Runes: The New Protocol for Tokens on Bitcoin

The Runes protocol is a way to create, mint and transfer tokens on Bitcoin. Its instructions sit in a small data output (OP_RETURN) of an ordinary Bitcoin transaction, and the tokens hang on Bitcoin outputs like keys on a key ring. Runes went live on 20.04.2024 with block 840’000, the block of the fourth halving, and set off one of the most expensive fee spikes in Bitcoin's history. To Bitcoin itself, Runes are just data: the network checks no token rules; programs outside it do.

What Runes are: tokens attached to Bitcoin outputs

A token is a kind of voucher that someone issues under their own rules: a fixed supply, a name, a symbol. On Ethereum such tokens run as programs with their own ledger. Bitcoin has no such programs, and that is deliberate. What Bitcoin scripts can and cannot do is explained in Bitcoin Scripts and Smart Contracts.

Runes therefore uses what Bitcoin already has: unspent outputs, the UTXOs. Every Bitcoin transaction consumes old outputs and creates new ones. Runes defines that token balances stick to exactly these outputs. If you spend an output carrying 1’000 units of a token, those 1’000 units move into the new outputs of the transaction. Where exactly is written in an extra data output of the same transaction.

An example: you own an output with 10’000 satoshis that carries 500 units of a Runes token. You send 200 units to Anna. Your transaction spends the output, creates a small output for Anna and one for your change, and the data output says: 200 to output 1, the rest to output 2. The satoshis move as usual, minus the fee.

Rodarmor had previously built Ordinals and Inscriptions: numbering individual satoshis and inscribing images and text. In March 2023 the token standard BRC-20 was built on top of inscriptions and clogged Bitcoin for weeks. Runes was explicitly meant as a leaner replacement. Rodarmor himself wrote that fungible tokens are 99.9 % scams and memes, but if they exist anyway, they should do less harm to the network.

How the Runes protocol works

All Runes instructions in a transaction sit in a so-called runestone. That is an OP_RETURN output: an output worth zero bitcoin that provably nobody can spend and that therefore never enters the store of unspent outputs. A runestone starts with the opcode OP_RETURN, followed by OP_13 as a marker, then compactly encoded numbers.

A runestone can do three things.

Etching: creating a token

When etching you create a new token. You set:

• Name: only capital letters A to Z, with dots as spacers for readability, such as DOG•GO•TO•THE•MOON.
• Divisibility: how many decimal places the token has.
• Symbol: a single character, an emoji for example.
• Premine: how much you allocate to yourself straight away.
• Mint terms: whether others may mint the token, how much per mint, how often and in which block range.

So that nobody can snatch a name they see in the mempool, you must commit to the name in a separate transaction first. Only once that has six confirmations may you etch.

Mint: minting tokens

If a token is open for minting, anyone can create the set amount with a transaction until the cap is reached. The new units land on an output of the minter. This first-come-first-served race is exactly what drove fees in April 2024: popular tokens were fully minted within a few blocks.

Edicts: transferring tokens

Transfers are called edicts: token X, amount Y, to output Z. One transaction can contain several edicts and so send several tokens to several recipients. Tokens not assigned by an edict go to the first ordinary output or to one named in the runestone.

If a runestone is malformed, it becomes a cenotaph: all runes in the transaction's inputs are burned. The rule is deliberately harsh, so that mistakes do not silently create wrong balances.

Why Runes launched with the halving at block 840’000

Rodarmor deliberately timed the launch for the halving block. It was meant to draw attention and give miners extra business just as their subsidy was halved. That worked, and violently.

Many wanted to etch their token in the historic block 840’000 or be the first to mint. They outbid each other on fees. The miner of block 840’000 received 37.6 BTC in fees, twelve times the new block subsidy of 3.125 BTC. The median fee rate that day was 872 satoshis per vByte. Anyone sending an ordinary payment that day could easily pay 50 dollars or more. The figures, compared with other spikes, are in the mempool analysis.

In the following days, Runes transactions at times made up more than half of all Bitcoin transactions. The frenzy was short. By May 2024 fees had fallen sharply again, and over 2024 and 2025 interest in Runes dropped steeply. Many tokens etched back then barely trade any more.

Runes and BRC-20 compared

Both create tokens on Bitcoin, and with both the Bitcoin network checks no token rules. The difference is where the data sits and how balances are counted.

BRC-20 writes token commands as small JSON texts in inscriptions, that is in the witness part of a transaction. Each command needs two transactions (commit and reveal), and a transfer even takes three steps: inscribe a transfer inscription, then send that inscription to the recipient. Balances live in accounts only the indexer knows. Along the way many tiny outputs are created that nobody will ever spend economically.

Runes puts everything into one OP_RETURN output of a single transaction, and balances hang directly on outputs. One transfer is one transaction. No extra junk outputs are created, only the outputs recipients receive anyway.

For the network, Runes is the gentler variant. The UTXO set, which every node must keep at hand, grows less. But Runes also takes block space that payments could otherwise use, and Runes outputs also carry small satoshi amounts that sit in the UTXO set alongside the tokens. How inscriptions bloated the UTXO set and why that led to the dispute between Bitcoin Core and Bitcoin Knots is covered in the article on Ordinals and Inscriptions.

Who counts the balances: the indexer

Bitcoin nodes see a runestone as an OP_RETURN output with data they do not interpret. Whether a transaction validly transfers 200 tokens or contains nonsense is not for the node to decide. To Bitcoin it is valid either way, as long as it follows the normal rules.

Balances are computed by an indexer: a program that reads every block from 840’000 on and applies the Runes rules. The reference is ord, Rodarmor's open-source software that also tracks Ordinals. Marketplaces and wallets run their own indexers or query someone else's.

That has consequences:

• No referee. If two indexers disagree, no authority decides. The network does not know the truth.
• Rules can change. A new indexer version can value balances differently. For Bitcoin itself that is only possible by soft fork with broad consent.
• Trust in software. Anyone trading Runes trusts their marketplace's indexer to count correctly.

Risks for holders: burned tokens and the wrong wallet

If you hold Runes, you need a wallet that knows Runes. An ordinary Bitcoin wallet sees only the satoshis in the output, not the tokens on it. If it spends that output, say for a normal payment, the tokens go, lacking any instruction, to the first ordinary output of the transaction. That may be the recipient, who knows nothing about them.

Conversely: if you only save in bitcoin, none of this affects you. Your coins carry no Runes unless someone sends you some. Even then your satoshis are worth exactly what they were before.

For tax purposes, Runes tokens are assets of their own, separate from your bitcoin. Minting, swapping or selling tokens comes with its own holding periods and records. The basics for Germany are in Bitcoin taxes in Germany; for small amounts the paperwork is often worth more than the token.

What Runes mean for Bitcoin and for savers

For the Bitcoin debate, Runes show two sides.

For miners, tokens are income. The 2024 halving day proved that demand for block space can pay miners very well. Those worried about the security budget as the subsidy keeps falling see a hint in that. But it was a short wave, not lasting income. That debate is covered in What comes after the last halving?.

For users, tokens are competition. In waves like April 2024 they crowd out ordinary payments. That hits savers above all who own many small amounts and want to consolidate them.

For your savings strategy Runes change nothing. Bitcoin remains a network of 21 million units, and a Runes token is not bitcoin but an entry an indexer keeps alongside Bitcoin. Why tokens next to Bitcoin usually age badly is explained in Altcoins are not like Bitcoin.