How to understand the innovative value of Runes and its potential subsequent market impact?
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How to understand the innovative value of Runes and its potential subsequent market impact?
Will the Runes standard usher in an "eternal era" for BTC ecosystem development?
Navigating Web3 tides with focused insightsAuthor: Haotian
How should we understand the innovative value of Runes and its potential market impact? In my view, Runes is a fungible token (FT) issuance standard built on the Ordinals protocol, and will become the foundational asset issuance layer for building a robust ecosystem on the BTC network. If we regard the pre-halving era—where standards like BRC20, ARC20, and SRC20 proliferated chaotically—as a "Chaotic Epoch," then the emergence of Runes could usher in a "Stable Epoch" for BTC's ecosystem development. Here’s how I see it:
1) Ordinals is a protocol that enables issuing and transferring various crypto assets on the BTC network via off-chain indexing. Initially more suited for NFT-type assets, the introduction of the Runes standard fills its gap in fungible token issuance and management, effectively transforming Ordinals into a comprehensive protocol for issuing and managing derivative crypto assets on Bitcoin.
2) After Ordinals emerged, a series of derivative innovation standards followed—BRC20, ARC20, SRC20—all attempting to utilize script space within UTXOs to enable FT issuance on Bitcoin.
BRC20, as the pioneering token standard, achieved asset issuance by placing data in the Witness (segwit) field, with subsequent asset management relying on coordination between Ordinals and multiple indexers. ARC20 is an evolved improvement, leveraging the inherent transfer characteristics of UTXOs to manage inscription-based assets, reducing reliance on external indexers. SRC20 embeds raw data directly into UTXO transactions using stamp-like encoding, enabling asset issuance and management without depending on third-party indexers at all.
Each of these three token issuance standards has pros and cons: BRC20, despite being early and having strong community consensus, causes UTXO set bloat due to speculative frenzy, generating massive dust that may harm the BTC network long-term. ARC20 is favored by technical communities for its simple colored coin transfer model and Bitwork’s PoW mining paradigm, but storing data in segwit isn't ideal, and it faces complications when splitting tokens. SRC20 eliminates dependency on indexers, yet still fails to resolve the issue of creating dust on the BTC network through on-chain data storage.
3) As everyone can see, this "Warlord Era" of competing standards lasted quite some time. To address this chaos, @rodarmor Casey, the creator of Ordinals, introduced the new Runes standard—featuring two key innovations:
1. Adoption of the OP_RETURN opcode in Bitcoin scripts, which allows marking and storing arbitrary non-payment-related data, fundamentally solving the UTXO dust problem at its source;
2. Incorporation of the UTXO-based asset transfer model championed by ARC20, allowing users to transfer and manage inscription-derived assets simply by moving UTXOs.
OP_RETURN functions similarly to the blob space used in Ethereum Layer2 applications—it can efficiently record data without requiring full nodes to execute it. By using OP_RETURN markers, the Ordinals protocol can track asset movements based on UTXO transfers, enabling smooth asset splitting and preventing asset loss. How does asset splitting work? Let's illustrate: Suppose Alice holds 10 Rune tokens and wants to send 2 to Bob:
1. Alice initiates a regular on-chain transaction, specifying Bob’s address as the recipient;
2. The wallet or asset management platform then follows up with an OP_RETURN transaction, marking 2 tokens sent to Bob, while the remaining 8 are routed back to Alice’s change address (note: inscription transfers actually involve two transactions);
(This is precisely why ARC20 assets get burned—if users don’t specify a change address, those assets effectively disappear along with the UTXO, transferred to miners by default)
3. The Ordinals protocol indexes the OP_RETURN record indicating the transfer of 2 tokens, crediting +2 to Bob’s address and +8 to Alice’s new change address—completing the split and transfer process.
4) Clearly, the Runes standard integrates the best aspects of prior approaches and fundamentally resolves the long-standing criticism of UTXO bloat. Crucially, Runes—when combined with the Ordinals protocol—unifies the issuance of both FTs and NFTs, further solidifying Ordinals’ foundational role.
In plain terms, Runes is essentially a fungible token standard built as an extension of the Ordinals protocol. Together, they offer the BTC market a healthy, sustainable framework for asset issuance and management. Runes moves beyond BRC20’s overreliance on indexers, instead leveraging the native transfer capabilities of UTXOs with auxiliary tagging—enabling an asset issuance method that closely aligns with Bitcoin’s native architecture.
It inherits the strengths of other standards while avoiding their core weaknesses. Unless you fundamentally question the trust assumptions of the Ordinals protocol itself, the combination of Ordinals + Runes represents the current “perfect” paradigm for issuing derivative assets on Bitcoin.
5) In the short term, the Runes + Ordinals combo will undoubtedly disrupt existing standards like BRC20, ARC20, and SRC20, given its superior overall consensus, technical advantages, and long-term stability. These older standards will likely lose attention, adoption, and user base—essentially getting drained.
However, this does not mean complete replacement. If you follow ARC20 closely, there remains a possibility for future surprising developments. In my view, Ordinals can be seen not just as an indexer, but also as a kind of Layer2 indexing chain—placing it in the same competitive category as CKB Chain @NervosNetwork, which features homomorphic binding properties. While the Ordinals protocol enjoys strong consensus, it cannot prevent the emergence and growth of parallel protocols on Bitcoin. (That said, if anyone tries to build yet another “different” standard under Ordinals while deliberately bypassing Runes, save your energy.)
6) With the arrival of Runes, we’ve observed a dramatic shift in market dynamics—sky-high miner fees, Premine mechanisms, and coordinated NFT airdrops involving items like Runestone and RISC have made the BTC derivative asset space resemble the early days of the NFT market.
Some claim it undermines the principle of Fair Mint—but that’s incorrect. A token issuance standard driven by projects, featuring transparent distribution, future utility potential, and a growing community foundation, is what truly constitutes a “healthy state.” If an asset can only create one FOMO wave, enriching a few people without enabling any long-term vision or ecosystem development, its significance is ultimately very limited.
In summary,
As mentioned at the outset, I hope the emergence of the Runes standard ushers in a “Stable Epoch” for BTC’s ecosystem—and so far, the start looks promising. I also hope that, as a mainstream asset issuance paradigm, Runes can accelerate BTC’s ecosystem from the current phase of speculative token launches into a new era focused on empowering Layer2 ecological development.
Only when the wealth-generation and user-acquisition effects of Runes-based asset issuance begin to synergize continuously with BTC Layer2 chains in ecosystem operations will the true large-scale breakout of the BTC ecosystem begin.
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Haotian | CryptoInsight
