What are Bitcoin Runes and How to Buy, Sell, Store Your Runes?

Educational

May 15, 2024

Runes is a protocol to create fungible tokens on the blockchain. It simplifies the creation and management of fungible tokens using Bitcoin’s UTXO model.

Those minting Runes had already spent $4.95 million in fees to acquire the most unique tokens available. This hints that the Runes protocol will significantly boost Bitcoin's growing fee economy.

This guide will help you learn about BTC Runes tokens and how to buy, sell, and store them in the Bitcoin ecosystem.

How do Bitcoin Runes Work?

Here are the primary components that power the working of the Runes protocol:

#1: UTXO-Based System

Bitcoin Runes works on a system known as the Unspent Transaction Output, where each piece of Bitcoin that hasn't been used in a transaction is tracked.

This system, fundamental to Bitcoin's operation, records these unused transaction outputs on the blockchain. The Runes protocol uses this model to account for token transactions, ensuring accuracy and preventing duplication.

#2: Etching

Etching is the initial step in defining a token within the Runes protocol. It involves setting the characteristics of a token, such as its name, symbol, divisibility, and minting caps.

Etching is akin to establishing the blueprint for how the token will function and be recognized on the blockchain.

#3: Minting

Following etching, tokens are minted according to the rules established during the etching process. The Runes protocol facilitates an open-minting mechanism, which allows a broad range of participants to mint tokens.

This is crucial for decentralization and participation within the ecosystem.

#4: Transferring Tokens

The movement of tokens from one party to another is managed through instructions known as edicts within the Runes protocol.

These direct how tokens are transferred on the blockchain, ensuring the integrity and traceability of transactions.

#5: Using OP_RETURN

Runes uses a Bitcoin feature called OP_RETURN, which lets you add some data to Bitcoin transactions.

This feature helps Runes record information about tokens on the blockchain without messing up the main transaction data, keeping things efficient.

Who Created the Bitcoin Runes Protocol?

Casey Rodarmor, the developer behind the Ordinals project, created the Bitcoin Runes protocol.

Rodarmor has contributed to the Bitcoin ecosystem by introducing innovative ways to utilize the blockchain’s capabilities.

Bitcoin Runes aims to address specific inefficiencies in earlier Bitcoin-based token systems.

His work on Runes, like his development of Ordinals, seeks to enhance the functionality and efficiency of Bitcoin, particularly focusing on token management directly on the Bitcoin blockchain.

Why is Bitcoin Runes Created, and what is the Problem It Solves?

Bitcoin Runes was created to address several key issues with token management on the Bitcoin blockchain, especially regarding efficiency and usability. Here’s a closer look at why Bitcoin Runes was developed:

Key Purposes of Bitcoin Runes Creation

#1: Making Token Use Easier on Bitcoin

In the past, Bitcoin wasn't as good at handling different types of digital tokens as Ethereum, which was made to support complex contracts and various token types like ERC-20 and ERC-721.

To fix this, Bitcoin Runes was created. It allows for the creation and management of interchangeable tokens directly on Bitcoin's network.

#2: Utilizing Native Bitcoin Features

By leveraging the native functionalities and security features of the Bitcoin blockchain, Runes aims to integrate token capabilities without the need for significant modifications to the core protocol or reliance on secondary layers or external systems.

Problems Bitcoin Runes Solves

#1: Congestion Due to UTXO Bloat

One of the significant issues with previous attempts at tokenization on Bitcoin was the inefficiency linked to creating surplus "junk" UTXOs (Unspent Transaction Outputs).

These are outputs from transactions that have not been spent and need to be tracked by the network. Excessive UTXOs can lead to blockchain bloat, slowing transaction processing, and increasing fees.

Runes address this by optimizing how UTXOs are managed, enhancing the network’s efficiency.

#2: Complexity and Usability

Previous Bitcoin-based token systems often relied on off-chain data or required native tokens, adding complexity layers and detracting from the user experience.

Runes simplifies this by ensuring that all operations are conducted on-chain and utilizing Bitcoin’s built-in features directly, thus improving usability and reducing dependency on external systems.

#3: No Set Rules

Before Runes came along, Bitcoin didn't have a simple, effective way to make tokens like Ethereum's ERC-20 standard.

Runes introduces a system that could set the rules for making and managing these tokens, making things easier for developers and users.

#4: Security Concerns

Runes closely follows Bitcoin's original setup and safety measures, aiming to keep Bitcoin's strong security features.

This is especially crucial in a world where security issues and hacks happen often.

What are the Differences Between BRC-20 and Bitcoin Runes?

Here are some key differences between BRC-20 and BTC Runes:

Data Storage Approach

BRC-20

Account-Based Model: BRC-20 uses an account-based system similar to Ethereum’s ERC-20. Tokens within this system are associated with specific Bitcoin addresses.
Visibility: All token-related transactions are visible on the blockchain, which could pose privacy concerns as every token balance and movement is publicly traceable.

Bitcoin Runes

UTXO-Based Model: Runes utilize the UTXO model, where tokens are managed as satoshis with specific data inscribed. This method leverages the fundamental transaction output system of Bitcoin.
Data Encapsulation: Information about tokens is embedded directly within UTXOs, providing better privacy since the data is not as overtly visible as in the BRC-20 model.

Transfer Mechanism

BRC-20

Direct Address Transfers: Tokens are transferred between addresses like cryptocurrencies, reflecting a straightforward, account-based transfer system.
Requires External Handling: The simplicity of the account-based model comes at the cost of requiring more sophisticated management systems outside the basic Bitcoin protocol to handle these transactions effectively.

Bitcoin Runes

UTXO Manipulation: Transfers in the Runes protocol involve changing the ownership of specific UTXOs. This method closely ties token management to the fundamental Bitcoin transaction mechanics.
Native Blockchain Operations: Using Bitcoin’s existing transaction capabilities, Runes can execute transfers without needing additional layers or systems, aligning closely with Bitcoin's core operational model.

Scalability and Performance

BRC-20

Network Load Issues: Since BRC-20 can increase the number of UTXOs, it can potentially lead to blockchain bloat. This bloat can slow down network performance and increase transaction costs over time.
No Layer-2 Compatibility: BRC-20 tokens are not directly compatible with secondary scaling solutions like the Lightning Network, which can limit their scalability in handling large volumes of transactions efficiently.

Bitcoin Runes

Optimized for Bitcoin: Runes are designed to minimize their impact on the blockchain’s performance. By efficiently managing UTXO space and integrating natively with Bitcoin's transaction system, Runes aims to reduce potential network bloat.
Lightning Network Compatibility: Runes supports integration with Bitcoin’s Lightning Network, which can dramatically improve scalability and transaction speed, making it suitable for applications requiring high transaction throughput with lower fees. These distinctions highlight BRC-20 and Bitcoin Runes' different approaches to integrating tokens.

How to Buy and Sell Runes?

There are some unique requirements and tools used for handling Bitcoin Runes. Here's a straightforward guide to help you get started:

Step 1: Obtain a Compatible Bitcoin Wallet

Since Runes operates on the Bitcoin blockchain, you'll need a Bitcoin wallet that supports these tokens. Not all wallets can handle Runes, so finding one that does is crucial. Some popular ones are Xverse and Leather.

Step 2: Acquire Bitcoin

You'll need Bitcoin to trade Runes, as transactions occur on the blockchain. Ensure your wallet has sufficient Bitcoin to cover the purchases and the associated transaction fees.

Step 3: Access the ALEX or Magic Eden Platform

Visit the ALEX DeFi platform, which supports the trading and management of Runes. ALEX provides a decentralized environment where users can engage in more complex financial activities with Runes.

Alternatively, you can also use the Magic Eden platform.

Simply select the Runes of your choice.

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And connect your wallet to proceed further.

Step 4: Trading Runes on ALEX

Buying Runes: Use ALEX's Automated Market Maker (AMM) system to find and buy Runes. This system facilitates decentralized trading, allowing you to swap other cryptocurrencies for Runes or buy them directly with Bitcoin.
Selling Runes: If you possess and wish to sell them, you can list them on ALEX's AMM. Set the amount and price you want to sell. ALEX's platform enables you to handle this process seamlessly, ensuring your transaction is secure and decentralized.

How to Send, Receive, and Store Your Runes

Handling Runes, given their unique placement as tokens on the Bitcoin blockchain, requires understanding how they integrate with Bitcoin's existing infrastructure.

Since Runes is a relatively new addition, you'll need a wallet that can interact with the specific data structures used by Runes, such as OP_RETURN outputs in Bitcoin transactions, which store metadata related to Runes.

Acquire Runes Before you can send or receive Runes, you need to acquire some. This can be done through:

Purchasing Runes on platforms like ALEX or any other exchanges that support them.
Receiving Runes from another user.

Ensure the sender has your correct Bitcoin address and is compatible with Runes.

Receiving Runes

To receive Runes, you must provide the sender with your Bitcoin address.

Open your wallet and go to the receive section.
Copy the Bitcoin address or share your QR code with the sender.
Be sure you are using your Taproot address that starts with bc1p…
Ensure that this address is from a wallet that supports Runes to receive and interact with them properly.

Sending Runes

To send Runes to someone else, follow these steps:

Open your wallet and go to the send section.
Enter the recipient’s Bitcoin address.
Double-check to ensure the address is correct.
Enter the amount of Runes you wish to send.
Include any required transaction fee (note that fees are in Bitcoin, as Runes transactions occur on the blockchain).
Confirm and send the transaction.

Please note: Understand the fee structure as sending Runes will require enough Bitcoin to cover the network fees.

Storing Your Runes

Storing your Runes safely is crucial. Here are storage methods for BTC Runes:

Hardware Wallets are the most secure for storing any cryptocurrency, including Runes, as they keep your private keys offline.
Software Wallets: Ensure the software wallet is regularly updated and supports the specific functionalities required for Runes.

Top 5 Runes Token Collection by Trading Volume in 2024

Here are the top five Bitcoin Runes tokens by trading volume as of 2024:

#1: SATOSHI•NAKAMOTO

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SATOSHI•NAKAMOTO boasts a complete token minting of 20+ million tokens, with the entirety now in circulation, amounting to 20,999,700 tokens. Among its extensive base of 19,700+ holders, the top holder commands a significant 20% of the tokens, while the remaining distribution showcases a diverse array of stakeholders with smaller percentages.

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Luminex Data: https://luminex.io/rune/SATOSHI%E2%80%A2NAKAMOTO

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Market Data from Magic Eden: https://magiceden.io/runes/SATOSHI%E2%80%A2NAKAMOTO

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#2: RSIC•GENESIS•RUNE

The RSIC•GENESIS•RUNE token has a total minting of 21 billion tokens, representing the entirety of the maximum supply. With 21,800+ holders recorded, the distribution among them is vast, with the top holders owning varying percentages of the total supply.

Notably, there have been 137.5 billion tokens transferred in total, reflecting a high level of activity within the token ecosystem.

Luminex Data: https://luminex.io/rune/RSIC%E2%80%A2GENESIS%E2%80%A2RUNE

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Market Data from Magic Eden: https://magiceden.io/runes/RSIC%E2%80%A2GENESIS%E2%80%A2RUNE

#3: WANKO•MANKO•RUNES

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WANKO•MANKO•RUNES, with a total supply of 1 billion tokens, has seen 75,000,000+ tokens minted so far, representing 7.520% of the total.

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Among its 2500+ holders, the top holder possesses 3.38% of the tokens, followed closely by others holding significant percentages. The latest transfers indicate ongoing activity within the ecosystem, with various amounts changing hands between holders, showcasing the dynamic nature of token circulation within the community.

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Luminex Data: https://luminex.io/rune/WANKO%E2%80%A2MANKO%E2%80%A2RUNES

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Market Data from Magic Eden: https://magiceden.io/runes/WANKO%E2%80%A2MANKO%E2%80%A2RUNES

#4: Z•Z•Z•Z•Z•FEHU•Z•Z•Z•Z•Z

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Z•Z•Z•Z•Z•FEHU•Z•Z•Z•Z•Z has a total minting of 111.1 million tokens, all of which have been minted, representing 99.970% of the maximum supply. With a circulating supply matching the minted amount, the token's ecosystem seems fully established. This is also possibly the very first Rune token in existence.

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With 20,900+ holders recorded, this BTC runes has the capability of becoming a major player in the future.

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Luminex Data: https://luminex.io/rune/Z%E2%80%A2Z%E2%80%A2Z%E2%80%A2Z%E2%80%A2Z%E2%80%A2FEHU%E2%80%A2Z%E2%80%A2Z%E2%80%A2Z%E2%80%A2Z%E2%80%A2Z

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Market Data from Magic Eden: https://magiceden.io/runes/Z%E2%80%A2Z%E2%80%A2Z%E2%80%A2Z%E2%80%A2Z%E2%80%A2FEHU%E2%80%A2Z%E2%80%A2Z%E2%80%A2Z%E2%80%A2Z%E2%80%A2Z

#5: BITCOIN•PEPE•MATRIX

BITCOIN•PEPE•MATRIX is one of the top runes tokens with a total minting of 6.9 billion tokens, representing the entirety of the maximum supply. With 16,600+ holders recorded, it is one of the bustling ecosystems with considerable token movement.

Luminex Data: https://luminex.io/rune/BITCOIN%E2%80%A2PEPE%E2%80%A2MATRIX

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Market Data from Magic Eden: https://magiceden.io/runes/BITCOIN%E2%80%A2PEPE%E2%80%A2MATRIX

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