Key Points

  • Runes are a way to create fungible tokens directly on Bitcoin. The protocol went live at the fourth halving, block 840,000, in April 2024.
  • Creating a new rune is called etching. Creating units of an existing rune under its published rules is called minting.
  • Rune data is stored in a Bitcoin transaction output called a runestone. Balances are attached to Bitcoin's own transaction outputs, so runes move with ordinary Bitcoin transactions.
  • You need a wallet that understands runes. Sending runes from a wallet that does not can destroy them or spend them as plain bitcoin.
  • Most runes have little or no lasting value. Activity and fees spiked around launch and then fell sharply, and many tokens can no longer be sold at any useful price.

Quick Answer

Bitcoin Runes is a token standard that lets people create and transfer fungible tokens on the Bitcoin blockchain itself, without a separate network. A rune is created, or etched, with a special transaction that sets its name, supply and minting rules, and others can then mint units by sending transactions while the mint is open. Read runes as a technical feature of Bitcoin, not a sign that any given token has value. The common misread is that a rune shares Bitcoin's security in its price. The network secures the record; it does nothing for the token's worth.

What are Bitcoin Runes?

Runes are fungible tokens recorded on Bitcoin. Fungible means every unit is the same, like a share or a currency, unlike an NFT, where each item is unique.

The protocol was designed by the creator of Ordinals, the system for inscribing data such as images on individual satoshis, and launched at Bitcoin's fourth halving at block 840,000 in April 2024. It aimed to be a simpler, more efficient alternative to BRC-20 tokens, which store their data in a way that creates many small leftover outputs on the network. Our guide to BRC-20 tokens explains that earlier standard.

How do Runes work?

Every rune action is written into a Bitcoin transaction using an output called OP_RETURN, which can carry a small amount of data. The message in that output is called a runestone.

Rune balances are attached to unspent transaction outputs, the same units Bitcoin uses to track ordinary bitcoin. When those outputs are spent, the runes move with them according to the instructions in the runestone. Because everything happens in normal Bitcoin transactions, rune activity pays normal Bitcoin fees and competes for the same block space.

If a runestone is malformed, the transaction becomes what the protocol calls a cenotaph, and the runes involved are burned. This is one reason to use wallets and tools built for runes.

What is etching a rune?

Etching is creating a new rune. The etching transaction sets the rune's permanent properties:

  • Name. Each rune name is unique. Shorter names were reserved at launch and are released gradually over the following years.
  • Divisibility and symbol. How many decimal places units can be split into, and an optional symbol.
  • Premine. Any units the creator assigns to themselves at the start.
  • Mint terms. Whether others can mint, how many units each mint creates, the maximum number of mints, and the block heights when minting opens and closes.

Once etched, these settings cannot be changed. A large premine combined with an open mint is worth noticing: it means the creator holds a share before anyone else can take part.

How do you mint a rune?

Minting creates new units of an existing rune under its published mint terms.

  1. Use a wallet that supports runes and send a small amount of bitcoin to it to cover fees.
  2. Find the rune on a runes explorer or marketplace and check its mint terms: whether minting is open, how many mints remain and how many units each mint gives.
  3. Check the current fee rate. Popular mints can push fees up sharply, and you pay the fee whether or not the token later has value.
  4. Submit the mint transaction through your wallet or a minting tool and wait for it to confirm.

Check the rune's exact name and ID before minting. Names can look alike, and copycat runes are common.

What are the risks of Runes?

  • Wrong wallet, lost runes. A wallet that does not track runes can spend the outputs holding them as plain bitcoin, or send them somewhere you cannot recover. Keep runes in a wallet built for them, separate from your main bitcoin savings.
  • Thin markets. Most runes trade rarely, if at all. Selling may be impossible at the price you see listed.
  • Fees. Minting during busy periods can cost far more in fees than the tokens turn out to be worth.
  • Copycats and scams. Lookalike names and fake mint sites are common. Our guide to crypto scams covers the warning signs.
  • Tax. In both the UK and the US, selling or swapping tokens you minted can be a taxable disposal. Keep a record of the fees you paid and the date you minted.

Frequently Asked Questions

Are Runes the same as Ordinals?

No. Ordinals attach unique data to individual satoshis, which suits NFT-style collectibles. Runes create interchangeable tokens, which suits currencies and meme tokens. They come from the same creator but work differently.

Do Runes run on a separate blockchain?

No. Rune data is stored in ordinary Bitcoin transactions on the main Bitcoin blockchain.

Do Runes make Bitcoin more expensive to use?

When rune activity is heavy, it competes for block space and can push up fees for everyone. Outside those periods its effect is small.

Can I store Runes on a hardware wallet?

Some hardware wallets work with rune-aware software wallets. Check that the combination you use supports runes before you send any.

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Further Reading

Sources

  • Runes protocol documentation, the Ordinals handbook: docs.ordinals.com

This article is for education only and is not financial, investment or legal advice. Crypto assets are volatile and you can lose some or all of the money you put in. Most tokens created on Bitcoin have little or no lasting value, and mistakes with wallets or transactions can destroy them. Do your own research and consider independent advice before making any financial decision.