Bitcoin Has NFTs Now - No Ethereum Required
Understand what Ordinals, BRC-20, and Runes are and how they differ from each other in five minutes. Technical mechanics, the block space controversy, and their impact on the fee market - all in one place.
In early 2023, cat pictures and monkey JPEGs began appearing inside Bitcoin blocks. Days later, four-character text tickers were filling blocks by the tens of thousands. Fees spiked, purists raged that Bitcoin had been corrupted, and others countered that this was the most interesting experiment in Bitcoin's history.
Ordinals, BRC-20, Runes. The names sound similar and all overlap in that they are "tokens on Bitcoin," but technically they operate on entirely different layers. Here is each one broken down.
Ordinals: Numbering the Satoshis
Ordinals is a protocol launched in January 2023 by Casey Rodarmor. The idea is simple. One bitcoin is divisible into 100 million satoshis. Ordinals assigns every satoshi a unique number in the order it was mined.
This numbering itself makes no changes to Bitcoin's consensus rules. Ordinals is nothing more than a convention agreed upon outside the protocol. However, after the 2021 Taproot upgrade dramatically reduced block space costs, Rodarmor went a step further. He inserted arbitrary bytes into the witness data field of a transaction and then tied those bytes to a specific satoshi.
This operation is called an inscription. Whether JPEG, text, or SVG, any data within the 4 MB limit can be "engraved" onto a single satoshi. That satoshi then travels across the Bitcoin network and trades naturally like an NFT.
The key point is this: Bitcoin full nodes know nothing about Ordinals. Ordinals are calculated not by nodes but by indexers.
BRC-20: A Token Experiment on Top of Ordinals
Once the inscription feature became public, an anonymous developer known as domo posted a playful experiment in March. The proposal was that if a JSON text of a specific format was inscribed onto a satoshi, indexers could read it and build a ledger of token issuances and transfers.
{"p":"brc-20","op":"deploy","tick":"ordi","max":"21000000"}That is all there is to BRC-20. There are no smart contracts, no new Bitcoin script features. An indexer scans every inscription from the beginning, tallying "this person issued this many, and transferred this many to that person." The Bitcoin network simply acts as an immutable bulletin board.
The problem is efficiency. To transfer one BRC-20 token, a new inscription containing JSON text must be created. For popular meme tokens, thousands of transfers piled up, and in May 2023 the mempool exceeded 500,000 transactions, with ordinary transfer fees surpassing 100 sat/vB.
Runes: A More Efficient Design to Replace BRC-20
Runes, unveiled by Rodarmor himself at the halving block in April 2024, directly targets the inefficiency of BRC-20.
Runes uses OP_RETURN rather than inscriptions. OP_RETURN is a Bitcoin script opcode that allows up to 80 bytes of arbitrary data to be inserted into a transaction. The Runes protocol packs token issuance, transfer, and burn information tightly into those 80 bytes.
The result is that Runes uses far less block space than BRC-20 for the same token transfer. It also fits well with the UTXO model. Because Runes tokens are held directly inside UTXOs, they share the same atomicity as native bitcoin transfers.
All Three at a Glance
| Item | Ordinals | BRC-20 | Runes |
|---|---|---|---|
| Launch | January 2023 | March 2023 | April 2024 |
| Data storage location | Witness | Witness, JSON text | OP_RETURN |
| Primary use | NFTs / digital art | Fungible tokens | Fungible tokens |
| Block space efficiency | Low (proportional to data size) | Very low | Relatively high |
| UTXO model compatibility | Indirect | Indirect (indexer-dependent) | Direct |
| Notable examples | Bitcoin Punks, NodeMonkes | ORDI, SATS | DOG, UNCOMMON GOODS |
The Shared Debate: Spam, or the Future of the Fee Market?
All three protocols divide the Bitcoin community in two.
The criticism is clear. Block space is finite. That space is infrastructure for financial settlement, and JPEGs and meme tickers are occupying it, raising fees for ordinary users. Some mining pools have even declared they will censor (filter) inscriptions and refuse to include them in blocks.
The defense is equally clear. Bitcoin's block reward halves every halving cycle. The future of miner revenue is the fee market. Ordinals and Runes have created economic demand for block space without anyone requesting it. This is a live test of whether Bitcoin can be secured by fees alone after 2140.
Both arguments are partially correct. The fact that block space is an auction market does not change. Which miners choose to buy that space for what purpose is each miner's own judgment.
Summary
- Ordinals is a convention for numbering satoshis and engraving data onto them. Bitcoin's consensus rules remain unchanged.
- BRC-20 mimics tokens using JSON text on top of Ordinals. Efficiency is low but it was the first to exist.
- Runes implements tokens using OP_RETURN in a UTXO-friendly way. Far less block space is required for the same purpose.
These three protocols will be the key variables determining the direction of the block space market and Bitcoin fees over the coming years.