Inscriptions and Runes

Inscriptions

• Definition: Inscriptions are crypto assets that permanently engrave digital content (text, images, audio, video, etc.) onto a blockchain's distributed ledger. For example, on the Bitcoin blockchain, the Ordinals protocol numbers each Satoshi (Sat) and attaches data to specific Sats, making each Sat unique—similar to NFT characteristics.

• Key Features:

  • Uniqueness: Each inscription is inherently unique due to its association with specific Sats and engraved data.

  • Data Storage: Data is stored in the "witness" section of Bitcoin transactions, but this section has limited space, restricting the size and complexity of inscriptions.

  • Limited Fungibility: Even if some inscriptions share similar data, their unique association with Sats prevents them from being fully fungible like traditional cryptocurrencies.

• Use Cases: Applied in digital art, decentralized domains, contract storage, etc. For instance, unique digital artworks can be issued and traded in the digital art field, and decentralized domains (e.g., ending with ".bit") can be created.

Runes

• Definition: Runes are smart contracts built on blockchains, designed to directly create and manage fungible tokens on the Bitcoin blockchain. They can be seen as Bitcoin's equivalent to Ethereum's ERC-20 tokens.

• Key Features:

  • Fungibility: Rune tokens are interchangeable—any single token is identical to others of the same type, facilitating trading as a medium of exchange.

  • Data Storage: Leveraging Bitcoin's Unspent Transaction Outputs (UTXOs) to store token data, which is more flexible and has a larger data capacity than the witness section used by inscriptions.

  • Compatibility: Through UTXOs, runes seamlessly integrate with existing Bitcoin infrastructure, causing minimal disruption to wallets and exchanges.

• Use Cases: Primarily used to create various fungible tokens, such as stablecoins pegged to real-world currencies, corporate loyalty programs, or tokenized representations of assets like gold and securities.

Differences Between Inscriptions and Runes

Concept and Function

• Inscriptions

  • Inscriptions are crypto assets that permanently engrave digital content (text, images, audio, video, etc.) onto a blockchain's distributed ledger. Essentially immutable digital records, they primarily serve for information storage and verification—such as preserving digital artworks, decentralized domain data, or contract contents—without execution capabilities.

• Runes

  • Runes are smart contracts on blockchains, enabling the creation and execution of complex logical programs to automate specific tasks. For example, they can automatically process financial transactions or record product circulation in supply chain management.

Data Storage Methods

• Inscriptions

  • Data is stored in the witness section of Bitcoin transactions (introduced by the SegWit upgrade). For instance, Ordinal inscriptions are created by adding images, audio, or HTML files to this witness area. However, the limited space restricts the size and complexity of inscriptions.

• Runes

  • Data is stored in OP_RETURN, a special function on the Bitcoin blockchain for data storage. Leveraging Bitcoin's Unspent Transaction Outputs (UTXOs) to store token data, this method is more flexible and allows larger data capacity than the witness section used by inscriptions.

Asset Characteristics

• Inscriptions

  • Featuring uniqueness, indivisibility, and non-replicability, each inscription is unique due to its association with specific Satoshis and engraved data—similar to NFTs. They hold potential collectible and investment value. Even if some inscriptions share similar data, they lack full fungibility like traditional cryptocurrencies.

• Runes

  • Rune tokens are fungible: any single token is identical to others of the same type, enabling them to serve as a medium of exchange like traditional currency. They apply to various scenarios, such as stablecoins, loyalty points, or tokenized partial ownership of physical assets.

Use Cases

• Inscriptions

  • Used in digital art to facilitate issuance and trading of digital works for artists and collectors; enable creation of decentralized domains (e.g., ending with ".bit"); ensure immutability in contract and protocol storage, safeguarding commercial transactions and legal documents.

• Runes

  • Primarily used to build decentralized applications (dApps), automating business logic and enhancing transparency and credibility in fields like finance, supply chain management, and gaming.

Complexity of Creation and Management

• Inscriptions

  • The process of implementation and management is relatively complex due to limited witness space and the need for custom scripts.

• Runes

  • The UTXO-based approach is simpler, more user- and developer-friendly, and seamlessly integrates with existing Bitcoin infrastructure, causing minimal disruption to wallets and exchanges.

Summary

• Inscriptions focus on permanent information storage and uniqueness, commonly used in digital collectibles and similar fields.

• Runes prioritize token fungibility and smart contract functions, mainly applied in finance to enable asset tokenization and automated transactions.