What are Bitcoin Runes and how are they different from BRC-20 tokens?

What are Bitcoin Runes and how are they different from BRC-20 tokens

Bitcoin, the first cryptocurrency, has been viewed as a decentralized and widespread digital store of value with its blockchain. With its mysterious creator, Bitcoin, Satoshi Nakamoto introduced an open-source distributed network with a shared ledger known as blockchain that tracks every transaction.

Like Bitcoin, it gained popularity as a store of value and the leading crypto asset by market cap, while scripting language restrictions in Bitcoin have hindered the development of blockchain smart contracts and other mushroomed tokens. As a result, alternative blockchain networks ethereum, Solana, Cardano, Polkadot and others have gained popularity, giving developers the chance to create decentralized applications (DApps) and a more adaptable environment that appeals to a wider audience.

However, this changed in 2023 with the launch of BRC-20 tokens, followed by the April 2024 release of Bitcoin Runes mushroom tokens and community-driven projects directly on the Bitcoin network.

In this article, we cover token standards and development on the Bitcoin blockchain, the Bitcoin Runes protocol, how Runes differ from BRC-20 tokens and Bitcoin Ordinals, and the benefits Runes offer. It also includes a detailed step-by-step guide on how to buy Bitcoin Runes.
How are Bitcoin Runes different from BRC-20 tokens and Bitcoin Ordinals?

To understand the Runes protocol, you may first need to review Bitcoin Ordinals and the BRC-20 token standard.

Bitcoin Ordinals protocol
Bitcoin Ordinaries marked a major milestone in the evolution of tokenization on the Bitcoin blockchain, introduced on the Bitcoin mainnet on January 20, 2023 by Bitcoin developer Casey Rodarmor.

The protocol allows users to write various types of data — including text, images, videos, and even smart contracts — directly to the Bitcoin blockchain. Common non-fungible tokens (NFTs), also known as Bitcoin, have attracted interest in cryptocurrency and generated a mix of enthusiasm and skepticism.

The debut of Ordinals was made possible by significant upgrades to the Bitcoin network, namely the 2017 Segregated Witness (SegWit) upgrade and the 2021 Taproot upgrade. These upgrades improved Bitcoin's smart contract capabilities by enabling large amounts of data to be written to the blockchain. Inscriptions satoshis, the smallest units of Bitcoin.

Ordinals introduced a new way to add utility and value to Bitcoin beyond its role as a store of value through this unique system of writing data onto satoshis, thus allowing the creation of Bitcoin NFTs. This added a new layer of functionality to the network, enabling the secure creation, ownership and transfer of unique digital assets on the blockchain.

BRC-20 tokens
Following the introduction of ordinals, the BRC-20 standard was established in early March 2023 by a rogue developer, Domo. Like Ethereum's ERC-20 standard, the BRC-20 token standard enabled cork tokens to be generated and transferred directly on the Bitcoin network via Ordinal inscriptions.

Within three months, BRC-20 tokens saw an exponential rise and reached the $1 billion market cap. However, tokens generate excessive amounts of unspent transaction outputs (UTXOs) that clog the network.

UTXOs are amounts of BTC left over after a transaction, similar to the change left over after receiving cash.

Bitcoin Runes,

Bitcoin Runes aims to simplify mushroom token creation on the Bitcoin blockchain and reduce challenges such as UTXO bloat issues caused by BRC-20 tokens. In Runes, each transaction begins by identifying spare change — similar to aggregation — unspent UTXOs, and then uses them to create new transactions.
How do Bitcoin Runes work?

At its core, the Runes protocol uses Bitcoin's UTXO model and OP_RETURN opcode to simplify the creation of mushroom tokens on the Bitcoin blockchain. A Rune, a unique digital asset, is assigned to a UTXO using a protocol message with specific details such as the Rune ID, output index, and quantity, all of which are stored in the OP_RETURN output.

Unlike protocols that rely on off-chain data or private tokens, the Runes protocol leverages Bitcoin's natural capabilities for on-chain data storage. This approach minimizes the generation of unwanted “junk” UTXOs that can clog the network and lead to slower, more expensive, less reliable transactions.

Additionally, Rune balances are tracked within UTXOs rather than tied to wallet addresses. Runes are transferred using Bitcoin transactions with OP_RETURN outputs specifying the transfer details.

Runes can be mined (created), minted (crafted), and transferred using runestons, which are messages stored in Bitcoin transaction outputs. Erosion involves setting properties such as name, divisibility, and symbol. The Mint creates new coins based on the engraved features. Runes transfer contains regulations specifying transfer details such as issue number, Rune ID and amount

How to buy Bitcoin Runes?

The Bitcoin Runes protocol does not have a unique token. Additionally, THORChain should not be confused with the RUNE token, which is a separate, distinct cryptocurrency used within the THORChain ecosystem.

Pioneering Runes-themed Bitcoin NFT collections based on the Bitcoin Ordinals protocol include Satoshi • Nakamoto, RSIC • Genesis • Rune, Meme • Economy, Dog • Go • To • Moon and others.

To buy or sell Runes, the following steps can be followed:

Step 1: Choose a Bitcoin wallet compatible with Runes. Popular wallet options include XVerse and Magic Eden.

Step 2: The Runes protocol runs on the Bitcoin network, so having BTC is required to send Runes and cover transaction fees.

Step 3: Connect to a marketplace that supports Runes, such as UniSat, OKX or Magic Eden. Select a Runes project, check trading activity (e.g. trading volume, order book and price history) and fees and trading progress.