Runes is a new token standard on Bitcoin that makes it easier and more efficient for users to create interchangeable tokens on the blockchain.
Translation: Plain Language Blockchain
https://www.coingecko.com/learn/what-are-bitcoin-runes
Key Points
Runes is a new protocol for creating interchangeable tokens on the Bitcoin blockchain.
By utilizing Bitcoin's UTXO model and OP_RETURN opcode, Runes will simplify the creation and management of interchangeable tokens.
Runes will enhance the efficiency of Bitcoin in interchangeable tokens, while also expanding the practicality of the Bitcoin network by making it easier to create meme coins and other community-driven projects on the blockchain, attracting a wider audience.
Over the past two years, the Bitcoin ecosystem has evolved to include both interchangeable and non-interchangeable tokens on the Bitcoin network. These tokens have reached a market value of over $2 billion and have generated hundreds of millions of dollars in revenue for miners on the network. With the release of Runes, a protocol for creating tokens on Bitcoin, it is expected to bring exciting changes to the Bitcoin ecosystem, such as MemeCoin.
Translation:
Runes is designed for degen and meme coins, but the protocol is simple, efficient, and secure. It is a legitimate competitor to Taproot assets and RGB.
The protocol is independent and does not rely on ordinals or inscriptions, making it very straightforward.
Balances are stored in UTXOs and can be locked in HTLC, allowing Runes to operate on the Lightning Network.
The name of a Rune is optional, and if a stone does not have a specified name, a reserved name will be assigned. Stones with reserved names are unconditionally valid and are well-suited for lightweight clients if they do not have a supply limit for minting.
The ordinal library provides everything needed for encoding and decoding Rune stones, so integration should be straightforward.
I am very skeptical of "serious" tokens, but Runes is undoubtedly a "serious" token protocol.
Runes will be released after the fourth Bitcoin halving, which is expected to have been completed on Saturday, April 20th.
1. Understanding Bitcoin Runes
Casey Rodarmor is the creator of the Ordinals protocol, which allows users to create inscriptions similar to NFTs on the Bitcoin blockchain. He is now releasing Runes, a new protocol that enables users to easily create tokens on top of Bitcoin, Solana, and Ethereum, among others.
While BRC-20 and SRC-20 token standards already exist, these standards are based on the Ordinals theory, which may lead to UTXO dilution, resulting in spamming Bitcoin. In order to create a healthier token carving method on the Bitcoin network, Rodarmor announced Runes in September 2023 and has been dedicated to it since then. As the release date of the protocol approaches, people are becoming increasingly interested in Runes and its significance for Bitcoin.
"Creating a good alternative token protocol for Bitcoin could bring significant transaction fee income, developer mindshare, and users to Bitcoin." By Casey Rodarmor, creator of Runes
Bitcoin Runes will be launched at block 840,000 after the Bitcoin halving in April 2024. The creator clarified that this arrangement does not affect the operation of the protocol, although it adds to the market excitement after the fourth Bitcoin halving. Rodarmor states that the simplicity and overall architecture of Bitcoin Runes will be the main reasons for its development—creating alternative tokens on the Bitcoin blockchain. Franklin Dupton expressed high expectations for Runes:
"Currently, the homogenized token market for Bitcoin is relatively small compared to ETH and SOL; however, with the launch of more efficient token standards (Runes), Bitcoin is in a position to narrow the gap in its alternative market value with other blockchains."
Bitcoin Runes are tokens created on the Bitcoin blockchain. They are a set of executable data that allow the creation and use of specified assets on the network. Like BRC-20 and SRC-20 tokens, Runes rely on the Bitcoin blockchain for operation, but Runes' design is simpler, independent of Ordinals, and healthier and more efficient than other token standards, utilizing key (existing) models of the Bitcoin blockchain, such as the UTXO model and OP_RETURN opcode. Additionally, unlike other existing alternative token protocols on Bitcoin, Runes does not rely on off-chain data like RGB and Taproot Assets, and does not require native tokens for operations such as Omni Layer and Counterparty.
Now let's take a closer look at how Bitcoin Runes work.
2. How Bitcoin Runes Work
Two terms are crucial for understanding how the Bitcoin Runes protocol works:
Bitcoin's UTXO transaction model
OP_RETURN opcode
In the UTXO (Unspent Transaction Output) transaction model, each transaction consumes the total assets held in the user's ledger, with the algorithm calculating new balances after transferring the expected quantity of tokens to the recipient. Each UTXO can accommodate any number of Runes.
The OPRETURN opcode allows users to attach additional information to Bitcoin transactions without affecting network efficiency. The OPRETURN opcode enables Bitcoin users to add up to 80 bytes of data to unspent transactions. This data includes information about the token, such as name, ID, symbol, specific commands for operations, and other required data. The message stored in the OP_RETURN area of a Bitcoin transaction for the Runes protocol can also be referred to as a Rune stone.
Each Rune transaction can specify multiple operations across different Runes. In the case of token transfers, the Runes protocol will split UTXOs into multiple new UTXOs based on the instructions in the OP_RETURN data. Each UTXO represents a different quantity of tokens, which are then sent to their respective recipients.
If a Rune transaction fails due to invalid protocol messages, the Runes will be destroyed to prevent accidental creation of Runes.
3. Carving and Minting Runes on Bitcoin
The process of creating new Runes is called carving. Users wishing to carve new Runes need to specify the name, symbol, ID, supply, divisibility, and parameters related to the generation and distribution of Runes, and record them in the OP_RETURN output. Creators can also include "pre-mining" during the carving process, which involves allocating a certain quantity of Runes to the creator before they are available to the public.
After carving, Runes can be minted through open or closed minting. Open minting allows anyone to mint Runes after carving, where anyone can create a minting transaction to mint a certain quantity of new Runes. Closed minting only allows new tokens to be created under predetermined conditions, such as termination of the minting process after a specific time period, limiting the token supply.
Ordinals define how Runes are transferred after carving or minting. Using ordinals functionality, batch Rune transfers, airdrops, and transferring all minted Runes to a single account can be executed.
Potential Symbol Squatting Issues on Bitcoin Runes
The Runes protocol will not regulate symbol squatting to maintain the simplicity of the protocol. This means squatters can hold desirable symbols, which can be any combination of letters (A-Z) of any length. Rodarmor has proposed some solutions, such as allowing symbols of a certain length to be allocated only at launch, with the length gradually decreasing over time. According to information on Ordiscan, symbols with the first three characters will not be available for approximately three years.
4. Benefits of Bitcoin Runes
Runes aims to simplify the creation of interchangeable tokens on the Bitcoin blockchain, as well as other goals such as minimizing on-chain occupation and improving UTXO management. Let's take a closer look at some of the benefits that Runes will bring to users and the Bitcoin network.
1) Simplicity
Compared to other alternative solutions such as BRC-20, RGB, and Taproot, Bitcoin Runes are expected to provide a simpler way for users to create interchangeable tokens on the Bitcoin network. With Runes, users can easily create and manage multiple tokens on the chain without relying on off-chain data or native tokens, and without generating a large number of "junk" UTXOs.
2) Resource Efficiency
It is claimed that BRC-20 is an expensive way to create and manage tokens on Bitcoin. This is due to its operating mode leading to a surge in UTXOs. Bitcoin is currently dealing with an influx of UTXOs that will never be used. This burdens the network and leads to performance issues. Bitcoin Runes avoids this issue through its design. The OPRETURN model does not create unspendable UTXOs and consumes fewer resources for storing parameters. Compared to the BRC-20 inscriptions with a memory capacity of up to 4MB, the OPRETURN opcode is only 80 bytes, making more efficient use of the resources of the Bitcoin network.
3) Integration with Bitcoin's UTXO Model
According to Rodarmor, Bitcoin Runes also inherit this design. This complements the Bitcoin blockchain, making Bitcoin Runes suitable for UTXO-based functionality. The spending model of Bitcoin Runes sets it apart from standards like BRC-20 and SRC-20.
4) Expanding User Base
According to the protocol's creator, the primary use of Bitcoin Runes is for "fun and meme coins." Meme coins are a novel community-building strategy that has attracted interest from native crypto users and mainstream investors. Ordinals and BRC-20 have already enabled the creation of interchangeable tokens for use as meme coins and attracted a large number of new users to the Bitcoin network.
Bitcoin Runes has already attracted attention from the meme coin community, as meme coin projects dominate the pre-launch project list. Before the official release, the Bitcoin network may welcome a new wave of users seeking to trade these meme coins. The expansion of the user base and network usage will also increase the network's revenue system and incentivize more miners to join the network.
Expanding the Practicality of the Bitcoin Network
Different protocols for token creation on the Bitcoin blockchain have added additional practicality to the network. As the Runes project introduces its individual strategies to the network, the application scope of the Bitcoin network will become broader. This expansion will depend on the innovation of these projects.
5. Bitcoin Runes Ecosystem
The Bitcoin Runes ecosystem will see the launch of new projects, while some existing projects have already shared plans to enter the Runes ecosystem after the protocol goes live. Some projects will interact directly with the protocol to create assets on the Bitcoin blockchain, while others will provide practical tools for Bitcoin Runes enthusiasts. Here are examples of different types of projects that will join the Bitcoin Runes ecosystem.
1) Tokens
Projects aiming to carve Runes on the Bitcoin network for interchangeable tokens include Rune Pups, Runevo, Runestone, and RSIC. Currently, most of these are NFTs that will earn their holders the corresponding Runes until the Runes protocol goes live. In the case of Runestones, three meme coins will be airdropped to each Runestones holder.
2) Launch Platforms
The launch platforms for Bitcoin Runes will provide a platform for the journey of Runes projects. One such launch platform is Bitcoin Rune, which offers a glimpse of the possibilities these platforms provide for Bitcoin Runes projects. While still in the testnet phase, Bitcoin Rune will enable projects to carve Runes and perform various operations, including Rune transfers. Bitcoin Rune will also provide a marketplace where newly released and existing Bitcoin Runes projects can start trading.
3) Marketplaces
Certain marketplaces will support Bitcoin Runes, allowing users to list and trade these tokens on their platforms. The NFT platform Magic Eden has launched a section for Bitcoin Runes, including a pre-Runes section prepared for upcoming Bitcoin Runes projects. The pre-market platform Whales Market has also launched a Bitcoin Runes marketplace, including a pre-release platform where users can trade their allocations from Token Generation Events (TGE) in Bitcoin Runes projects.
4) Wallets
While Bitcoin Runes are minted on the Bitcoin blockchain, they require specific wallet applications for asset management. Users can use wallets that support BRC-20 tokens such as Xverse to manage their Bitcoin Runes.
5) Bitcoin Runes vs. BRC-20
Similar to BRC-20, the Runes protocol enables the creation of tokens on the Bitcoin blockchain. BRC-20 uses the Ordinals protocol—a technology that allows data to be attached to Bitcoin sats. Bitcoin Runes is introduced as an improvement to this design, as it requires fewer network resources. The two designs differ significantly in asset creation, regular operations, and adoption. BRC-20 tokens have a first-mover advantage and have seen significant adoption. The following is a summary of the differences between BRC-20 and Bitcoin Runes.
6. Final Thoughts
Through Bitcoin Runes, the Bitcoin network has gained another token issuance mechanism. While the network was not initially designed for this, seeing the oldest model of modern blockchain bring more fun is refreshing. Many projects are already building communities and preparing for their respective launches as they prepare for release. The model described for Bitcoin Runes is very interesting as it leverages some old properties of the network to provide what could be another significant addition to the entire space. As excitement continues to grow, the use and adoption of the Bitcoin network are also increasing. It is currently uncertain what impact this will have on mainstream investors, but for local cryptocurrency enthusiasts, there is no harm in having more use cases for the Bitcoin network.
However, Bitcoin Runes is still in the early stages of development, and like any other new product, it is prone to key changes and performance fluctuations. At the time of writing, projects launching and joining the Bitcoin Runes ecosystem using this technology also have a high degree of speculation. Before investing in any cryptocurrency, be sure to do your own research. Also, please note that this article only discusses Bitcoin Runes from a technical perspective and should not be considered financial advice.
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