What Is the Runes Protocol? The Next Evolution of Bitcoin Fungible Tokens
In recent years, Bitcoin has seen a remarkable expansion beyond its original use case as a digital store of value. With the rise of the Ordinals Protocol, Bitcoin saw its first true foray into NFTs (non-fungible tokens). This movement also gave birth to BRC-20 tokens — a way to create fungible tokens on the Bitcoin blockchain. While innovative, BRC-20 tokens also introduced several challenges. Now, a new solution is emerging: the Runes Protocol.
Developed by Casey Rodarmor, the creator of Ordinals, the Runes Protocol is designed to solve the limitations of BRC-20 and offer a cleaner, more Bitcoin-native way to issue and manage fungible tokens. Let’s explore what the Runes Protocol is, how it works, and why it could be a game-changer for Bitcoin.
Why Was the Runes Protocol Created?
The BRC-20 token standard, though creative, was somewhat of a workaround. It stored token data inside inscriptions attached to individual satoshis, resulting in a number of issues:
Junk UTXOs: BRC-20 generated a large number of small unspent transaction outputs (UTXOs), bloating the network.
Inefficient Transfers: Sending tokens required multiple inscriptions and off-chain indexers to track balances.
Centralization Risks: BRC-20 depended heavily on external indexers, weakening Bitcoin's decentralization ethos.
The Runes Protocol was designed from the ground up to avoid these issues.
What Is the Runes Protocol?
Runes is a fungible token protocol that works directly within Bitcoin's native UTXO model. It stores token-related data efficiently using the OP_RETURN field of Bitcoin transactions. This keeps things clean, decentralized, and compatible with how Bitcoin already works.
Think of it this way:
BRC-20 = sticky notes attached to coins (messy and inefficient)
Runes = engraved coins (clean, portable, and verifiable on-chain)
How It Works: Etching and Edicts
Etching is the process of creating a new Rune token. The issuer defines its properties:
Name (e.g., "RUNECOIN")
Total Supply (e.g., 1,000,000)
Decimal places
Optional minting rules
This info is encoded into the OP_RETURN field and permanently written to the Bitcoin blockchain.
Edicts refer to token transfers. Token balances are bound to specific UTXOs. When a transaction moves a UTXO with Rune tokens, those tokens move with it.
This is more secure, more efficient, and entirely on-chain.
Benefits of Runes Over BRC-20
| Feature | BRC-20 | Runes Protocol |
|---|---|---|
| Data Storage | Witness Data (Inefficient) | OP_RETURN (Efficient) |
| Balance Tracking | Off-chain Indexers Needed | On-chain via UTXOs |
| UTXO Pollution | High | Low |
| Transaction Simplicity | Complex | Simple |
| Decentralization | Weakened | Fully Preserved |
Real-World Example
Imagine Alice wants to create a community currency called ALICECOIN with a total supply of 10,000 tokens. She uses a Bitcoin wallet that supports Runes and creates an etching transaction with the desired parameters.
Later, she sends 500 ALICECOIN to Bob by including an edict in a Bitcoin transaction. Bob now holds a UTXO that contains his 500 tokens, and he can transfer them just like Bitcoin — no third-party indexers, no inscriptions, no mess.
Why It Matters for Bitcoin's Future
Bitcoin miners rely on transaction fees as block rewards continue to halve. Runes can increase activity and demand for block space, which raises transaction fees — a sustainable revenue model for miners.
More importantly, Runes brings:
More developers and use cases to Bitcoin
New economic activity without compromising decentralization
A stronger ecosystem capable of supporting tokens natively
And since Runes can also be made compatible with the Lightning Network, high-speed micro-transactions of these tokens may be just around the corner.
Final Thoughts
Runes Protocol is not just another token standard. It represents a structural improvement in how Bitcoin can support digital assets, respecting its foundational design while enabling future growth.
With on-chain efficiency, minimal network burden, and full decentralization, Runes could be the cleanest way forward for Bitcoin-based tokens.
"Runes aren’t just about tokens. They’re about doing things the Bitcoin way."
If you're exploring fungible tokens on Bitcoin or building infrastructure around it, Runes is where you should look next.