The Bitcoin Runes Protocol for Beginners

When Bitcoin’s halving took place in April, a new token protocol – Runes – was simultaneously launched on the Bitcoin network. But what is this Runes protocol? Let’s see how it works.

The new Runes protocol issues interchangeable tokens embedded onto satoshis (the smallest unit of Bitcoin), contrary to Bitcoin’s Ordinals protocol that issues unique non-replaceable tokens permanently etched onto satoshis. The latter are better known as non-fungible tokens (NFTs) in the cryptoverse. There is yet another protocol that issues transferable or fungible tokens operating on the Bitcoin blockchain, the BRC-20 standard. All three of these protocols expand Bitcoin’s applications beyond payments and storage.

Strong initial interest in Bitcoin’s Runes protocol

The initial interest for the Runes protocol on the Bitcoin blockchain network was massive during its halving event on April 19. More than 70 percent of the daily transactions on the Bitcoin network were related to Runes when launched, data from Dune Analytics shows.

Rune tokens already surpass Ordinals and BRC-20 in daily transactions

The interest in Bitcoin Runes has been above expectations, with its daily transactions overtaking those of the two other Bitcoin protocols in just two weeks. Why? Because Runes provide a new way to represent real world assets (RWAs) such as stocks, real estate, or commodities on the Bitcoin blockchain. (Read more about the tokenization of RWAs here.)

Contrary to the fungible tokens issued with the BRC-20 token standard, the Runes protocol streamlines the process of etching, minting and transfer of the RWAs. It is a more efficient protocol than the BRC-20 standard that requires several transactions to carry out the same steps.

Another technological improvement is that a Rune transaction does not result in any leftovers of Bitcoin following its execution – an unspent transaction output (UTXO) as the phenomena is known in the cryptosphere. The creation process of BRC-20 occasionally generates an excessive number of UTXOs, which eventually clog the Bitcoin blockchain network.

Bitcoin’s 1 billionth transaction reached thanks to Runes!

On May 5, the Bitcoin network reached a new milestone. It surpassed the psychological threshold of 1 billion transactions.

“What’s behind this news - a sharp uptick in activity driven by the launch of the #Runes protocol,” the crypto profile @vivlinsv said.

The launch of the Runes protocol has indeed accelerated the achievement of this milestone, including a daily record of 926,000 transactions processed on April 23. The daily average of Bitcoin transactions processed since its launch 15 years ago is clearly lower, at 178,475.

The cumulative number of Runes users exceeded 2.5 million on May 8, data from Dune Analytics shows.Since their launch, more than 72,000 Runes etches have been created on the Bitcoin blockchain network, resulting in more than 6.5 million Runes-related transactions.

The market cap of crypto tokens used for Runes totaled $233 million on May 7, according to CoinMarketCap. “Dog go to the moon” (DOG) is currently the largest Runes token by far, with a market cap of $231 million. It is a dog-themed meme coin.

“DOG has achieved its dominant position thanks largely to a massive airdrop, which distributed 100 billions of these tokens to more than 75,000 holders of Runestone Ordinal NFTs on Apr 24, 2024,” Bybit noted.