How to understand the innovation value and potential subsequent market impact of Runes? In my opinion, Runes is a set of FT token issuance standards based on the Ordinals protocol, which will become the asset issuance foundation for the subsequent construction of a huge ecosystem on the BTC network. If the chaotic stages of pre-halving BRC20, ARC20, SRC20, and other standards are considered as the "chaotic era," the Runes standard will promote the birth of a "constant era" for the development of the BTC ecosystem. Next, let me talk about my understanding:
1) Ordinals is a protocol for issuing and transferring various encrypted assets based on the BTC network through off-chain indexing. Initially, Ordinals was more suitable for NFT-type assets, and the emergence of the Rune standard has filled its shortcomings in the issuance and management of FT homogeneous token assets, truly helping it become a protocol for issuing and managing BTC derivative encrypted assets.
2) After Ordinals, a series of derivative innovative standards such as BRC20, ARC20, SRC20, etc., were born, all revolving around the Script script space in UTXO, aiming to achieve the issuance of FT homogeneous assets on BTC.
BRC20, as the pioneering token standard, achieved asset issuance by placing data in the Witness segregated witness, and asset management was achieved through subsequent Ordinals and other multi-indexer joint management; ARC20 is a derivative and improved token standard, based on the transfer characteristics of the chain UTXO itself to achieve the transfer management of derivative inscription assets, reducing the reliance on multi-indexers; SRC20 directly embeds the original data in the form of stamp encoding into UTXO transactions, enabling asset issuance and management without relying on third-party indexers.
The above three types of token issuance standards have their own advantages and disadvantages: Although BRC20 has a strong consensus and appeared early, it will cause UTXO set inflation and harm the BTC network in the long term under the market Fomo sentiment; ARC20 is favored by the technical community due to its simple model for colored coin transfer and Bitwork's POW mining paradigm, but its reliance on segregated witness for data storage is not perfect, and subsequent token splitting also encounters some troubles; SRC20, although it can operate without relying on indexers, does not solve the problem of dust creation in data storage for the BTC network.
3) As everyone can see, this chaotic era of competing standards has lasted for a long time. The founder of Ordinals, @rodarmorCasey, proposed the new Runes standard to solve this chaos, with two innovations:
- Introducing the OP_RETURN Bitcoin script opcode, which can mark and store any non-payment-related data, fundamentally solving the problem of UTXO dust;
- Adopting the transfer characteristics of the dominant UTXO model assets such as ARC20, allowing users to achieve the transfer and management of inscription-derived assets through UTXO transfer.
OP_RETURN is equivalent to the Blob space on the Ethereum layer2, which can effectively record data but will not be executed by full nodes. Through the marking of OP_RETURN, the Ordinals protocol can manage and account for UTXO transfers based on the direction of movement, effectively achieving asset splitting and avoiding asset loss. How to achieve asset splitting? For example, if Alice has 10 Rune tokens and now wants to send 2 Rune tokens to Bob:
Alice initiates a regular transaction transfer on the chain and specifies Bob's address as the receiving address;
The wallet or asset management platform will follow up with an OP_RETURN transaction and mark 2 tokens to be sent to Bob, with the remaining 8 tokens transferred to Alice's change address (in fact, inscription transfer involves 2 transactions); (Reasons for the existence of burned assets in ARC20 are here. If the user does not specify a change address, the default assets will "disappear" and be transferred to the miner along with the UTXO)
The Ordinals protocol indexes the data and finds that the OP_RETURN records the request to transfer 2 tokens, giving +2 to Bob's address and +8 to Alice's new address, completing the asset splitting and transfer management.
4) It is not difficult to see that the Runes standard adopts the strengths of various standards and fundamentally solves the problem of UTXO inflation, and the key is that the Runes standard, in combination with the Ordinals protocol, can achieve the unity of FT and NFT asset issuance, further consolidating the foundation of the Ordinals protocol.
In simple terms, the Runes standard is actually a set of FT token standards associated with the Ordinals protocol, and its combination with Ordinals will provide a healthy and fundamental method for asset issuance and management in the BTC market. Runes has abandoned the shortcomings of excessive reliance on indexers in BRC20 and has leveraged the transfer capabilities of UTXO itself to assist in marking, thereby achieving a form of asset issuance that is close to the native BTC.
It has all the advantages of other standards, and it does not have the shortcomings that other standards cannot solve. Unless you insist on the issue of whether the Ordinals protocol is trustworthy, otherwise, Ordinals+Rune will definitely be the "perfect" issuance paradigm for current BTC derivative assets.
5) In the short term, the combination of Runes and Ordinals will have an impact on token issuance standards such as BRC20, ARC20, SRC20, etc., as they have comprehensive consensus, technical advantages, and long-term stability, and other standards will be directly impacted and attract a lot of attention and followers.
However, this is by no means a complete replacement. If you are still interested in ARC20, there is still the possibility of stunning development in the future. In my opinion, Ordinals can be seen as an indexer, or it can be seen as a layer2 indexing chain, to some extent, it competes at the same level as the CKB chain @NervosNetwork with homomorphic binding properties. Although the consensus of the Ordinals protocol is very powerful, it cannot prevent the birth and development of other protocols that stand in opposition to it. (If you still want to differentiate innovation in "standards" based on Ordinals and try to outdo Runes, just give it up.)
6) The appearance of the Runes standard has surprisingly changed the market's gameplay. The exorbitant miner fees, Premine mechanism, and gameplay such as Runestone, RISC, and NFT airdrops have made the entire BTC derivative asset market issuance more like the gameplay of the early NFT market.
Some people say that it has changed the fundamentals of Fair Mint, but this is wrong. A token issuance standard driven by the project party, with an open and transparent distribution mechanism, with the potential for subsequent empowerment and continuous community growth, is the "healthy state." If an asset issuance can only cause a Fomo wave, allowing a wave of people to achieve sudden wealth without creating any subsequent imaginative space, its significance is very limited.
Above
Just as I said at the beginning, I hope the appearance of the Runes standard will usher in a "constant era" of development for the BTC ecosystem, and it looks promising at the moment. I also hope that as a mainstream issuance asset paradigm, it can accelerate the BTC ecosystem from the stage of speculative asset issuance to a stage of empowering layer2 development ecology.
Only the wealth creation and subsequent BTC layer2 chain operations brought about by the issuance of Runes standard and the continuous linkage of the two can be the beginning of a great explosion in the BTC ecosystem.
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