Bitcoin
BTC
On April 20 (UTC time), Bitcoin miners collectively earned $78.3 million in transaction fees, setting an all-time high for USD-denominated transaction fee revenue on the Bitcoin network. Between April 19 and 20, miners earned $89.8 million in transaction fees, which is more than they earned for the entire month of March ($85.9 million).
Year-over-year Bitcoin transaction fees in USD. Coin Metrics charts are in UTC time.
The mean transaction fee on the Bitcoin network on April 20 was $91.89, a 2,645% increase from March’s average mean fee of $3.35, per Coin Metrics data.
Data space in each new Bitcoin block is limited, so generally speaking, the more transaction Bitcoin miners have to process for the network, the higher the fees — as one goes, so does the other. It’s no surprise, then, that the average transaction count per Bitcoin block also hit an all-time high over the weekend, rising to 5,157.
Average Bitcoin transactions per block (3-month view)
Notably, the activity that flooded Bitcoin’s block space had nothing to do with traditional Bitcoin transactions — it came almost exclusively from a new token standard for Bitcoin-based digital collectibles.
Enter Runes
Taking its inspiration from the Runic alphabet of early Germanic cultures, Runes are a fungible token standard developed by Casey Rodarmor, the Bitcoin developer who created the Ordinal/Inscription standard for Bitcoin-based non-fungible tokens and digital collectibles.
Many Ordinals projects consist of unique items in a larger collection and are essentially the digital counterpart to trading cards (hence “non-fungible,” since each item in a collection is not like the others). Runes, however, is a new Ordinals protocol that allows Bitcoin users to create fungible tokens using Bitcoin’s Opcodes to create special transaction instructions in Bitcoin’s OP_RETURN field, which is an area in Bitcoin transactions where users can input arbitrary data that is not related to the financial data in a transaction. This OP_RETURN field allows Runes creators to dictate the token supply, ticker, and specifications for how other users can mint the token.
When creating Runes, Bitcoin users choose a ticker and set a supply for the token series, and anyone who follows the instructions dictated by the original Opcode for a particular Runes series can mint tokens in the series. Runes use bitcoin as a base asset for transferring tokens in a series, but it’s important to note that the tokens themselves are arbitrary units that are defined by the originating Runes transaction. Many Ordinals projects created so-called “pre-Runes” collections with promises to send Runes to anyone who owns an NFT
NFT
An example of the tickers for various Runes token series
The Runes protocol is similar to the BRC-20 fungible token standard, but it is more data-efficient. That said, the design for Runes foments similar minting and trading incentives as BRC-20s, incentives which led to a spike in transaction fees in Q4-2023.
More specifically, when the protocol launched, Runes users rushed to mint the first-ever tokens on the standard, and they bid up transaction fees astronomically in the process. As independent Bitcoin developer Psifour described it to me, Runes users were locked in a “land grab” where each participant tried to pay a higher fee than the others to create early Runes.
“Runes acts as both a land rush and a silent-auction where participants are incentivized to bid for both blockspace and order of transactions,” he said. “By interweaving financial markets, perverse incentives, and a community appetite for gambling, Runes has created a high-stakes winner-takes-all casino.”
Going further, once a sought-after Rune series is created, other traders are working to outbid each other for block space to mint tokens in the series. This creates an “urgency” for traders to bid up transaction fees to beat out other traders before a series’ total supply is minted, Charlie Spears, co-founder of Blockspace Media, explained. The incentives to create early Runes series and to mint tokens in a series explain the surge in transaction fees, Spears said.
“Runes introduces a new dimension of urgency into transactions — one where transaction ordering matters significantly. Conventional financial transactions on Bitcoin typically want to be confirmed quickly, but Runes transactions are competing versus one another to be first or racing against time before the ‘mint window’ closes. This new urgency creates a bidding war for Bitcoin’s limited blockspace and is behind Bitcoin’s soaring transaction fees.”
Runes are a Godsend to Miners in Light of Bitcoin’s Fourth Halving
Rodamor introduced the Runes protocol at Bitcoin block 840,000 on April 19, which is the same block that marked Bitcoin’s fourth Halving. The Bitcoin Halving occurs every four years, and it cuts in half the number of BTC miners generate in each new Bitcoin block. The Fourth Halving reduced the block subsidy from 6.25 to 3.125 BTC.
All else being equal, every Halving reduces mining revenue by 50%. But miners don’t just earn revenue from the block subsidy — they also earn it from transaction fees. And thanks to Runes, on April 19 and 20, Bitcoin miners were actually earning more revenue after the Halving than they were before.
On April 19, transaction fees were 630% greater than the 3.125 block subsidy, and on April 20, Bitcoin’s hashprice — a measure of how much BTC a Bitcoin miner can earn from a quantity of computing power per day — peaked at $183/PH/day, a 74% increase from its level right before the Halving.
Bitcoin’s hashprice measures how much USD or BTC revenue a Bitcoin miner can earn per day
Hashprice has since retraced to $74/PH/day, but this is still a fair sight better than $52.50/PH/day, which is the level hashprice would have been directly after the Halving without the Runes transaction fee bonanza.
Put simply, Runes gave Bitcoin miners a buoy for their revenues at the very time when the Halving should have sunk these revenues. And Spears told me that he believes these technical advancements are just the beginning for future developments that could bring additional use cases (and thus, transaction fees) to Bitcoin block space.
“Longer term, we expect to see new demand drivers such as Runes for Bitcoin’s block space. These will result in more demand for bitcoin (the base asset) as well as demand for the network itself in the form of transaction inclusion.”
