Bitcoin Ordinals and the Runes Protocol: Data-Driven Insights
On January 20, 2023, Bitcoin Ordinals were launched on the mainnet, developed by Casey Rodarmor. Despite the ongoing bear market, there was significant initial hype surrounding this launch. By utilizing an extended timeframe, we can evaluate the development without the influence of this initial excitement. Our analysis will focus on data-driven insights to understand the impact and significance of Bitcoin Ordinals during this time.
The Ordinals Protocol
The protocol has two key components:
Ordinals: A numbering mechanism for satoshis, the smallest unit of Bitcoin.
Inscriptions: A feature that allows satoshis to be inscribed with arbitrary content.
Together, these components facilitate the creation of Bitcoin-native digital artifacts. The system assigns each satoshi a unique ordinal number based on its order of mining and uses a first-in-first-out (FIFO) approach to track satoshi transfers in transactions.
Key Concepts
Ordinal Numbers: These are unique identifiers assigned to satoshis in the order they are mined.
Tracking and Transferring: Satoshis are transferred in a FIFO manner from transaction inputs to outputs, allowing for precise tracking.
Representations of Ordinal Numbers
Integer Notation:
Example:
2099994106992659
Represents the ordinal number based on mining order.
Decimal Notation:
Example:
3891094.16797
The first part is the block height; the second part is the satoshi’s offset within the block.
Degree Notation:
Example:
3°111094′214″16797‴
Shows the satoshi’s position in a hierarchical manner: cycle, halving epoch, difficulty adjustment period, and block index.
Percentile Notation:
Example:
99.99971949060254%
Indicates the satoshi’s position as a percentage of the total Bitcoin supply.
Name:
Example:
satoshi
Encodes the ordinal number using characters
a
throughz
.
Functionality and Tools
Open-source Project: Developed on GitHub, includes:
BIP: Describes the ordinal scheme.
Index: Communicates with a Bitcoin Core node to track satoshis.
Wallet: Facilitates ordinal-aware transactions.
Block Explorer: For interactive blockchain exploration.
Inscribing Functionality: Allows adding digital artifacts to satoshis.
Rarity
Ordinals also introduce a concept of rarity based on periodic Bitcoin events:
Common: Any satoshi not at a significant event position.
Uncommon: First satoshi of each block.
Rare: First satoshi of each difficulty adjustment period.
Epic: First satoshi of each halving epoch.
Legendary: First satoshi of each cycle.
Mythic: First satoshi of the genesis block.
Rarity levels make use of degree notation to represent their unique status.
Examples of Rarity Using Degree Notation
Common: 1°1′1″1‴
Uncommon: 1°1′1″0‴
Rare: 1°1′0″0‴
Epic: 1°0′1″0‴
Legendary: 1°0′0″0‴
Mythic: 0°0′0″0‴
![Examples of Some SATs (cc: https://ordinals.com/sat/0) Examples of Some SATs (cc: https://ordinals.com/sat/0)](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fd21cc8be-2f69-4676-8b37-f2a04dcab164_2692x900.png)
Rare Satoshi Supply
Names and Exotics
Names: Unique names consisting of letters A through Z, getting shorter the further into the future they are mined.
Exotics: Satoshis prized for unique qualities or historical significance, subjectively determined by ordinal theorists.
Inscriptions and Archaeology
Inscriptions: Satoshis can be inscribed with arbitrary content, creating immutable digital artifacts.
Archaeology: The study and collection of early NFTs, with some considering ordinals as having historical interest dating back to Bitcoin's genesis block.
Specification (cc: Casey Rodarmor)
Sats are numbered and transferred with the following algorithm:
Bitcoin Ordinals - Key Metrics
Total Inscriptions To Date - 67,330,963
Ordinals Total Fees (USD) To Date - ~$448,644,579
Runes
Runes: The implementation of the Runes Protocol, encompassing the entire Runes ecosystem.
Runestones: Messages that comply with the Runes Protocol, used to etch, mint, or transfer runes. Each transaction can have one runestone with an OP_RETURN output script.
Key Components
![Etching: The process of creating runes, defining their features like divisibility, pre-mine quantity, spacers, token symbol (default “¤” if not specified), and other terms. Etching: The process of creating runes, defining their features like divisibility, pre-mine quantity, spacers, token symbol (default “¤” if not specified), and other terms.](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F0be454e7-883b-4831-b386-5ecc7009f0b6_1544x496.png)
![Terms: Define minting rules, including amount, supply cap, block height, and offset for when the rune can be minted. Terms: Define minting rules, including amount, supply cap, block height, and offset for when the rune can be minted.](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F03fb2c51-3f76-4a56-8fa0-9e17d47cefc0_1582x370.png)
Transactions
Error Handling
Cenotaph: A mis-formed rune that is automatically burned. If an etching produces a cenotaph, its supply is set to zero. If minting produces a cenotaph, the minted amount is deducted and burned.
Bitcoin’s UTXO Model
Bitcoin uses an Unspent Transaction Output (UTXO) model, where UTXOs represent unspent funds from transactions. Each UTXO, stored in the blockchain, has a specific BTC value and is linked to a Bitcoin address. UTXOs are key components in Bitcoin transactions.
Runes Protocol Expansion
Runes enhances UTXOs by allowing them to encode data and logic via protocol messages. This is done by including 80 bytes of data in the OP_RETURN output script of Bitcoin transactions.
How It Works
Message Transactions: Contain OP_RETURN data with Runes protocol instructions.
Encoding Instructions: For example, “assign Runes to UTXO.”
Transaction Confirmation: Runes network indexers detect and process these messages.
Example
If a message instructs to assign 5 RUNE to a UTXO, indexers update their UTXO records to reflect a 5 RUNE balance. This allows UTXOs to represent token amounts in future Runes transactions.
Efficiency
Runes uses Bitcoin’s OP_RETURN to assign data and token balances to UTXOs, achieving programmable UTXOs without modifying Bitcoin itself. This method encodes balances efficiently within Bitcoin's transaction structure.
Runes - Key Metrics
Runes vs. BRC-20
The Runes protocol has unique features compared to existing token standards like BRC-20. Runes utilize Bitcoin’s UTXO model to efficiently store both Bitcoin and Runes balances. By storing data on the UTXO output using the OP_RETURN, Runes increase transparency and security, shifting trust from indexers back to the Bitcoin blockchain. In contrast, Ordinals and BRC-20 assets store data in the witness data of a Bitcoin block.
Summary and Comparison with ERC-20
The introduction of Ordinals and Runes has sparked considerable interest within the blockchain community, particularly among those familiar with existing token standards such as Ethereum's ERC-20. According to Casey Rodarmor, the developer of these protocols, Ordinals assign unique identities to individual satoshis, the smallest unit of Bitcoin, allowing them to be tracked and inscribed with data. This method contrasts with Runes, another protocol designed for creating fungible tokens on Bitcoin, using its UTXO (Unspent Transaction Output) model for efficiency and simplicity.
Ordinals offer a novel approach by ensuring that all data is stored directly on the Bitcoin blockchain, avoiding reliance on external servers or IPFS, which is common in many NFTs. This on-chain storage guarantees durability and security as long as the Bitcoin network exists. Furthermore, the single, standardized implementation of Ordinals reduces the risk of bugs and vulnerabilities associated with arbitrary smart contracts. In comparison to ERC-20 tokens, which rely on Ethereum's complex and flexible smart contracts for creating and managing fungible tokens, Ordinals prioritize simplicity and uniformity, enhancing consumer protection and reducing the complexity of the user experience.
Runes, on the other hand, provide a fungible token standard on Bitcoin that is more efficient than BRC-20 by utilizing the UTXO model. Unlike ERC-20 tokens, which require intricate smart contracts, Runes simplify the token creation and transfer process by embedding data within Bitcoin transactions. This efficiency not only minimizes transaction costs but also contributes to Bitcoin's network security by generating transaction fees that support miners. Both Ordinals and Runes emphasize leveraging Bitcoin's robust security and decentralization, presenting a durable and straightforward alternative to Ethereum-based solutions. By focusing on real use cases and ensuring all data remains on-chain, these protocols offer advanced researchers a glimpse into the evolving landscape of digital assets on Bitcoin, highlighting their potential for creating secure, long-lasting digital ownership solutions.
Additionally, we have prepared a Notion file for you – available here ⬇️
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