Bitcoin Network Improvements And Updates: BTC Ordinals, BRC-20 Standard & Runes Protocol

Bitcoin network improvements have been going up in terms of numbers in recent years, introducing more exciting updates to the network. This includes the introduction of Bitcoin ordinals which were released in 2023, bringing changes that were never seen before in the Bitcoin blockchain. Now, with the upcoming runes protocol, new very significant changes are on the way. Stay with us until the end of this article and understand the specifics behind bitcoin ordinals, bitcoin runes protocol and BRC20 tokens which all impact Bitcoin`s ecosystem. You will understand what they are, how they function, what their concept is, and what lies in the underlying technology driving bitcoin network improvements.  

What are Bitcoin ordinals?

Bitcoin ordinals are essentially NFTs created using satoshis, the smallest units of Bitcoin. Each satoshi is assigned a unique serial number based on the order in which it was mined. These serial numbers, known as ordinals, serve as a way to track individual satoshis and determine their ownership. These ordinals can have additional content written to them through a process called inscribing.

The ordinals protocol was introduced to enhance the capabilities of the Bitcoin network. It allows for the creation of unique digital assets directly on the base Bitcoin blockchain without relying on secondary layers. By inscribing additional data onto satoshis, such as text or images, Bitcoin ordinals transform these tiny units into scarce and valuable tokens. This innovation bridges the gap between Bitcoin’s security and the demand for non-fungible tokens (NFTs).

The importance of ordinals lies in their ability to expand Bitcoin`s use cases beyond simple transactions, allowing the creation of digital art, collectibles, and other unique assets. While most users see the introduction of ordinals as a network enhancement with promising potential, the Bitcoin community is split, with some arguing that ordinals carry a “spammy” nature which can congest the network. 

BRC-20 token standard and its connection to ordinals

BRC20 tokens are positioned as an experimental standard within the Bitcoin network, with the goal of extending its functionality beyond peer-to-peer transactions. Unveiled in March 2023 by an anonymous developer identified as Domo, BRC-20 tokens emerged to meet the growing demand for tokenization on the Bitcoin platform.

The essence of BRC-20 tokens revolves around ordinals, which imprint a unique serial number onto individual satoshis, thus validating their ownership and preventing duplication. The concept of BRC20 tokens is to emulate Ethereum's ERC-20 standard, yet they function directly within the Bitcoin network, harnessing JSON ordinal inscriptions made possible by the Bitcoin Taproot upgrade. 

However, BRC-20 are not as widely accessible or traded at present due to being in the early stages of development. Currently, their functionalities are confined to minting, deploying, and transferring tokens, and “enjoy” the same controversial opinion from the community as ordinals, claiming they can clog Bitcoin protocol. 

What is Bitcoin Runes protocol?

The Runes protocol represents a groundbreaking token standard designed specifically for issuing fungible tokens on the Bitcoin network. Its primary objective is to provide users with a more efficient method for creating fungible tokens. Set to launch in April 2024, Runes aligns its debut with the anticipated Bitcoin halving event.

Runes emerged from recent developments in Ordinal theory, which allowed users to create serial numbers tied to satoshis and add file data into the blockchain. The creator of the Ordinals protocol, Casey Rodamor, proposed Runes as a more efficient alternative to the experimental BRC-20 token standard. Initially, Ordinals were repurposed to create tokens, leading to the BRC-20 standard. However, this approach had limitations due to Bitcoin’s on-chain constraints.

How Will Bitcoin Runes Function

Runes will introduce a UTXO (Unspent Transaction Output) based model for fungible tokens. Unlike traditional standards like BRC-20, Runes is set to simplify token creation, management, and transfer directly on the Bitcoin network. By inscribing metadata onto individual satoshis, Runes will enhance efficiency and optimize the process.

If you are wondering how UTXO is going to work in the context of Runes protocol, here is an overview of the process: when a user receives Bitcoin, it arrives in the form of UTXOs. These UTXOs can be spent or combined to create new transactions. The Runes Protocol leverages UTXOs efficiently, ensuring optimal resource utilization while maintaining efficiency, security and scalability.

Despite the Runes protocol not yet being live on the Bitcoin mainnet, developers are already pioneering projects based on its principles, laying the groundwork for integration into diverse applications. This reflects growing anticipation within the developer community, promising innovative solutions and new use cases.