What are Bitcoin Ordinals and Runes?

Bitcoin Ordinals are a way to number and track individual satoshis, the smallest unit of bitcoin, so that each one can carry its own content. Runes is a related protocol that lets people create interchangeable tokens on Bitcoin. Neither needs a sidechain, a separate token or any change to Bitcoin's rules.

How do Ordinals inscriptions work?

The Ordinal Theory Handbook explains that every satoshi gets a serial number based on the order it was mined. The first satoshi of the first block is number 0. When bitcoin moves, satoshis pass from inputs to outputs in first-in, first-out order, so any single one can be followed through every transaction.

An inscription attaches content to one of those satoshis. The handbook says the content, such as an image, text or HTML, is stored entirely on-chain inside Taproot transaction data. Creating one takes two steps: a commit transaction, then a reveal transaction that publishes the content. Whoever controls that satoshi owns the inscription, and it moves whenever the satoshi is sent.

Cointelegraph reported that software engineer Casey Rodarmor launched Ordinals on Bitcoin's main network in January 2023.

Are Bitcoin Ordinals NFTs?

They work like NFTs, and people often call them Bitcoin NFTs, but the handbook prefers the term digital artifacts. It points to a few differences from many Ethereum NFTs. Inscription content always lives on-chain, while Ethereum NFTs often store images elsewhere. Inscriptions also cannot be changed or deleted after they are made.

They were controversial from the start. Cointelegraph described a split between people who welcomed more demand for block space and critics who argued inscriptions crowd out payments, push fees up and stray from Bitcoin's original purpose as cash.

What are BRC-20 tokens?

BRC-20 came before Runes. Binance Academy says a pseudonymous developer called Domo created the standard in March 2023. It deploys, mints and transfers tokens by inscribing small pieces of JSON text through Ordinals. Bitcoin itself does not track BRC-20 balances. Off-chain indexers read the inscriptions and work out who holds what, so different indexers can disagree. The first BRC-20 token was called ORDI.

How does the Runes protocol work?

Runes was designed as a simpler way to make fungible tokens. Decrypt reports that Rodarmor launched it at block 840,000, the April 2024 Bitcoin halving, and that unlike BRC-20 it follows Bitcoin's own UTXO model.

The handbook explains that Runes data sits in a special output, called a runestone, that starts with OP_RETURN. Creating a rune is called etching, which fixes its name, divisibility, symbol and optional premine. Anyone can then mint new units while the mint terms allow it. Malformed runestones, called cenotaphs, burn the runes involved, so a badly formed transaction can permanently destroy tokens.