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Bitcoin Runes Meaning

Apr 12, 2024 | Updated Apr 18, 2024
Bitcoin Runes are an alternative fungible token standard to the experimental BRC20 standard.

What Are Bitcoin Runes?

Bitcoin has evolved from basic functionalities to facilitate the development of Ordinals and Inscriptions, Stamps, and BRC-20 tokens. Most of these come from the innovation of developer Casey Rodarmor, who came up with inscriptions – a way of embedding arbitrary data onto satoshis, the smallest units of Bitcoin. This led to the development of Bitcoin’s version of NFTs called Ordinals, which inspired the creation of BRC-20 fungible tokens on Bitcoin. With BRC-20 still experimental, it introduced complexities and inefficiencies when creating fungible tokens on the Bitcoin network. Enter Bitcoin Runes.

Proposed to address the setbacks of the BRC-20 token standards, Bitcoin Runes are unique, fungible tokens directly issued on the Bitcoin network. They operate within Bitcoin’s unspent transaction output (UTXO) model to replace the ordinals’ technology. UTXOs are typically the leftovers of a transaction that are still available for spending in a new transaction. 

How Does the Runes Tokens Standard Work?

Utilizing UTXOs as the foundation for creating fungible tokens reduces the generation of junk (unnecessary UTXOs) that clogs the network.

Here’s how this novel token standard works:

  1. Token issuance and transfer

The entire process begins by defining the token supply, specific human-readable symbols, and decimal configurations. The token supply defines how many Runes a specific UTXO can contain. Initiating a transfer divides the UTXO into multiple UTXOs, each holding different quantities of Runes.

  1. Data storage

While ordinal inscriptions hold data in the witness segment of a transaction, Runes tokens store the arbitrary data in Bitcoin’s special data storage function called OP_RETURN. Every OP_RETURN output in a Bitcoin transaction encodes all new or transferred Runes. And since these outputs are provably unspendable, they reduce the on-chain footprint by curtailing the creation of unnecessary UTXOs.

BRC20 vs Runes: What’s the Difference?

Both BRC20 and Runes token standards serve a similar purpose: to create and issue fungible tokens on the Bitcoin network. Despite having a common purpose, they are quite different from one another. For instance, BRC20 tokens are based on the Ordinals theory, which requires technical knowledge of how ordinals operate. On the other hand, the UTXO-based structure allows Runes to easily integrate with Bitcoin’s native UTXO model without requiring complex actions or off-chain data.

Unlike BRC20 tokens, the UTXO-based token standard is lightning-compatible, which means that it integrates with Bitcoin layer-2s such as the Lightning Network. Consequently, BRC20 is riddled with a high on-chain footprint due to the generation of junk UTXOs that congest the Bitcoin network. Conversely, Runes minimizes unnecessary outputs, reducing the data storage requirement. And while it minimizes junk in the ecosystem, it also signifies a redundancy in effort that may fragment the Bitcoin ecosystem.

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