Runes has become one of the most hyped crypto projects of spring 2024. While some view it as the future of the cryptocurrency industry, others fear it could overshadow Bitcoin (BTC). The Itez editorial team delves into what Runes entails and why its launch has polarised the crypto community.
What is Runes
Runes is a protocol designed to facilitate the creation of altcoins on the Bitcoin’s network. According to the authors' idea, the mechanism should increase investors' interest in BTC by expanding its blockchain capabilities.
The project was created by developer Casey Rodamor, who also introduced the Ordinals protocol. The latter enables the creation of non-fungible tokens (NFTs) on the Bitcoin network. Its launch in January 2023 made BTC fees skyrocket.
At the beginning of 2023, the average cost of a Bitcoin transaction was around $1. By the end of the year, fees had risen up to $37, primarily because the network struggled to handle the surge in users creating NFTs. To expedite transactions, users could opt to pay higher fees, which are also the primary revenue for miners.
According to Forbes, the demand for Ordinals will continue to grow in 2024, further driving up Bitcoin network fees. As you might guess, the cost rise is not pleasing crypto community members. However, Rodamor claims that Runes is completely safe.
Unfortunately, the new protocol has already left a negative impact. Following its launch immediately after the 2024 Bitcoin halving, network fees soared to a record $127. The main reason is the "traffic jam" that contained people, who decided to become the first BTC-altcoins creators. Community members responded by offering miners higher fees to prioritise their transactions.
How bitcoin network fees have changed over the last three years. Source: bitinfocharts
How the Runes Protocol Works
Runes operates using the concept of the Unspent Transaction Outputs (UTXO) model, where each new transaction on the network generates UTXOs.
In a rough comparison, UTXO can be considered as change left over after cryptocurrency transactions. Imagine you buy an item for $99.99. You have a $100 bill in your pocket, and the store does not provide change. Since the buyer cannot split this bill, they give it to the seller. As a result, the UTXO of this transaction will be 1 cent. Similarly, unspent transaction outputs are formed in the Bitcoin network.
The Runes protocol uses UTXO to record information about new tokens in the blockchain via the OP_RETURN script, thereby issuing altcoins on BTC.
Issuing altcoins on BTC through Runes is called "etching". You can "etch" your rune through platforms that support the protocol like luminex and the Xverse Bitcoin wallet. A full list of issued tokens is published on the Ordinals website. Runes can be bought or sold on the Magic Eden marketplace.
Trading for the SATOSHI•NAKAMOTO rune on Magin Eden.
Runes: advantages and risks
Like any new technology, the Runes protocol has two sides. Crypto community members have identified several advantages and disadvantages of the project that are worth knowing. Let's start with the pros. Here are the positive aspects of Runes that investors pay attention to:
- Community growth. Runes opens up a new way of interacting with Bitcoin. The ability to create altcoins on BTC may attract new developers and investors.
- Adoption acceleration. This point can be considered a consequence of the growth of the crypto community due to interest in Runes.
- Miners' income. Amid the 2024 Bitcoin halving, as mentioned earlier, BTC network fees reached record levels.
- Supports BTC value. To create runes, you need to pay a network fee in BTC. Therefore, any member of the crypto community who wants to issue an altcoin on the network of the most capitalised cryptocurrency will need to purchase some Bitcoins in advance. The demand from Runes enthusiasts may support the coin's price increase.
However, Runes also has its downsides. Here are the protocol's disadvantages that crypto community members are paying attention to:
- Increased fees. The heightened activity could make transactions on the BTC network less accessible due to rising costs.
- Unproven security. The project has not undergone any third-party audits. Crypto community members who cannot independently study the details of the code are forced to trust the developers' promises.
- Questionable Utility. Many representatives of the crypto industry consider the protocol another unremarkable project with dubious goals. Critics are confident that only miners benefited from the launch of Runes. Some, not shy of expressions, call the project a "protocol for shitcoins [coins that have dubious worth]."
However, Rodamor does not hide that Runes is aimed at degens—investors with an extremely high level of risk. He also emphasises that the protocols he developed are intended for fun.
Conclusion
Runes has both advantages and disadvantages. The increase in fees in the BTC network has already indicated that the protocol is not as harmless as the developer wants to present it. At the same time, the hype around Runes attracted the attention of new users to cryptocurrency, thus contributing to the growth of the crypto community.
The itez editorial team will continue to monitor this controversial project and share the latest news about it. Subscribe to our social networks to not miss important information.
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This article is not an investment recommendation. The financial transactions mentioned in the article are not a guide to action. Itez is not responsible for possible risks. The user should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.
