases. Essentially, the protocols support the same types of transactions and similar logic for setting parameters, although Runes offers users more options.

Runestone code for ethcing. Data: Xverse . BRC-20 code for «unfold» operation equivalent to «etch». Data: Layer1 Foundation. Comparison of Runes and BRC-20 token code.

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 one time. Because of this, “runes” are sold on marketplaces in “packages” of several hundred or thousands of units, as previously happened with the BRC-20.

Example of a trade proposal for Runes-based tokens. Data: UniSat .

Runes, although it simplifies the process of writing data to the blockchain and expands the number of customizable parameters, still does not create a fundamentally new way of deploying and managing tokens. Full-fledged smart contracts for Bitcoin, which would allow the creation of programmable digital assets similar to Ethereum, are still in the development or testing stage.

As a result, Runes, like BRC-20, is used mainly for creating memecoins. However, it is possible that the compatibility of Runes with the Lightning Network will be able to attract the attention of users to this network and give it impetus for further development.

The Runes Market and Ecosystem

Standard Bitcoin wallets are not suitable for interacting with Runes, since they will not display additional transaction information, and their UI is not adapted to the protocol. To carry out any operations you will need a specialized service.

The most versatile option is Xverse. It is available as a mobile application or browser extension and supports several token standards in the Bitcoin network, built on the basis of the Runes, Ordinals and Stacks protocols.

As an alternative, you can take a look at UnisatWallet and the OKX wallet — they also support Runes and Ordinals-based tokens.

You can track new collections, as well as create, mint and send “runes” using the Luminex service. To access all basic operations, just connect a compatible wallet.

Interface for interacting with Runes. Data: Luminex.

You can put up issued tokens for sale on specialized trading platforms. At the time of writing the largest are:

UniSat — at one time gained fame as one of the first trading services for Ordinals. Now also supports Runes-based tokens; OKX Web3 is a trading platform of the crypto exchange of the same name with support for Runes and Inscriptions; MagicEden is the former largest NFT marketplace in the Solana ecosystem. Today — cross-chain platform for NFT trading.

It is important to note that the Runes market is highly fragmented, so liquidity, trading volumes and prices may vary between platforms. Before making a transaction, you should evaluate the available offers on several sites..

Is the Ordinals protocol no longer needed?

Since Runes is positioned as an improved version of the BRC-20 standard, and it, in turn, is built on top of the Ordinals protocol, the question arises — how popular is the latter remaining?

According to the analytical platform Dune, at the time of writing, the total number of Inscriptions in the Bitcoin network is 66 million, with BRC-20 tokens accounting for more than 54 million “inscriptions” or about 80% of their total volume.

Key Inscription Metrics. Data: Dune Analytics .

Will this number start to decline? A reduction in the number of new “inscriptions” and the formation of a plateau in the total volume indicate that the process has already started. However, this does not mean that Ordinals will cease to exist.. The remaining 20% of Inscriptions are Bitcoin NFTs and at the time of writing there are no alternative tools for creating unique digital objects in the Bitcoin ecosystem.

The emergence of Runes could end the unchallenged monopoly of Ordinals and establish a clear separation of technical standards for fungible and unique tokens, which were previously somehow associated with “ordinal” satoshis.

It is important to consider that the infrastructure for Inscriptions is generally compatible with Runes, as can be seen in the example of wallets and trading platforms. Therefore, we probably will not need to create an alternative ecosystem — Runes tokens may eventually displace Ordinals on existing platforms and services, but at the user level the differences will be subtle.

Runes vs BRC-20 vs Bitcoin NFT

The comparison table below will help you better understand how the asset types we mention differ on the Bitcoin network.

Runes BRC-20 Bitcoin NFT Creator Casey Rodarmore Domo Casey Rodarmore Asset class Fungible tokens Fungible tokens Non-fungible tokens Basic protocol Runes Ordinals Ordinals Data storage method On the blockchain, as metadata On the blockchain as “whitness data” On the blockchain as “whitness data” Requirements for interaction Protocol-enabled wallet Protocol-enabled wallet Protocol-enabled wallet Transaction method Via standard Bitcoin UTXO Using “numbered” satoshis Using “numbered” satoshis Technical risks Accidental burning of tokens due to an error in the transaction code Accidental spending of the associated output Accidental Spending the associated output Comparison table of Runes, BRC-20 and Bitcoin NFT tokens