Bankless - Tokens on Bitcoin: Casey Rodarmor Creator of Runes

In this episode of Bankless which took place on April 18, 2024, David Hofman and Ryan Adams hosted Casey Rodarmor to discuss the impact of Ordinals and Runes on the Bitcoin ecosystem, Bitcoin’s paradox, community development, financial standards, and more! Read our notes below to learn more.

Background

Ryan Adams (Host) – Founder at Bankless

David Hoffman (Host) – Founder at Bankless

Casey Rodarmor (Guest) – Creator of the Ordinals Protocol and Runes

Ordinals Protocol – a protocol that simply allowed for arbitrary data to be inscribed into individual Bitcoin UTXOs, creating what is called Bitcoin NFTs.

Runes – a protocol working to bring fungible tokens to Bitcoin

Exploring Ordinals, Runes, and Bitcoin’s Sustainability

David says that Ordinals on Bitcoin has transformed the Bitcoin ecosystem and resulted in substantial fee generation for the network. He mentions the new protocol called Runes, aimed at introducing fungible tokens to Bitcoin.
Casey highlights his cautious approach to Bitcoin development, particularly avoiding protocols that could enable harmful activities like MEV on Bitcoin.
David talks about the paradox of Bitcoin’s unchangeable nature against the backdrop of Casey’s contributions, which have fundamentally altered Bitcoin’s trajectory by integrating Ordinals into its block space.
Casey reflects on the need for Bitcoin to generate substantial transaction fees to secure its network as block rewards decrease. He sees the diversity of fee sources, even controversial ones like NFTs, as beneficial for Bitcoin’s sustainability.
Casey and David discuss the general perception of NFTs and fungible tokens, with Casey critiquing them as largely speculative and often not delivering on their promises. He categorizes the harm levels associated with various crypto projects, from outright scams to structural scams to less harmful meme coins, and expresses a desire to steer the community towards less deceptive practices.

Championing Bitcoin: A Critique and Defense

Casey explains his preference for redirecting activity toward Bitcoin to strengthen its network, despite his criticisms of the broader cryptocurrency landscape and other blockchains like Ethereum, which he views as less secure.
Casey discusses the advantages of inscriptions on Bitcoin over traditional NFTs on other chains, highlighting their on-chain data storage and standardized implementation as safer for users.
Casey critiques the deceptive promises of revolutionary projects within the crypto space, preferring the straightforward speculative nature of inscriptions and Runes.
Casey shares his perspective on how ordinals and inscriptions have injected new energy and ideas into Bitcoin culture, challenging the status quo and fostering a renaissance within the community.
Casey outlines the subsequent development of financial tools and standards such as BRC-20, driven by user demand and the evolving Bitcoin ecosystem, which he sees as part of a broader, demand-led renaissance.

Exploring Bitcoin’s NFT Ecosystem: Ordinals, Inscriptions, and Runes Protocols

David mentions the introduction of non-fungible assets into the Bitcoin network through the Ordinals protocol, which leverages Bitcoin block space similarly to how Ethereum layer-2s use Ethereum blob space.
Casey clarifies the terminology between Ordinals and inscriptions, explaining that Ordinals track individual satoshis and assign digital content to them, creating what are essentially NFTs, which he refers to as digital artifacts.
Casey describes the Runes protocol as a completely new protocol independent from Ordinals, which simplifies interactions by requiring only one transaction to store data, contrasting with the two transactions required for inscriptions due to Bitcoin’s signature and witness data structure.
He further details how Runes operates differently by storing messages in OP RETURN, which are outputs in a Bitcoin transaction that indicate the output is never spendable and carries arbitrary data.
Casey explains that in Bitcoin’s UTXO model, when you send Bitcoin, you destroy your existing UTXOs and create new ones, with Runes augmenting these UTXOs with balances of different Runes.
Casey says that Runes do not track individual satoshis within a UTXO, but rather the UTXO as a whole, detailing the default distribution of Runes in transactions and the flexibility of allocating Runes using something called edicts.

Transferring Assets via Ord: A Transaction-Based Approach on Bitcoin

Casey explains that to transfer Runes, one would create a transaction using UTXOs (Unspent Transaction Outputs) to define the amount being transferred. He describes creating outputs for each party involved and using an “edict” to specify how many Runes are sent to each UTXO.
Casey says that Ordinals and Runes use a different model from traditional blockchains like Ethereum, where smart contracts are written and deployed. Instead, these are implemented through a reference software called “Ord,” which processes Bitcoin transactions to track these assets.
Casey states that Ord operates as a meta protocol, meaning it adds additional rules and functionality atop Bitcoin without altering Bitcoin’s core software or consensus rules.
David compares Ord to special glasses that allow one to see additional data within Bitcoin transactions that are invisible to the standard Bitcoin client.
Casey discusses his preference for developing within Bitcoin’s existing framework without engaging in the complex political process of proposing changes to the Bitcoin network. He highlights how he uses certain transactional spaces and elements to embed data for “Ordinals” and “Runes.”
Casey elaborates on the robustness of this system, noting that even if Ord nodes are offline temporarily, all transactional data remains intact on the Bitcoin blockchain, ensuring continuity and independence from third-party systems.

Bitcoin: Backwards Compatibility, Layer 2s, and Fungible Tokens

Casey discusses the challenges of maintaining backwards compatibility, detailing the introduction of cursed inscriptions to address issues with the Ord client recognizing desired inscriptions. He explains that despite the complexity this adds, it adheres to the Bitcoin ethos of avoiding hard forks.
Casey elaborates on the high fees and scarcity resulting from block space limits. He discusses the exploration of layer-2 solutions and other innovations like BitVM and OPcodes to enhance Bitcoin’s functionality, despite the constraints of the current system.
Casey says that Runes, like Bitcoin transactions, can indeed be transferred across Bitcoin’s layer-2s, expressing surprise at Runes becoming a potential standard for fungible tokens due to their simplicity and efficient transaction model.
Casey elaborates on the disadvantages of BRC-20 transactions and the advantages of Runes, including a one-transaction process and a robust specification, which could position Runes as a leading fungible token standard on Bitcoin.

Exploring Token Standards, Block Space, and Rune Token Dynamics

David asks about the specific parameters that define how Rune tokens function, such as their naming, divisibility, and special conditions.
Casey explains that Rune names are chosen from uppercase letters A-Z, with shorter names becoming available over a four-year period starting from names with thirteen characters. He also mentions the option to use spacers for readability, set divisibility, choose a currency symbol, and determine the pre-mine amount.
Casey adds that terms can be set for each Rune token, specifying the amount and cap for minting transactions, as well as absolute and relative block heights for minting periods. He mentions the “turbo flag” which opts in for future protocol features that may increase client costs or introduce new functionalities like a global lottery.
Ryan asks about a scenario involving Jeremy Allaire from Circle, asking how he could issue $USDC as an Rune token on Bitcoin.
Casey says that it would be a simple and cheap process involving basic Bitcoin and Ord software, and suggests minting a large number of tokens to account for future needs. He outlines the process for issuing and redeeming these tokens using existing Bitcoin infrastructure.
Casey mentions the challenge of acquiring specific ticker names due to squatters, suggesting that if a name isn’t crucial, Rune tokens can be assigned a random identifier based on their creation block and transaction index.
Casey says that initially, ten specific Runes were to be hardcoded into the protocol to avoid undesirable names, but ultimately only the first one, named “Uncommon Goods,” was hardcoded. He explains that this rune has no divisibility and can be minted repeatedly over a four-year period at the cost of a Bitcoin transaction.
David says that theoretically unless there’s more demand, one token can be minted per 10 minutes. Casey agrees, adding that theoretically, thousands can fit per block due to there being no cap per transaction or total cap.
Casey mentions that platforms like Magic Eden and Xverse might facilitate trading through browser wallets, using partially signed Bitcoin transactions for asset sales.

Bitcoin Evolution and Composability

David says that both Ordinals and Runes being entirely on-chain are essential for composability with other on-chain elements.
Casey agrees, adding that for off-chain composability, seamless transfers across different layer-2 platforms are necessary.
Casey says that Bitcoin maxis should not overly concern themselves with new features like inscriptions and Runes, highlighting that these do not compromise Bitcoin’s security.
David says that the Bitcoin protocol’s neutrality towards innovations like Ordinals and Runes should be mirrored by the community’s stance.

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Show Information

Medium: YouTube (Video)

Show: Bankless

Show Title: Tokens on Bitcoin: Casey Rodarmor Creator of Runes

Show Date: April 18, 2024