Bitcoin’s next quadrennial halving is imminent – now likely to happen Friday or early Saturday. But a large number of the 15-year-old blockchain’s developers and users are turning their attention to an event that’s expected to take place immediately following the halving: the launch of Casey Rodarmor’s Runes protocol.
Rodarmor’s big project release last year – the Ordinals protocol for creating NFT-like “inscriptions” on Bitcoin – brought a fresh spirit of playfulness and development vigor to the notoriously conservative blockchain’s ecosystem, while showering crypto miners with a cumulative $256 million in revenue. (The popularity of the transactions caused knotty problems like network congestion and soaring user fees, among the tradeoffs.)
The Runes protocol, which will allow users to spin up scads of tokens atop Bitcoin like those commonly seen on other blockchains like Ethereum and Solana, could build on the success of Ordinals. But the arrival of Rodarmor’s new platform could also fundamentally stretch the boundaries of what has previously been considered acceptable in Bitcoin culture, where any digital tokens besides the native cryptocurrency bitcoin have long been viewed as taboo.
Ordinals allowed attaching pieces of data known as “inscriptions” to satoshis, the smallest denomination of BTC – effectively allowing for non-fungible tokens (NFTs) to be minted and traded on Bitcoin, an activity that was previously only available on other blockchains. Soon afterward, another developer, Domo, unveiled “BRC-20” – a standard for creating fungible, or tradable, tokens, another feature that hadn’t previously existed on Bitcoin.
Rodarmor himself has described Runes as a more efficient method of creating new tokens atop Bitcoin, writing in a in a post on X on April 1 that the protocol was “built for degens and memecoins.”
“I’m creating a venue for people to create sh!tcoins,” Rodarmor said in February on an episode of his podcast, Hell Money.
The question is whether they will take off, the way Ordinals did.
Runes’ ‘Simplicity and Security’
Rodarmor describes Runes as a protocol and token standard that can address some of the shortcomings of BRC-20.
With BRC-20, users can only transfer one type of token to one destination with one inscription. Runes, however, will allow users to fan out different tokens in a single transaction that transfer any number of Runes from the inputs to the outputs.
Rodarmor says Runes will offer greater simplicity and security to users than the current BRC-20 standard does.
“To transfer a BRC-20 token takes three transactions due to the way inscriptions work. You need two transcriptions to create the inscriptions and one to transfer the resulting inscription to the recipient,” Rodarmor told CoinDesk in an interview.
“The other shortcoming is complexity. BRC-20 is essentially a superset of Ordinals inscriptions, whereby if you’re writing a BRC-20 index, you have to include an Ordinals index and then additionally add the logic for the BRC-20 on top of that.”
Runes, by comparison, is a standalone protocol with no dependencies on Ordinals, Rodarmor said.
It is also designed to be more efficient. With the exception of creating a rune, which is done by a two-inscription process, everything else takes one transaction.
“The transactions are very small and the transfers are very efficient,” he added.
Bitcoin Halving and Runes
There’s no real technical reason that Runes needs to launch right at the halving.
It is just “thematically cool,” Rodarmor said.
However, he does argue there are post-halving trends that Runes will influence.
The halving – Bitcoin’s fourth in its 15-year history, a core feature of Satoshi Nakamoto’s original programming – will see miners’ reward for adding new blocks to Bitcoin cut by 50% from 6.25 BTC to 3.125 BTC.
The security of Bitcoin is tied to the difficulty of the network, or the number of hashes needed to add a new block. Should the hash rate fall because the block reward has been slashed by 50%, among many potential reasons, the network would be less secure, since it would be easier to add new blocks.
“The halving programming is a very aggressive schedule,” Rodarmor said. “I wouldn’t advocate changing it, but if I was going to design Bitcoin from scratch, I probably would not have picked such a fast decay.”
As a result of the halving, the network’s security may become more reliant on transaction fees – the small amounts of bitcoin paid to miners to validate a transaction by including it in the latest block.
The halving of block rewards would then need to be offset by an increase in BTC’s price, incentivizing more mining activity and thereby increasing the hash rate. Should this not happen though, fees would need to increase instead.
“We already frequently see blocks where the fee is greater than the block subsidy, and that will become more common over time with each halving,” Rodarmor said.
Runes could therefore play a part in generating sources of demand for block space, helping to drive up fees that could become more important in securing the network.
This view is by no means universal in the Bitcoin community. Ordinals proved controversial among some developers for causing congestion on the network and bringing out a spike in fees, an accusation Runes may face as well – if it proves successful.
How does Runes work?
Runes builds on Ordinals by using UTXOs – unspent transaction outputs, a key element of Bitcoin creator Satoshi Nakamoto’s network design – to generate transactions. UTXO is the term for the amounts of crypto left over after a transaction, similar to change remaining after completing a purchase in cash.
The new protocol extends the UTXO concept through the ability to hold a balance in any number of Runes tokens. A single Rune can contain 10 units of Rune A, 100 units of Rune B and 1,000 units of Rune C, and so on, with any UTXOs unspent by a transaction destroyed.
Users would therefore send a bunch of Runes on different inputs, which will be transferred to an OP_RETURN to be burned. That is unless they mark it with a “Runestone,” a pointer that specifies an alternative output, rendering them non-spendable and thus ignored by Bitcoin Core, the network’s software. A Runestone could be used to create a new Rune, known as “etching,” or mint or transfer existing Runes.
Rodarmor sums up Runes as a “simple OP_RETURN-based protocol,” as presented through around 2,000 lines of code.
The concept of not creating leftover UTXOs is “a very simple strict improvement over BRC-20,” Bitcoin entrepreneur Dan Held wrote in a blog post earlier this month.
“Inscriptions have doubled the size of the UTXO set in just the past year and the majority of those are forever useless,” he wrote.
Read More: Bitcoin Meme Coin PUPS Fuelled by Hype Ahead of Runes Release
