By Michael Scott
Overview
An example of an age-old issue with Bitcoin is the inability to natively back nonfungible tokens (NFTs). This resulted in the appearance of Bitcoin Ordinals in January last year, acting as a strategy for inscribing exclusive information onto individual satoshis, enabling NFTs on the Bitcoin blockchain.
By early last year, numerous creators and users were actively participating in the Ordinals ecosystem, generating and trading Bitcoin-native digital assets. Notably, countless high-profile sales amounting to hundreds of thousands of dollars were witnessed.
Naturally, Casey Rodarmor, the Ordinals protocol’s founder, decided that Bitcoin nonfungible tokens were worth pursuing, with promises of constant community hype and profit. Hence, ‘Runes’s’ announcement did not take long, not even six months following the Ordinals’ unveiling.
Runes’s unveiling happened on April 24, immediately after the Bitcoin halving. However, a month after the debut on the Bitcoin blockchain, the protocol suffered a 99% reduction in everyday activities.
The hype might have influenced the earlier surge, and the quick decline indicates that the earlier enthusiasm did not result in sustained utilization. However, the technology behind Bitcoin Runes is quite captivating.
Why Runes are Required?
An embodiment of the Runes protocol is vital for Bitcoin’s continuous significance. However, the Bitcoin network has some limitations, including:
- The lack of smart contracts: Bitcoin does not natively back complex smart contracts, restricting its use cases beyond simple transactions.
- Scalability problems: The Bitcoin network can experience congestion, resulting in slower transaction time and higher fees. This may cause problems for apps needing inexpensive and fast transactions.
- Nonfungibility: Bitcoin was designed for fungible tokens, meaning every Bitcoin is identical to another. This makes it hard to create and manage nonfungible tokens, which need special identifiers.
Ordinals sought to address these limitations, while Runes aims to offer a more effective and comprehensive successor.
Bitcoin Runes Explained
Bitcoin Runes embeds additional data into BTC transactions. The extra data comprises information uniquely identifying every digital asset or token, ensuring uniqueness from regular Bitcoin transactions.
The mechanism allows for the generation of nonfungible tokens and other exclusive digital assets on the Bitcoin blockchain. To create a special digital network and issue it as a Bitcoin Rune, the following steps must be followed:
- Encoding the artwork
- Creating the transaction
- Broadcasting the transaction
Artwork inclusion in a transaction’s metadata means that the specific satoshis can be sold at a higher price, permitting the artist to profit.
What Differences Exist Between Runes and Ordinals?
Runes are recorded in a transaction’s metadata, offering more flexibility compared to Ordinals. Ordinals have a more comprehensive range of use cases, while Runes’s functionality is more customized to generate and manage nonfungible tokens and other special digital assets.
Runes are optimized for nonfungibility, offering capabilities and features that make transferring, generating, and trading unique tokens easier. While Ordinals can be utilized to manage special items, their main strength lies in their versatility.
How to purchase Bitcoin Runes?
Trading the runes themselves is a bit easier and is equivalent to purchasing any other token with some basic differences.
First step: A user should pick a Bitcoin wallet that backs Runes and install it. A robust password should be created.
Second step: A user should look for marketplaces that list Bitcoin Runes, for instance, OKC and OpenSea, and sign up. The account should also be verified on the chosen marketplace.
Third step: Bitcoin should be purchased on exchanges such as Kraken or Coinbase and transferred to the wallet.
Fourth step: Users should find the Runes they desire on the marketplace and use their Bitcoins to purchase them. The platform’s instructions should be followed.
Final Thoughts
The necessity of NFTs on Bitcoin is a major question. According to proponents, Bitcoin’s unparalleled immutability and security make it ideal for NFTs, guaranteeing the greatest protection level for digital assets. Nevertheless, this argument might weaken with time.
Security appears to be the main reason why Bitcoin nonfungible tokens would be preferred over the same NFTs on, for instance, Ethereum.