In the early stages, Bitcoin was predominantly a payment system.

However, today, new protocols have emerged to inject fun into the network, from Ordinals to BRC-20s, and now, we have the Runes protocol.

Guess why Runes is the talk of the crypto town?

For the very first time, Runes is bringing the degen culture to Bitcoin as it aims to allow the creation of meme coins on Bitcoin.

Everything you need to know about Runes is detailed in this post. Let’s dive in!

Post Summary

• What is the Runes Protocol?
• How Does Runes Protocol Work?
• Is Runes Protocol Worth the Hype?
• Runes Protocol: The Good And Bad Sides
• Conclusion

What is the Runes Protocol?

The Runes Protocol introduces a more efficient way to create fungible tokens on the Bitcoin network.

To better understand this concept, let’s rewind things a little.

Runes was created by Casey Rodarmor, the brain behind ‘Ordinals’.

Ordinal protocol allowed inscribing NFTs onto the Bitcoin network

This laudable development was followed by the creation of BRC-20, Inspired by Ethereum’s ERC-20 standard, which enabled the creation of fungible tokens on the Bitcoin network.

Both methods, however, have a downside: they consume significant transaction space, resulting in network congestion and spamming.

Enter Runes!

The Runes protocol picks up where BRC-20s left off.

It aims to enable a more efficient way for the creation of fungible tokens on Bitcoin without consuming so much data.

However, its core function might be fueling “meme coin mania” on Bitcoin by allowing their creation on the network.

Runes went live on April 20th, coinciding with the 2024 Bitcoin halving.

Let’s talk about how the Runes protocol work!

How Does Runes Protocol Work?

• UTXO
• OP_RETURN
• Lightning Compatible

– Unspent Transaction Output (UTXO)

Runes transactions work much like Bitcoin transactions, following an Unspent Transaction Output (UTXO) model.

Here’s how it works: in this model, each transaction takes leftover coins (unspent outputs) from a previous transaction and forms new ones.

This process enhances security as all transactions are easily traceable on-chain.

On the other hand, BRC-20 tokens, similar to ERC-20s, operate on an account model.

They rely on separate records (off-chain data) to manage transactions.

This puts a striking difference between Runes and the already existing token standard, BRC-20 on the Bitcoin network.

– OP_RETURN

Runes transactions cleverly leverage a special Bitcoin feature called OP_RETURN.

This feature allows users to tuck a small amount of extra data within a regular Bitcoin transaction.

In the context of Runes, this hidden data is called a Runestone.

It carries the specific instructions for the Runes protocol, telling it what action to take. These actions can be:

• Etching: This creates a new type of Rune token, defining its name, total supply (maximum number of units), and optional symbol.
• Minting: After a Rune is etched, minting refers to creating actual units of that Rune token based on the etching definition.
• Transfer: This simply involves sending existing Rune tokens from one user to another.
• Edict: This is a unique feature within Runes. It allows holders of a particular Rune to vote on proposals that can modify aspects of that Rune.

Key takeaway: By utilizing both the UTXO model and OP_RETURN, Runes aims to achieve efficient transactions without cluttering the Bitcoin network.

– Lightning Compatible

Runes take advantage of the Lightning Network, enabling quicker and more cost-effective transfers.

In contrast, BRC-20 tokens, due to their design, cannot leverage the Lightning Network for faster transactions.

Now that we have learned the basics, let’s talk about how Runes is pulling weight so far.

Is Runes Protocol Worth the Hype?

Since Casey introduced Runes, it has gained widespread popularity, becoming a major crypto narrative.

During the pre-halving period, the manic around Runes was driven by the interest of airdrop farmers mining the RSIC, the Genesis Runes token ahead of launch.

And just days after launch, the Runes ecosystem exploded with activity, with over 5,000 tokens minted.

Crazy, if you ask me! But it doesn’t end there.

RunesMarketCap reports a staggering $447 million market cap for these tokens, showcasing their rapid adoption.

In addition, prominent players like Magic Eden, OKX, and Whales Market integrated support for Runes, further amplifying its ecosystem’s growth.

Coming down to price action:

So far, only a small portion of Runes-based tokens have performed well on charts, while others have significantly underperformed.

But, given Runes’ early stage, this price action shouldn’t be the sole indicator of the protocol’s potential.

Now, like any other development, there are both positive and negative aspects. Let’s look at the impacts of Runes on Bitcoin.

Runes Protocol: The Good And Bad Sides

Positive Aspects…

1. An Upgrade to Bitcoin

Runes introduces a novel approach to fungible token creation on Bitcoin.

It offers efficiency without compromising network performance.

2. Improved Liquidity And Increased Adoption

Runes could draw in degens, aiming to quickly increase their investment through meme coins on the Bitcoin network, thereby significantly boosting network adoption and liquidity.

Another scenario to consider: 

The current market cap of Bitcoin stands at $1.3 trillion at the time of this post.

 If meme coins on Bitcoin can capture just 10% of this market share, they would reach a market cap of $13 billion, surpassing any other blockchain’s meme coins, at post time.

Negative Aspects…

1. Rug Pulls

It opens the door for the creation of “shit coins” on Bitcoin, which becomes risky when nefarious developers pull the rug on investors.

2. High network fees

While Runes transactions themselves don’t clog the network, they could lead to a surge in activity, potentially driving Bitcoin network fees up significantly.

Conclusion

We have reached the end of the post!

Runes unlocks new possibilities for trading memes on Bitcoin.

However, its potential to expand the Bitcoin ecosystem and attract new users is still largely unexplored.

Runes protocol: Game changer or overhyped? Share your thoughts in the comments below!

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