As a seasoned crypto investor with over a decade of experience in this ever-evolving digital landscape, I’ve witnessed the rise and fall of countless projects, trends, and technologies. The recent emergence of Bitcoin’s Ordinals and Runes protocols has undoubtedly caught my attention, not just for their impact on Bitcoin’s utility but also for the controversy they’ve stirred among the crypto community.
In early 2024, the approval of the first Bitcoin ETFs was seen as a significant catalyst for the surge in cryptocurrency’s bullish trend. These ETFs channeled vast sums of money from traditional finance into Bitcoin, but the crypto sector itself also generated a lot of enthusiasm with the introduction of Bitcoin’s Ordinals and Runes protocols. These innovations emerged from the ongoing development of the programmable capabilities of the world’s first blockchain.
In January 2023, the Ordinals protocol was introduced, leading to an influx of Bitcoin NFTs (Non-Fungible Tokens). These NFTs resulted in a significant daily trading volume exceeding $20 million for most of that year. As we approached April’s end, there were over 67 million Ordinal inscriptions on the Bitcoin blockchain, and these inscriptions accounted for approximately 6,800 BTC in transaction fees paid to miners.
In the past few months, Runes – a newer development that started operating in April this year – have made quite an impact comparable to Ordinals. They’ve generated an impressive $135 million in fees during their first week alone! In fact, transactions associated with Runes accounted for nearly 80% of all Bitcoin blockchain activity that same month.
Despite a significant decline, the use of both Ordinals and Runes seems to be decreasing significantly. The growth in Ordinal inscriptions came to a standstill around mid-year, while activities concerning Runes dropped drastically, representing only about 4% of all Bitcoin transactions in June.
What are Ordinals and Runes?
The arrival of Ordinals and Runes on Bitcoin has created a lot of controversy, with many Bitcoin maximalists decrying the innovations for disrupting what they believe is the only pure and decentralized form of money in the world. However, there appear to be just as many supporters of these protocols, which dramatically enhance the utility of Bitcoin.
As a analyst, I can express this by saying: Through the implementation of Bitcoin’s Segregated Witness (SegWit) in 2017 and Taproot upgrades in 2021, I have observed an expansion in the data storage capacity within each block produced by the Bitcoin network. This enhancement to the underlying blockchain layer has enabled us to accommodate more data efficiently.
As a long-time Bitcoin enthusiast and user who has witnessed the evolution of this revolutionary digital currency since its inception, I am excited about the recent advancements that Segwit and Taproot bring to the table. These innovative technologies are designed to optimize the efficiency of the Bitcoin network, which is crucial for maintaining its scalability and reliability as it continues to grow.
Ordinals, created by Bitcoin developer Casey Rodarmor, function as a unique type of non-interchangeable token within the Bitcoin system, comparable to NFTs. They are stored as extra data on individual satoshis, the smallest Bitcoin units. Runes, in turn, have become widely accepted for minting fungible tokens within the Bitcoin network, much like the ERC-20 standard facilitates the issuance of alternative cryptocurrencies on Ethereum.
Sh*tcoins and Utility
Critics of Ordinals and Runes argue that they are contributing to a new wave of questionable cryptocurrencies, often referred to as “shitcoins”. They point out that the explosive growth of memecoins like Pepe, which dominate Ordinals-related transactions, supports this claim.
People express concern that Ordinals and Runes might inflict permanent harm on Bitcoin, as they slow an already slow network significantly, causing numerous users to endure long waits of several hours before their BTC transactions are completed. The introduction of Ordinals led to a substantial increase in transaction fees within Bitcoin, with the average cost increasing by a staggering 560% in May 2023. Many users also reported delays of up to 24 hours when making payments.
In April, the average transaction fee for Bitcoin increased significantly, climbing from approximately $4 to over $12. This increase was somewhat reminiscent of the impact runes had, though on a smaller scale.
Only a small number of users found the higher fees acceptable, while on the contrary, a segment of dedicated Bitcoin supporters, who have consistently advocated for increased functionality, expressed approval.
Utilizing the capability of Bitcoin to host Non-Fungible Tokens (NFTs) and digital assets, there lies an opportunity to unleash over a trillion dollars from what’s commonly referred to as “dormant or inactive capital.” For quite some time, Bitcoin’s primary functions have been limited to preserving wealth (serving as a “store of value”) and transactions, with critics suggesting it’s not particularly effective at either task.
For those who own Bitcoin, there’s a growing desire to leverage their BTC beyond just holding onto it for future price increases. They aspire to use their preferred cryptocurrency in areas such as DeFi projects that offer high returns and NFTs with real-world utility. The introduction of Ordinals and Runes has signaled the dawn of a new, more practical era for Bitcoin users.
Bitcoin’s evolution gathers pace
One reason for considering Ordinals and Runes as more than just a temporary phenomenon could be their enhanced usefulness compared to Bitcoin. This is because, rather than being simply dismissed as a fleeting trend, they are in fact part of a broader movement that has given birth to numerous projects. These initiatives offer ways for Bitcoin holders to leverage their assets effectively.
As an analyst, I’d rephrase it as: My initial exploration into making Bitcoin more accessible and compatible with decentralized finance (DeFi) applications was through Wrapped Bitcoin, or wBTC. This innovative concept marked the first step towards integrating Bitcoin with Ethereum’s ecosystem. Despite concerns about the risk associated with bridging cryptocurrencies due to frequent cyberattacks, wBTC has gained significant traction, boasting a market capitalization of $8.64 billion as recently as August 2024.
Bitcoin is also making strides in the Decentralized Finance (DeFi) sector via various avenues. For example, the Stacks project functions as a “sidechain” to create its own DeFi asset ecosystem that utilizes BTC. A more recent endeavor is Zeus Network, which has developed a flexible and modular network of nodes using the Solana Virtual Machine. The initial decentralized application from Zeus, known as APOLLO, allows Bitcoin holders to transfer their tokens into Solana’s bustling DeFi environment, taking advantage of the fast transaction speeds provided by Solana’s blockchain infrastructure.
Although it sounds like just another bridge, Zeus is far more innovative than that. It leverages the SVM to transfer BTC assets directly onto Solana via its Zeus Program Library.
Innovations like Zeus not only bring greater flexibility to BTC, but also to Bitcoin NFTs (Ordinals) and Bitcoin-based tokens (Runes), hinting at the possibility of Bitcoin growing a vibrant ecosystem of digital assets and DeFi protocols that could eventually match the one found on Ethereum. It remains to be seen what kind of future lies in store for Ordinals and Runes, but one thing that is clear is that Bitcoin itself is not standing still. As an open-source project that evolves over time, Bitcoin remains a work in progress and there is a determined and ongoing effort to make it “better” than the original concept developed by Satoshi Nakamoto.
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2024-08-06 13:39