Runes, Casey Rodarmor’s Protocol for ‘Sh!tcoins’ on Bitcoin, Set to Go Live at Halving

Last year, Rodarmor unveiled a major project: the Ordinals protocol for adding NFT-like “inscriptions” to Bitcoin. This innovative development brought a new wave of excitement and growth to the traditionally cautious Bitcoin network, generating approximately $256 million in revenue for crypto miners collectively. However, the surge in popularity led to complications such as network congestion and high user fees. (These were some of the challenges that came with the success.)

The Runes protocol, enabling users to create numerous tokens on Bitcoin similar to those prevalent on other blockchains such as Ethereum and Solana, may build upon Ordinals’ success. However, Rodarmor’s emergence could potentially broaden the acceptable norms in Bitcoin community, which has traditionally viewed digital tokens other than native cryptocurrency Bitcoin with skepticism.

In his own words, Rodarmor referred to Runes as a more effective approach for generating fresh tokens on Bitcoin. He expressed this viewpoint in a publication dated April 1st, on platform X, stating that the protocol was specifically designed for “degenerates and meme coins.” (Note: The term “degenerates” is colloquial slang for individuals who engage in risky or unconventional behavior within the crypto community.)

In February, on his podcast Hell Money, Rodarmor expressed that he was providing a platform for individuals to develop new digital currencies, colloquially referred to as “sh!tcoins.”

The question is whether they will take off, the way Ordinals did.

Runes’ ‘Simplicity and Security’

In simpler terms, Rodarmor refers to Runes as a set of guidelines and digital tokens that aim to resolve certain limitations of the BRC-20 standard.

Using Runes, users have the ability to distribute various tokens to multiple recipients in a single transaction, whereas BRC-20 only permits transferring a single token type to one destination with each inscription.

According to Rodarmor, using Runes instead of the BRC-20 standard will provide users with easier functionality and enhanced safety.

According to Rodarmor, speaking with CoinDesk, the process of sending a BRC-20 token involves three transactions. The first two transactions are used to create the necessary inscriptions, while the third transaction is required to transfer the created inscription to the intended recipient.

“BRC-20 has another drawback – it’s complex. To create a BRC-20 index, you need to have an Ordinals index first and then build the logic for BRC-20 on top of it.”

Runes, by comparison, is a standalone protocol with no dependencies on Ordinals, Rodarmor said.

The design aims for increased efficiency as well, with most tasks requiring just one transaction. The creation of a rune being the only exception, which involves a two-step process.

“The transactions are very small and the transfers are very efficient,” he added.

Bitcoin Halving and Runes

There’s no real technical reason that Runes needs to launch right at the halving.

It is just “thematically cool,” Rodarmor said.

However, he does argue there are post-halving trends that Runes will influence.

Bitcoins’ rewards for miners, a key element since its creation by Satoshi Nakamoto, will be reduced by half for the fifth time in Bitcoin’s 15-year existence. This means that instead of receiving 6.25 Bitcoins as a reward for adding new blocks, miners will now receive only 3.125 Bitcoins.

The safety of Bitcoin depends on the complexity of its network, represented by the number of computational efforts required to create a new block. If the hash rate decreases due to various possible reasons, such as a 50% reduction in block rewards, the network becomes less secure as it becomes simpler to add new blocks.

“Rodarmor stated that the Bitcoin halving algorithm is quite rigorous. While he wouldn’t recommend altering it, if he were creating Bitcoin anew, he might opt for a less rapid decrease.”

Due to the halving event, the security of the network could increasingly depend on transaction fees as the reward given to miners for confirming transactions by adding them to the newest block decreases.

If the number of bitcoins received as a reward for mining a block is cut in half, this reduction could be compensated by an uptick in Bitcoin’s price to motivate miners and escalate the hash rate. However, if such a price surge fails to materialize, then fees would need to rise instead.

“Rodarmor pointed out that we often encounter blocks with fees surpassing the block reward, a trend that will grow more prevalent as each halving occurs.”

In simpler terms, using runes might increase the competition for block space, leading to higher fees which could be crucial for maintaining the network’s security.

Among some members of the Bitcoin community, this perspective is not widely accepted. Ornals, a proposed solution, stirred controversy amongst developers due to their potential to clog the network and surge fees. Runes, similarly, could encounter such criticism if it gains traction.

How does Runes work?

In simpler terms, Runes utilizes UTXOs, or the leftover crypto from previous transactions in the Bitcoin system designed by Satoshi Nakamoto, to create new transactions. UTXO stands for Unspent Transaction Outputs and represents the remaining crypto amounts after a transaction is completed, similar to the change you receive when making a cash purchase.

The new protocol expands the UTXO (Unspent Transaction Output) concept by allowing users to manage a balance for an infinite number of Runes tokens. Each Rune token can consist of up to 10 units of Rune A, 100 units of Rune B, 1,000 units of Rune C, and so forth. Any unused UTXOs from a transaction will be automatically destroyed.

In a recent blog entry, Bitcoin entrepreneur Dan Held proposed an uncomplicated yet effective enhancement over BRC-20: avoiding the generation of unused output scripts (UTXOs) as leftovers.

“Inscriptions have doubled the size of the UTXO set in just the past year and the majority of those are forever useless,” he wrote.