Tech
Analyzing the Impact of Runes as the Bitcoin Fee Bonanza Fades
Last week’s once-in-four-year Bitcoin halving has come and gone, just as Satoshi Nakamoto planned it 15 years ago. But the big surprise was the rapid adoption of Casey Rodarmor’s new Runes protocol, his second major success on the original blockchain in two years. Now, it appears that upfront fees are vanishing, and the question is whether Runes transactions will provide a sustainable source of ongoing revenue for miners, especially now that block rewards have been halved. We have the summary.
This article appears in the latest issue of The protocolour weekly newsletter exploring the technology behind cryptocurrencies, one block at a time. Sign up here to receive it in your inbox every Wednesday. We also invite you to consult our weekly magazine The protocol podcasts.
The graph shows that Bitcoin fees increase dramatically after the launch of Runes, and then decrease slightly. (BitDigest)
RUN THE PARTY? The “halving” of Bitcoin, which occurs every four years, was supposed to lead to sharp cut in revenue for cryptocurrency miners, as their compensation for new data blocks would decrease by 50%. Simultaneous, however, is the launch of the new Casey Rodarmor brand Rune protocol – to mint digital tokens on the oldest and largest blockchain – has proved so popular that it has caused massive network congestion, sending transaction fees to record levels and showering Bitcoin miners with a windfall like never before. On a halving watch the party hosted by Tone Vays, longtime Bitcoin experts expressed shock at transaction fees exceeding $2 million in some blocks, compared to a more typical level of under $100,000. The big questions now are whether rune fever will last and, if so, how Bitcoin will adapt. The BitDigest newsletter released a chart (above) showing a sharp drop in fees as the initial post-Runes launch faded. But the discussion in the community immediately turned to the question of whether the extra traffic could push developers to accelerate their attempt to develop and improve Bitcoin layer-2 networks. On Monday, one of the most notable projects, Stacks, launched its long-awaited “Nakamoto“, meant to significantly increase speed. “Anything that causes an increase in fees will probably push people to look for other solutions,” said Ava Chow, developer of Bitcoin Core. he said in an interview with CoinDesk’s Daniel Kuhn. Rodarmor, who created the Ordinal protocol for “Bitcoin NFT” last year, shaking up conservative blockchain culture, he famously claimed that the Runes protocol was nothing more than a way to throw “sh!tcoin” on Bitcoin – a risky proposition given the way bitcoiners Long-time anti-altcoins tend to be. Now there is speculation that the best collections of Ordinals may move to airdrop runes, another practice imported from other blockchains. The Bitcoin NFT Runestones project, led by the pseudonymous developer Leonidasit is reportedly being airdropped DOG Coins to the holders of his registrations. Meanwhile, some of the newly minted runes are getting shocking ratings listed on various cryptocurrency exchanges. Bitcoin.com valued that a rune called “Z•Z•Z•Z•Z•FEHU•Z•Z•Z•Z•Z,” or “Z•FEHU” for short, already has a fully diluted valuation of over $2 billion. (By the way, to type that dot in the middle of the trading ticker, a Rune Convention, type option-8 on your Mac keyboard. I had to ask our markets editor how to do it. At this rate, it might be something we all need to learn.)
CELO’S CHOICE. The lead developer behind the Celo layer 1 blockchain, after a months-long search for a technology provider for its migration to become a layer 2 network on Ethereum, chose to recommend OP Stack by Optimism. Teams representing rival Tier 2 networks Arbitrum, Polygon and zkSync had competed for Celo’s business, with the selection process starting to resemble that of TV”The hen party.”
COSMOS 🐞– Asymmetric Research, a security firm that contributes to the Wormhole interoperability protocol, has revealed details of a vulnerability affecting the Cosmos blockchain ecosystem. could have put more than $150 million at risk.
BEEPSTER: Bitcoin Core Developer Ava Chow led the nomination process to name five new editors for the BIPs, or Proposals for improving Bitcoin – the standard for proposing non-binding software updates that will change the Bitcoin protocol in some way, our Daniel Kuhn reported. The months-long search effort was finalized Monday, after Jonatack did so changes at BIP GitHub. A lingering question is whether adding editors will make it easier to push through proposals like the pending one OP_CATwhich, despite the formal process, has not been assigned a PIF number reports that originally suggested otherwise.
Last week’s top picks from our Protocol Village column, highlighting the main updates and innovations in blockchain technology.
1. Metis has unveiled phase 2 of its decentralized sequencer, adding new technical features and introducing “Sequencer Mining” to users, according to the team.
Screenshot from Metis’ video showing how its decentralized sequential architecture (Metis) works
2. Neurathe EVM-compatible layer 1 blockchain for AI from the Ankr team, based on Cosmos SDKhas just released its public testnet, now available to developers who want to build dApps that blend AI and Web3, according to the team.
Neura’s high-level architecture. (Neura)
3. (EXCLUSIVE VILLAGE PROTOCOL) Omni Foundationwhich supports Omni Network, which is a Layer 1 chain and Ethereum-centric interoperability protocol based on restaging EigenLayer, announced the launch of the Omni Network mainnet on the Ethereum Arbitrum and Optimism layer-2 networks.
4. (EXCLUSIVE VILLAGE PROTOCOL) The DODO team, who previously developed the “Proactive Market Maker”, algorithm and features including a cross-exchange aggregator, announced the launch DODOcatenaan Omni Trading Layer3, based on Arbitrum Orbit, EigenLayer and AltLayer, according to the team.
5. (EXCLUSIVE VILLAGE PROTOCOL): Alchemya blockchain development company, launched “Conducts,” a new tool that allows engineers to create and maintain a data pipeline with just a few clicks, according to the team.
Turnkey Co-Founders Jack Kearney and Bryce Ferguson (Turnkey)
Turnkeya company that builds wallet infrastructure for blockchain developers, has raised 15 million dollars in a Series A funding round led by Lightspeed Faction and Galaxy Ventures.
Runes DEXan automated market maker (AMM) platform for runes on Bitcoin, has announced the successful closing of its $2 million seed investment round, according to a Press release.
Gavin Wood gave a presentation on JAM at Token 2049 in Dubai last week. (@mattunchiviaPolkadot)
Web3 Foundation (W3F)the foundation behind the Polkadot ecosystem, announced 10 million POINT ($74.5 million) prize pool, “to promote diversity in the development of JAMa protocol that combines elements of Polkadot and Ethereum,” according to the team.
Regulatory, political and legal
Talk to some venture capitalists in the Bitcoin ecosystem and you’ll hear a variety of explanations for why there isn’t more top-down investment in blockchain-focused startups. One is that the largest investors in Bitcoin tend to be HODLers and see no reason to part with their BTC to invest money in a startup. Another is that many cryptocurrency companies, in exchange for their dollars, expect an allocation of digital tokens that would ultimately increase the price, and this is not really an option for Bitcoin startups, since the community at large is (or was, until recently) opposed to anything non-BTC. A final reason is that Bitcoin developer culture (again, until recently) was so conservative that it didn’t attract the kind of experimentation and entrepreneurship witnessed at other chains.
But there is now a growing cottage industry of venture capitalists and investment firms willing to put money into Bitcoin-focused startups, like Trammell Venture Partners (TVP) e Ten31. In February, Dan Held, a former marketing executive at Kraken who most recently served as fractional CMO for Taproot Wizards and Trust Machines, announced was joining Joe McCann’s crypto fund, Asymmetric financeas a general partner, with plans to lead a new Bitcoin DeFi Venture Fund I, aiming to raise $21 million.
TVP earlier this month published a research brief titled “The emerging Bitcoin-native venture capital landscape,” to illustrate the opportunity. The chart below shows that BTC represents more than half of the market capitalization of all cryptocurrencies, but comprises only a small fraction of the dollars in risk and number of trades:
(Trammell Venture Partner)
June 11-13: ApexXRP Ledger Developer Summit, Amsterdam.
8-11 July: EthCCBrussels.