Ordinals caused a lot of talk in May when they caused average fees on Bitcoin transactions to skyrocket over $30.
In other words, they created a mempool clog that forced BTC users to have to spend much more than usual in order to get transactions registered on the blockchain quickly.
Thereafter the hype wore off, and Ordinals stopped causing problems. For many weeks now, average daily transactions have dropped below $3.
Bitcoin: Ordinals and the BRC-20 tokens
Ordinals, or a kind of NFT on Bitcoin’s blockchain, were made possible by the introduction of so-called Inscriptions.
With Inscriptions it is possible to create both non-fungible tokens, such as Ordinals, and fungible tokens such as BRC-20s.
Specifically, the BRC-20 standard is a framework that enables the creation of tokens on the Bitcoin blockchain, and was created in March this year by an anonymous developer calling himself Domo.
It has been used primarily to create memecoins, so much so that there are now more than two hundred BRC-20 tokens, but none with market capitalization exceeding $100 million. In fact, there are only three that exceed 10 million.
For example, the largest memecoin in the world, Dogecoin, capitalizes more than eight billion dollars, which is more than all existing BRC-20 memecoins to date combined. These to date total no more than $190 million.
Bitcoin: after Ordinals here come Runes
The creator of Ordinals, Casey Rodarmor, recently stated that he is not sure it would be a good idea to create a new format of fungible tokens on the Bitcoin blockchain.
He did so in a post published on his blog in which he introduced the new Runes protocol.
Fungible tokens on Bitcoin’s blockchain are not like Ordinals, although they are always based on Inscriptions, and according to Rodarmor they are 99.9 percent scams and memes.
However, it seems that they are not short-lived, so it would be useful to create a good protocol to support them, and to bring significant revenue to Bitcoin miners from transaction fees.
About the BRC-20 protocol, Rodarmor points out that it has as an unintended consequence that of the proliferation of UTXO (Unspent Transaction Output), or positive balances on Bitcoin wallets.
As an alternative he proposes the Runes protocol.
It is a simple protocol for fungible tokens based on UTXO, and with a good user experience for Bitcoin.
Rodarmor’s is just one proposal, but according to Rodarmor it is interesting because it is very simple, does not rely on off-chain data, does not have a native token, and fits perfectly with Bitcoin’s native UTXO model.
Fungible tokens
Fungible tokens refer to all those cryptocurrencies that are not native to a blockchain, but can be created and added to at will.
The most famous are the ERC-20 tokens on Ethereum, but BEP-20 on BSC and TRC-20 on Tron are also widely used.
They are not only used to issue stablecoins, but also to issue memecoins, so much so that Rodarmor writes:
“the world of fungible tokens is a near totally irredeemable pit of deceit and avarice.”
That said, he proposes the same to bring a working protocol for fungible tokens to Bitcoin as well, which would avoid creating problems similar to those brought by BRC-20.
The point is that exchanging these tokens for on-chain transactions risks raising transaction costs in BTC, and it is certainly not worth it. It is true that this still brings in more revenue for the miners, since fees always have to be paid in BTC anyway, but it brings problems for users.
Stablecoins
However, creating stablecoin tokens that can be traded natively on the Bitcoin blockchain remains something very interesting, especially with a view to the future of having decentralized exchanges based on the Lightning Network.
Although the first stablecoin ever created, USDT, was initially exchanged precisely because of a sidechain on Bitcoin (Omni), now all stablecoin tokens are exchanged on other blockchains, moreover in a way that is incompatible with Bitcoin.
This paradoxically has brought Bitcoin onto other blockchains, through wrapped tokens such as WBTC, shifting the focus from Bitcoin to altcoins.
In the future, however, it would be preferable to at least bring exchanges between BTC and stablecoin back to a Bitcoin protocol-compatible environment, and currently the available solutions for this are either too complex or cause other kinds of problems.
Whether Runes will be able to solve these problems is unknown, but it is important that solutions continue to be sought in order to prevent all decentralized exchanges on exchanges from taking place on other blockchains.
While solutions for creating Bitcoin-compatible decentralized exchanges would seem to already be in place, an efficient and effective solution to enable the creation and exchange of Bitcoin-compatible fungible tokens is still lacking.