What are Bitcoin Runes? About Bitcoin’s Fungible Token Protocol

Bitcoin was first created as a secure, decentralized store and transfer of value, and for over a decade, it’s done that incredibly well. However, since Bitcoin’s launch, the wider blockchain ecosystem has expanded. For example, the Ethereum network incorporated a virtual machine into its infrastructure. The Ethereum virtual machine allowed the creation of smart contracts, unlocking decentralized apps (dapps), and fungible and non-fungible tokens. These features inspired the creation of entire ecosystems dedicated to decentralized finance, digital art, and much more. 

As a long-term store of value, Bitcoin doesn’t support complex smart contracts by design. It doesn’t use a virtual machine, and thus can’t support decentralized apps. As such, alternative asset classes have evolved slower on Bitcoin than on other networks. Creating tokens on the Bitcoin network is more technically challenging than on chains built for speed and scalability. 

While the ecosystem was once limited, today there are a choice of protocols on the Bitcoin network offering ways to create both fungible and non-fungible tokens. 

The first is the bitcoin ordinals protocol, designed to create a kind of Bitcoin NFT. Then the Bitcoin stamps and BRC-20 protocols followed along soon after. Now, another fungible asset class joining the mix: bitcoin runes. But what are Bitcoin runes exactly? 

What are Bitcoin Runes?

Bitcoin Runes are fungible assets built on Bitcoin via the Runes protocol. Runes are much like preexisting fungible tokens on the Bitcoin network but designed to be more efficient and immutable. Fungible tokens have many use cases, but it’s impossible not to mention memecoins. As Bitcoin is the biggest and most popular blockchain network, introducing the capability to create native memecoins impacts the wider ecosystem.

To understand why, let’s explore the history of runes and why they exist.

The History of Bitcoin Runes

The Bitcoin Runes protocol was announced in September 2023 and launched alongside the Bitcoin halving on the 20th of April 2024. The idea was to improve the experience of creating fungible tokens on the Bitcoin network. 

For some context, the creator of Runes, Casey Rodarmor, is also behind the most popular alternative Bitcoin asset yet, Bitcoin ordinals. The ordinals protocol was designed to create non-fungible tokens; unique tokens with unique value. This sparked off a market of Bitcoin digital art and collectibles. It also piqued the interest of some other innovators on the chain.

Another Bitcoin developer, named Domo, used the ordinals protocol as a base to build a fungible token protocol he named BRC-20. These tokens have since proved popular, but as an experimental protocol, it has its faults. Without getting too technical, using the BRC-20 protocol can be costly and energy-inefficient.

As an improved solution, Rodarmor decided to launch the bitcoin runes protocol. Bitcoin Runes can do everything the BRC-20 tokens can, but more efficiently and at less expense.

What are Bitcoin Runes For

Bitcoin runes, as fungible tokens, have a wide range of use cases. Much like ERC-20 tokens on the Ethereum network, you can use Runes to launch any fungible token project you like. The only difference is that your runes project cannot rely on a complex smart contract. If you plan to create token-gated apps or decentralized governance platforms, Bitcoin runes aren’t the asset type you want. But, for the following uses, Bitcoin Runes show a lot of potential.

Memecoins

Memecoins will likely always play a part in the crypto market. NFT memes have sold for millions of dollars. Some of the most popular coins in existence are purely built on memes, such as DOGE and PEPE. As the most popular network, many Bitcoin memecoins using the BRC-20 and SRC-20 protocols have seen huge successes. 

In preparation for the launch, some leading Bitcoin memecoins, such as WZRD and PUPS announced they would migrate their existing BRC-20 tokens to the new runes protocol. Thus in the future, we’re likely to see a lot more Bitcoin memecoins launching as runes.

DeFi

Bitcoin runes also open up the possibility of DeFi on the Bitcoin network. Their fungibility means they are easy to split into pieces and put back together again. Plus, since runes are compatible with both the Bitcoin mainnet and Lightning network, they can be integrated into borrowing and lending platforms. This could mark the beginning of a new era for the Bitcoin network. While Bitcoin fungible tokens were possible previously, the runes protocol is cheaper and more efficient than its predecessors.

How Do Bitcoin Runes Work

Before explaining how Bitcoin Runes work, it’s important to understand how Bitcoin transactions are processed. On the Bitcoin network, every transaction requires an input and an output which come in the form of Unspent Transaction Outputs (UTXO). Think of a UTXO like a banknote. 

When you pay for something on the network, you actually send an entire UTXO to that address and you receive a new UTXO in return. It’s much like paying for an item with a $20 banknote and then receiving a $10 banknote as change. 

The Bitcoin Runes protocol uses this transaction process to create fungible tokens.  Much like the process of creating a Bitcoin ordinal is called inscribing, the process of creating a Bitcoin rune is called “etching”.

This involves creating a “genesis” UTXO including the details of the rune’s name, symbol, decimals, and total supply. This information is assigned to a single UTXO. Sending out transactions creates fractionalized, fungible pieces of the original UTXO, and those new pieces are called Runes.

Bitcoin Runes Vs BRC-20: What’s the difference

Bitcoin runes rely on a separate protocol from BRC-20 tokens, thus there are some key technical and practical differences. 

For example, managing BRC-20 tokens requires a Taproot-enabled wallet, and that’s not the case for Runes. You can manage Runes without a Taproot-enabled wallet or access to bitcoin layer two networks. These assets are completely native to the Bitcoin mainnet. Runes are also the first fungible Bitcoin assets that are Lightning network-compatible. Unlike previous fungible Bitcoin assets, you can bridge runes to the Lightning network and back.

Runes also differ from BRC-20 because they handle data more efficiently. To explain, BRC-20 tokens create “junk” UTXOs. Runes are more streamlined. Reducing the amount of data processed puts less strain on the network which is more scalable and cost-effective. 

Finally, Runes are more immutable than BRC-20 because they store all data on-chain, rather than using off-chain data storage methods. There are also no third-party tools to rely on when storing data. The asset is truly decentralized.

How Can I Store and Manage Bitcoin Runes Securely

Runes are still highly experimental assets, so if you want to get involved, proceed with caution. New assets often mean new dangers. It’s all too easy to fall for a social engineering scam when interacting with unfamiliar platforms and protocols. 

If you want to interact with Bitcoin Runes, it’s always best to stick to the most intuitive and secure methods. A Bitcoin offline wallet is essential to protect you from online threats, but you’ll also need a wallet compatible with these experimental assets.

To get the best of both worlds, connect a runes-compatible wallet to your Ledger device. Currently, you can’t visualize your runes in Ledger Live, but using your Ledger device alongside a third-party wallet will keep your private keys secure while exploring this new asset class. 

Manage Bitcoin Runes With Your Ledger Device Via XVerse

Xverse is a Bitcoin software wallet compatible with Bitcoin runes, rare sats, and ordinals. It also allows you to connect to Bitcoin layer two network Stacks. Most importantly, it’s compatible with your Ledger device. That means you can manage your Runes with the confidence that your private keys are offline and away from hackers when interacting with new protocols. To learn how to manage Runes with Xverse and a Ledger device, follow the steps in this help center article.

Manage Bitcoin Runes With Your Ledger Device Via Leather (Hiro)

Leather Wallet, previously known as Hiro Wallet, is a Bitcoin software wallet compatible with Bitcoin Runes, Ordinals, and Stamps protocols. Leather wallet is also compatible with the Stacks Bitcoin layer two network and plans to integrate Lightning in the future. To learn more about how to manage alternative bitcoin assets with Leather, check out the Academy article here. To connect your Ledger device to Leather wallet, follow the steps in this help center article.

The Future of Bitcoin Runes

If Rodarmor’s previous protocol is anything to go by, the future of the Runes protocol is bright. To explain, the Bitcoin ordinals protocol sparked off a whole ecosystem of assets, growing into a $2 Billion market within its first year. With the existing interest in other fungible token protocols on Bitcoin, such as BRC-20 and SRC-20, and the excitement about Runes before they launched, it’s safe to say that Runes will be an important asset class in 2024. 

In anticipation of interest, popular NFT Marketplace Magic Eden announced it would launch Runes trading support on April 23rd, just 3 days after the protocol’s launch. Yes, it’s already live! Major exchange OKX also announced it would launch a marketplace for Runes.

With crypto industry leaders building infrastructure for such a nascent asset class, who knows what could happen in the future? But to be certain, fungible assets on the most popular crypto network are becoming a lot more accessible and easy to use.