MSTR Cat

Blockchain/Level V · Layers/5.3 Bitcoin-native assets/Lesson 5

Runes, PSBT swaps and bitcoin-native markets

The fee-market debate, and partial signatures as open orders

MaterialsA block explorer with fee history chartsThe ‘ord’ reference implementation documentation for RunesA spreadsheet to track transaction feesA PSBT decoder tool (such as a command-line utility or web interface)

Wonder

  1. Why did a new token protocol launch at the exact block of a halving?
  2. What is the mechanical difference between tracking balances in off-chain JSON files versus attaching them directly to UTXOs?
  3. If miners need fee revenue after the subsidy halves, why do some node operators filter out the transactions that generate it?

Explore

    Part IRunes and the fee market debate

  1. Casey Rodarmor launched Runes at block 840,000 in April 2024, coinciding with the halving that reduced the miner reward to 3.125 BTC. Unlike Ordinals, which attach unique data to specific satoshis, Runes are fungible tokens where every unit is identical and interchangeable. This design allows them to function as currencies or commodities rather than collectibles, mirroring the structure of traditional digital assets that require balance tracking.
  2. Runestones are stored in OP_RETURN outputs within Bitcoin transactions. The script begins with OP_RETURN and the marker OP_13, followed by data pushes that are joined and decoded as a series of integers. A transaction can hold at most one runestone, but a single output can carry balances for multiple rune types. Rune balances live in UTXOs and move with them, so tracking them is simpler than parsing JSON inscriptions and keeps junk outputs to a minimum, though software must still read the runestones to know who holds what.
  3. The launch triggered an immediate surge in transaction fees as users competed for block space to etch and mint tokens. This spike reflected a direct market demand for data storage capacity. However, activity levels receded after the initial rush, leaving behind a permanent set of token definitions within the blockchain history. The mechanism remains active, allowing new runes to be etched at any time by paying the prevailing market fee.
  4. Proponents of this data usage argue that block space is a neutral resource governed by economic incentives. As the block subsidy shrinks every four years, miners increasingly rely on transaction fees for revenue. Allowing diverse uses of block space creates new demand channels that support miner income. From this perspective, the fee market naturally arbitrates between payment urgency and other data types based on willingness to pay.
  5. Critics contend that token traffic functions as spam that crowds out essential payments. They argue that the fee market is designed for economic urgency in transfers of value, not for storage of non-monetary data. If low-value data competes with high-urgency transactions for limited block space, it can raise costs for standard users. This tension reflects a broader debate about whether protocol rules should restrict certain transaction types to preserve payment utility.
  6. Some node operators filter runestones and other data-carrying transactions from their mempools. That affects only what those nodes relay and keep while transactions are unconfirmed: once a miner includes such a transaction in a block, every node accepts the block, so everyone still shares one chain. The 2025 dispute over Bitcoin Core’s OP_RETURN policy (Level 4) grew out of this argument. Fee charts on any explorer show the April 2024 spike.

    7. Part IITrading on Bitcoin: PSBT swaps and Runes markets

  7. Bitcoin transactions can trade assets without a smart contract holding funds. A seller signs a Partially Signed Bitcoin Transaction (PSBT) input using the SIGHASH_SINGLE|ANYONECANPAY flag. This signature commits the seller to receive a specific price, but leaves the transaction incomplete. Because ANYONECANPAY is set, any buyer can later add their own input and complete the transaction atomically. The funds are never held in escrow; they move directly from seller to buyer upon finalization.
  8. Ordinals and Runes marketplaces utilize this mechanism for listings. A user etches or holds an asset, signs a PSBT to sell it at a set price, and shares that partially signed transaction with a marketplace. Any participant can pick up this listing, add their own payment input, and finalize the transaction. The result is an order book of signed offers, settled on Bitcoin; marketplaces host the offers but cannot alter them.
  9. Runes, launched in April 2024, introduced fungible tokens to Bitcoin. Unlike Ordinals inscriptions which are unique, Runes units are interchangeable commodities identified by block height and transaction index. Open etchings let anyone mint a fixed amount, paying only transaction fees, within set terms: an amount per mint, a cap on the number of mints, and specific block-height windows for minting. No admin key controls the token afterwards, though an etcher can reserve a premine.
  10. The primary risk in this model is indexer disagreement and listing scams. Scammers list look-alike assets or craft transactions that buyers sign without checking every input and output; the signature modes that make listings possible also let an attacker build a transaction around someone else’s signed input. Furthermore, different blockchain indexers may parse Runes balances differently due to edge cases in transaction interpretation, leading to discrepancies between what a user sees on an exchange and what other indexers derive from the same transactions.
  11. Compared to Automated Market Makers (AMMs) on other chains, Bitcoin trading via PSBT swaps lacks pooled liquidity. There is no constant function product to provide depth; every trade requires a counterparty willing to complete the atomic swap at that moment. However, this eliminates the risk of admin keys draining the pool or governance attacks on the contract code. The liquidity is thin and fragmented, but the settlement layer is identical to Bitcoin itself, with no intermediary contract holding user funds.
  12. To verify a listing, open a block explorer and search for a Runes etching transaction. The rune’s ID is the block height and transaction position of that etching. Then, locate a PSBT listing associated with that asset on an Ordinals or Runes marketplace. Compare the signed price in the PSBT against the current market rate. Note that if the indexer shows a balance but no valid PSBT signature exists for sale, the asset is not actually listed for atomic swap.

Key facts

  • Runes launched at block 840,000 in April 2024, coinciding with the halving to a 3.125 BTC subsidy.
  • Runestones live in OP_RETURN outputs and balances attach to UTXOs; indexers still track them, but no JSON inscriptions are needed.
  • Every unit of a rune is identical and interchangeable, contrasting with the uniqueness of Ordinal inscriptions.
  • The Runes launch caused a significant spike in transaction fees due to competition for block space.
  • Proponents view fee revenue from token traffic as essential miner income post-halving; critics view it as spam.
  • Some node operators filter runestones from their mempools; mined blocks are accepted by all nodes regardless.
  • SIGHASH_SINGLE|ANYONECANPAY allows a seller to sign a price commitment while leaving the transaction open for any buyer to complete.
  • Runes are fungible tokens identified by block height and transaction index, with immutable properties set at etching.
  • Open Runes etchings define mint terms including amount per mint, mint cap, and active block-height windows.
  • Runes balances depend on indexers agreeing, and PSBT listings can be abused by scammers.
  • Bitcoin trading via PSBT swaps has no pooled liquidity or admin keys, unlike AMMs on other chains.
  • Runes launched in April 2024, coinciding with the Bitcoin halving.

Exercise nine, six, three, one

9CollectList 9 recent Bitcoin blocks that contain OP_RETURN outputs. Note the block height and the approximate fee paid per byte for each transaction containing a runestone.
6ClusterGroup these 9 blocks into 6 categories based on whether the dominant fee drivers were standard payments, data storage (Runes/Ordinals), or mixed usage.
3DistillReduce the 6 groups to 3 distinct economic incentives that drive users to pay for block space in this period.
1CrystallizeWrite 1 sentence explaining why a fungible token standard might prefer UTXO attachment over off-chain JSON indexing.

Fact check

Dates, figures and claims checked against the published sources listed below.

Open in the interactive academy →

PT ES ZH JA KO RU DE FR MS