When Bitcoin was launched in 2009, the blockchain was originally only intended to support a single cryptocurrency – Bitcoin (BTC). But that has changed since last year with the introduction of the Ordinal Protocol and BRC-20 tokens. The Ordinals Protocol, developed by BTC developer Casey Rodarmor, makes it possible to create non-fungible tokens (NFTs) directly on the Bitcoin blockchain. These NFTs, also called inscriptions in Bitcoin jargon, are data that are embedded directly into the Satoshis, the smallest components of a Bitcoin.
Rodarmor recently announced the launch of the Runes Protocol. A new BTC token standard that is scheduled to launch at the same time as the BTC halving and is expected to usher in a new era in the Bitcoin ecosystem. To see why Runes has so much potential, it is first important to understand what Bitcoin ordinals and BRC-20 tokens are.
The rise of Ordinals and BRC-20
The launch of Ordinals was a turning point for Bitcoin. Basically, they enable the hosting of unique digital assets similar to NFTs, known as Inscriptions. These inscriptions are not simple tokens, but rather complex digital works of art or other data. Each of these inscriptions is provably unique as they can be assigned to a specific Satoshi.
In recent months, Ordinals have taken the NFT world by storm and the top five largest NFTs by market capitalization now include three that are based on Bitcoin. The most valuable of these Bitcoin NFT collections, known as “Runestone,” has already reached a market cap of around $580 million. Only the CryptoPunks on the Ethereum Blockchain currently have a higher market capitalization of around 1.3 billion US dollars.
Spurred on by the success of the BTC Ordinals, developers have sought to establish further token standards on the Bitcoin blockchain. One of these standards is the BRC-20, which, in addition to NFTs, also enables the creation of fungible tokens on Bitcoin. Basically, this standard is similar to the ERC-20 token standard on Ethereum, but is significantly more inefficient and is only partially suitable for smart contract applications.
Problems of BRC-20 tokens
Although BRC-20 token added innovative possibilities to Bitcoin, it also brought problems. Fungible tokens, as enabled by BRC-20, unlike NFTs, are exchangeable digital assets (BTC, ETH, SOL, BNB, UNI…) that share identical properties with each other and are often used as currency or in Decentralized Finance (DeFi). become. The flood of new fungible tokens, particularly memecoins, increased the number of transactions on the network, causing delays and slower processing times. This overload demonstrated the limitations of adding complex layers of functionality to a system originally designed for simplicity and security.
For the fourth time since its creation, Bitcoin is going through the halving. What does this mean for Bitcoin? When is that time? And how could the course develop?
You can get all the information here.
What is Bitcoin Runes Protocol?
In response to the problems with the BRC-20 standard, Rodarmor developed the Runes Protocol. Runes aims to improve the concept of fungible tokens on Bitcoin by minimizing the impact on network performance. The technology leverages the strengths of the Bitcoin blockchain while reducing the congestion issues associated with the BRC-20 standard.
How does Runes Protocol work?
- UTXO based protocol: Runes is built on Bitcoin’s existing Unspent Transaction Output (UTXO) model. In this system, any Bitcoin that is not spent in a transaction is stored as UTXO. The Runes Protocol uses these unspent Bitcoin fragments to create new, efficient transactions. This approach helps reduce the accumulation of “junk” UTXOs that could otherwise slow down the network.
- OP_RETURN for data: Runes uses the OP_RETURN function to store additional data in a transaction. This method allows information to be deposited on the blockchain without affecting its performance, improving the overall efficiency of transactions.
- Compatibility with the Lightning Network: Additionally, Runes is compatible with the Lightning Network, a payment protocol built on Bitcoin that enables fast and cost-effective transactions. This is particularly useful for processing microtransactions and can further reduce the load on the network.
Analogy to ERC-20 tokens and tokens on the Solana blockchain
To better understand the Runes Protocol, one can compare it to the ERC-20 tokens on the Ethereum blockchain or tokens on the Solana blockchain. These token standards also make it possible to create a variety of fungible tokens that can be used for everything from currencies to voting rights in decentralized applications.
The main difference is that Runes was designed specifically for the Bitcoin blockchain to take into account its unique structure and requirements. While ERC-20 and Solana tokens are based on systems that are designed from the outset for a wide range of applications and high transaction volumes, Runes adapts these concepts to the Bitcoin blockchain, which was not originally intended for such functions.
Potential boom through Runes
The launch of Runes could have a significant impact on the Bitcoin ecosystem. Runes could have a similar impact on Bitcoin as the launch of ERC-20 tokens on Ethereum in 2015. ERC-20 tokens have enabled an explosion of new projects and tokens on Ethereum. From DeFi to Initial Coin Offerings (ICOs), which have significantly expanded the network and its user base. A harbinger of the rising interest and potential of Runes is the recent rise of the BTC memecoin PUPS, whose market capitalization is already over $500 million.
Read too
This increase suggests that the market is already anticipating Runes’ potential. PUPS plans to become the first memecoin on the BTC blockchain to use the Runes Protocol following the official launch of Runes on the day of the Bitcoin Halving. However, by expanding the capabilities on the Bitcoin blockchain, Runes could not only catapult memecoins on Bitcoin into the mainstream, but also encourage numerous new developers to build on Bitcoin over time. This would not only encourage the adoption of Bitcoin as a technology platform, but also increase its value as an asset class. Overall, Bitcoin may be facing a new era of innovation and growth, driven by the Runes Protocol.
Disclaimer: The article reflects the author’s opinion only and is for informational purposes. This is in no way a buy or sell recommendation.
This might also interest you