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WTF is Runes?

Download our full report at the bottom.

Runes is a UTXO (Unspent Transaction Output) based protocol that lets users create fungible tokens atop Bitcoin.

The innovation that started with Ordinals, and was followed by BRC-20, has finally led us to Runes, a protocol with none of the issues from its predecessors.

Runes yesterday had 59% of all Bitcoin block space, whereas Ordinals and BRC-20 combined were on <2%, which is a depressing collapse from the average of 30% they were at before.

How could this be?

The problem with Ordinals & BRC-20

Ordinals allowed users to inscribe images, text, and video data onto Bitcoin Satoshis - NFTs, on Bitcoin. Users quickly realised they could also inscribe JSON files, leading to the BRC-20 token standard and therefore fungible tokens.

However, the issue with BRC-20 is that they used the Ordinals protocol to assign an “ordinal” - i.e. number - to each Satoshi, which users could inscribe said data onto. In other words, these weren’t really “fungible” tokens.

Hence, users had to create ‘transfer NFTs’ to break up their original mint NFTs into smaller chunks, and then find a buyer willing to purchase the exact amount of tokens they were selling.

How does Runes fix this problem?

Runes utilises a UTXO model, same as Bitcoin, for issuance and storage. The UTXO system allows Bitcoin to perform transactions by “picking up” UTXOs, meaning that Runes embeds itself into Bitcoin’s security.

If you’re looking for a more technical explanation, check out our full report below, where we also look into the Runes transaction proliferation and potential drawbacks.