Ordinals and Runes are both protocols for creating tokens natively on the Bitcoin blockchain. However, they use different methods and the tokens they create serve different purposes. In short, Ordinals act as NFTs created directly on-chain while Runes allow users to mint fungible tokens on Bitcoin.
Ordinals Definition
Ordinal theory, created by Casey Rodarmor in 2023, is a numbering system that allows individual satoshis to be numbered—making them “unique” like an NFT. Minting Ordinals, known as an Ordinal “inscription,” is the process of inscribing data in a Bitcoin transaction identifying important information about the Ordinal, and can include text, images, video, audio, or other types of data, creating a digital artifact.
Technically, Ordinals are digital artifacts and not NFTs. However, they are often treated much like NFTs on Bitcoin. The biggest difference is that NFTs are typically artwork or collectibles stored off-chain, with a reference to them on-chain. Ordinals, which are digital artifacts, add their information directly to a blockchain transaction.
Runes Definition
The Runes protocol uses a simpler implementation for creating fungible tokens directly on Bitcoin. After the success of Ordinals, Rodarmor wanted to improve on the Ordinals protocol and make minting tokens on Bitcoin more efficient, simple, and space-saving.
While Ordinals add information to the witness data of a Bitcoin transaction, Runes use the UXTO model, meaning they add data to a different place in a Bitcoin transaction—the transaction output. The goal of Runes is to make creating tokens easier, more flexible, and to reduce transaction costs.
Fungibility vs. Non-Fungibility
Ordinals are non-fungible, meaning each one is unique and not interchangeable. Think of non-fungible tokens like trading cards. The form is the same but each one is unique, giving them individual value. Ordinals are assigned a unique identifier using Ordinal theory and can contain unique data like text or images. Non-fungible tokens are good as collectibles like art or historical data.
Runes are fungible, meaning each unit is exactly the same and has the same value. Think of fungible tokens like dollars—they may have different serial numbers, but they’re completely interchangeable when it comes to value and meaning. Fungible tokens are good as currencies, loyalty points, or other exchangeable tokens.
Runes vs Ordinals: Data storage
Ordinals take advantage of the Bitcoin SegWit (Segregated Witness) upgrade, which separated signature data from the transaction’s main block. Ordinal inscriptions add data to the witness data, including all the unique information in the digital artifact. This means images, text, or other files are all stored on-chain, making it more secure and immutable than typical NFTs. However, Ordinals also increase blockchain bloat by adding more data to each block.
Runes try to minimize data storage and require less block space by using the UXTO (unspent transaction output) model. Each Rune transaction creates or updates a specific UTXO entry, which records token ownership. Because Runes are fungible, the data required to track and manage them is minimal, only defining the token parameters, amounts, and who owns them.
Runes vs Ordinals: Transfer Mechanism
Because Ordinals are unique, they require careful tracking and transfer. The specific satoshi with an individual Ordinal inscription must be transferred. Ordinal theory assigns a number to specific satoshis depending on the order it appears in the blockchain. Sending an Ordinal means sending a specific satoshi with inscribed data like an image, text, or another digital asset.
Runes can be transferred much like typical token transactions. Because the tokens are fungible, all that’s required to send Runes is to account for totals of a specific set of Runes. The most important part of sending Runes is documenting the number of tokens and where they are being sent.
Runes vs Ordinals: Security
Ordinals rely on Bitcoin’s security for immutability and data storage. This means each inscribed satoshi benefits from Bitcoin’s proof-of-work (PoW) consensus mechanism and inherits the same level of security as any Bitcoin transaction.
Runes also use Bitcoin’s security, but they require less storage. Their streamlined data contributes to their security by ensuring minimal interference with Bitcoin’s primary use as digital currency and low impact on block space.
Both Ordinals and Runes benefit from Bitcoin’s:
Decentralized network
Immutability
Peer-to-peer transferability
Runes vs Ordinals: Scalability and Transaction Fees
When they launched, Ordinals caused some scalability concerns in the Bitcoin community. As demand for Bitcoin NFTs rises, network congestion increases, which increases fees, and Ordinals can take up significant block space. Larger block sizes mean longer processing times for nodes and increased storage requirements. This creates fear about maintaining Bitcoin’s decentralization because a full node becomes more expensive and less practical.
Runes were designed to avoid causing scalability issues. By minimizing the amount of data added to the blockchain, Runes can maintain high transaction volume without dramatically increasing fees. The smaller amount of data also allows Bitcoin nodes to run efficiently, reducing the amount of network congestion compared to Ordinals, making them more scalable.
Use Cases for Runes vs Ordinals
Ordinals are great when you need permanence and uniqueness. They are ideal for:
Collectibles
Digital art
One-of-a-kind assets
Runes are useful as interchangeable tokens secured by the Bitcoin network. They are ideal for:
Currencies
Reward points
Stablecoins
Tokenized assets
DeFi uses like lending and borrowing
The Future of Runes vs Ordinals
Both Ordinals and Runes are relatively new innovations on Bitcoin. Since their creation, they’ve already sparked renewed interest in building on Bitcoin with things like BRC-20 tokens and SRC-20 tokens. Ordinals created a revolutionary way for NFT-like artifacts to exist directly on the Bitcoin blockchain. They will likely remain key in the Bitcoin collectible space and continue generating interest in broadening Bitcoin use cases.
Runes also have a bright future, promising efficient, low-cost tokens with the security of Bitcoin. They open the possibility for more DeFi applications on Bitcoin which, until recently, have mostly existed on Ethereum. Runes will likely be important in building a more versatile Bitcoin ecosystem beyond a store of value.