68% of Runes in Red – Are They Really an Upgrade for Bitcoin?

Bitcoin's halving event is usually a one-token show. This year, however, he shared the stage with the much-anticipated debut of Runes, a new fungible token protocol that stole the spotlight.

The launch of Runes was accompanied by a lot of hype surrounding the potential of memecoins on the protocol and, to a lesser extent, new functionality for the Bitcoin network to tap into the growing interest in DeFi.

Despite initial enthusiasm, Runes has received its fair share of criticism for its role in exacerbating Bitcoin transaction fees and not generating profits for most investors.

Halfway through the day, Bitcoin saw a huge spike, resulting in a generous increase in revenue despite a 50% cut in fees to miners. The top 50 stocks fell by an average of 30% on April 29, 2010. Two thirds of them (34 out of 50) are in the red.

Its proponents realize that discounting Runes is overdue as they envision a future where the protocol will provide more useful services, improved business practices, and wider adoption in the Bitcoin ecosystem.

“I was there when the other protocols came out. [and] They all drank in the first few days,” Quary, founder of the unnamed Bitcoin marketplace Magisat, told the magazine.

“I see no reason to compromise. [on Runes] In the medium and long term.”

New use cases have opened up for Bitcoin.

Benjamin Charbit, CEO of Metaverse company Darewiz Entertainment, a member of the decentralized Bitcoin protocol Opal Genesis, said the buzz around Runes was “undoubtedly” huge.

A large part of the excitement surrounding Runes comes from the potential of memecoins to introduce new retail users into the Bitcoin ecosystem.

Runes can extend the functionality of the Bitcoin blockchain by allowing users to tokenize various real-world assets such as real estate, stocks, commodities, or other tokenized currencies such as stablecoins.

This capability opens up new opportunities for DeFi applications and other uses in the Bitcoin ecosystem.

“Today's Runes interface may not be the last iteration, with promising prospects for user-friendly applications and services,” says Charbit.

But while it may have practical plans for Runes other than being the latest crypto casino in the future, memecoins are mainly what they are today.

As of April 29, there were more than 349,000 holders of Runes, according to data from RuneAlpha. That's about half of all active addresses on the network, according to on-chain data firm IntoTheBlock.

IntoTheBlock's head of research, Lucas Outmurro, said Bitcoin's new addresses fell to their lowest level in two years.

After halving, new addresses dropped to around 267,000. It has more or less remained in that range, barring a few spikes, suggesting that activity is still dominated by veteran users and vagrants rather than retail investors.

“Good Stuff” evangelist Mike Chavez said during a recent Cointelegraph-hosted X Spaces session that Runes' initial infrastructure “exceeds any other cryptographic standard in crypto history.”

As Chavez pointed out, Runes has been accessible on apps like crypto wallet Xverse since day one.

Xverse CEO Ken Liao told the magazine, “We've seen a huge uptick in new users since the launch of Runes.

“BRC-20 tokens also confirmed that people want memecoins over Bitcoin,” he said.

BRC-20 Tokens and Runes

Although it's over a year old, BRC-20 was the benchmark for Bitcoin tokens before Runes.

BRC-20s have a complex structure using tokens — Bitcoin's non-recurring tokens — that require users to bundle BRC-20s into NFT-like assets to make transactions. It's a bit of a faff, so Ordinals creator Casey Rodermore came up with Runes as an upgrade.

Runes offers a more streamlined approach to creating fungibles on the Bitcoin blockchain, solving the problem of unreleased transaction outputs (UTXOs) that often corrupt BRC-20 tokens. It initiates transactions by indexing unused UTXOs, giving these digital byproducts a new purpose.

“Runes are an attractive option for investors looking for efficient tokenization solutions but may not understand or want to deal with the complexity of creating NFT-like assets required by BRC-20s,” Jonathan Thomas, CEO of decentralized finance platform Blueberry, told Protocol magazine.

“As Runes sticks around, many users jump on board when they see an option to create tokens like Degens,” added Thomas.

Should Bitcoin Miners Celebrate Fee Increases?

Bitcoin's proof-of-work consensus mechanism sees miners solve complex algorithmic problems to confirm transactions and are rewarded with Bitcoin.

The last halving of mining rewards from 6.25 bitcoins to 3.125, which means a reduction in the payment of miners, which usually causes some miners to destroy the machine.

But in a complete reversal of the usual order of things, Bitcoin miners began to earn more money in half a day instead of less. It was one of the best weekends since the miners took in $107 million on April 20 alone. Over 75% of transaction fees come from Rodarmor's Runes and Ordinals (including hunting for “Epic Sats”).

“Bitcoin payments have decreased since the release of Runes, but they are still two to three times higher than a week ago,” Outumuro tells the magazine.

“Miners should expect additional transaction fee income due to Runes, but it can be very cyclical,” he says. “When the market is exposed to risk, the income will be much higher than in times of danger.”

Quarry added that most of the payout hints come from crafting Runes rather than trading them.

Z•Z•Z•Z•Z•FEHU•Z•Z•Z•Z•Z singled out Z•Z•Z•Z•Z•FEHU•Z•Z•Z•Z•Z as the first rune created after the Genesis Rune (uncommon item) to be among the main culprits that resulted in the highest payouts. Halve when 1.1 million mints are made.

Transaction activity may incur fees “but not significantly,” he said, because “most of the heavy lifting is transferred to centralized exchanges for small, off-chain activity.”

Less than a week after its creation, Runes Project Dog•Go/To•Moon started trading on the Gate.io exchange by Leonidas, co-founder of Ordinals Explorer Ord.io.

As more decentralized exchanges are expected to emerge for Runes, not all transactions will occur off-chain.

Bitcoin Runes can be more than memecoins

Early iterations of Runes were mostly, if not all, fueled by memecoin experiments, but that's not necessarily the end game.

Franklin Templeton, based on an investment firm with $1.6 trillion in assets under management, Runes positions Bitcoin Ethereum and Solana to close the gap with the fungible tokens markets.

Runes improves the BRC-20 approach by reducing the UTXO build.

This excess can clog the network and raise fees, but Runes streamlines the process, making the blockchain run more smoothly.

“This avoids creating redundant data that can bog down the blockchain. This method allows multiple token transfers to be embedded in a single transaction. This actually reduces the total number of transactions and the number of data nodes to be processed,” says Blueberry Protocol's Thomas.

An efficient, scalable tokenization standard is imperative for DeFi, which unlocks a myriad of on-chain financial services.

Popular decentralized services on Ethereum, the largest DeFi chain with over $54 billion in total value locked, include decentralized exchanges as well as lending and borrowing platforms. These use cases are facilitated by fungibles such as stable coins.

“Runes will remain a major trend, especially as many memecoins and novel projects add utility services to their Rune tokens,” Charbit said, adding that Opal is ready to add utilities to its tokens, such as management and in-game currency mechanics.

According to Xverse's Liao, general users may not feel the potential of Runes because they only have “very basic infrastructure” at the moment.

“But the core protocol has improvements that will allow for a better experience in business and other applications in the future,” Liao says.

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John Yun

Yohan Yun is a multimedia journalist who has been reporting on blockchain since 2017. He has contributed as an editor to crypto media outlet Forkast and covered Asian technology stories as an assistant reporter for Bloomberg BNA and Forbes. He spends his free time cooking and experimenting with new recipes.