Key Points

• Bitcoin Rune is a protocol that enables the creation of fungible tokens on the Bitcoin blockchain.

• The Bitcoin Rune protocol leverages Bitcoin’s UTXO model and the P_RETURN opcode to simplify the creation and management of fungible tokens on the Bitcoin network.

• The advantages of Bitcoin Runes include greater efficiency and the ease with which fungible tokens can be created.

Introduction

Over the years, the Bitcoin ecosystem has expanded to include both fungible tokens and non-fungible tokens (NFTs) in its network. This article will explore what the Bitcoin Rune Protocol is, how it works, and its key differences from BRC-20 tokens and potential benefits.

Introduction to Bitcoin Runes

Bitcoin Runes is a protocol for creating fungible tokens on the Bitcoin blockchain. Unlike BRC-20 and SRC-20 tokens that also run on the Bitcoin blockchain, Bitcoin Runes do not rely on the Ordinals protocol, making them simpler and more efficient. They leverage established Bitcoin blockchain models, such as the UTXO model and the OP_RETURN opcode.

How do Bitcoin Runes work?

The Bitcoin Rune Protocol operates on two fundamental mechanisms of the Bitcoin blockchain, namely Bitcoin’s Unspent Transaction Output (UTXO) transaction model and the OP_RETURN opcode.

In the UTXO transaction model, each output generated by a transaction is considered an independent piece of digital currency. To initiate a transaction, these outputs are required as inputs. The UTXO model can be used to track each unit of cryptocurrency. In the case of Bitcoin Runes, each UTXO can hold a different number or type of runes, simplifying token management.

The OP_RETURN opcode allows users to attach additional information to Bitcoin transactions. This opcode allows up to 80 bytes of additional data to be attached to an unspent transaction. Bitcoin Runes use the OP_RETURN opcode exclusively to store token data such as token name, ID, symbol, specific operation instructions, and other necessary data. This data is stored in the Runestone in the Bitcoin transaction OP_RETURN opcode.

Etching and Casting Runes on Bitcoin

The process of creating a new rune is called etching. Etching requires specifying a few key details, including the rune's name, symbol, ID, supply, divisibility, and other parameters. All of this data is recorded in the OP_RETURN output of the blockchain transaction. During the etching process, creators can also choose to include a "pre-mine", which allows them to pre-receive a certain number of etched runes before the runes are available to the public.

Once a rune is etched, it can be minted via either open or closed minting. With open minting, anyone can create a minting transaction to generate a new rune after the initial etch is complete. In contrast, closed minting only allows new tokens to be minted when predetermined conditions are met (such as a certain time period), after which the minting process ends.

Bitcoin Runes vs BRC-20 Tokens

Operational Model

Bitcoin Runes operate on Bitcoin’s unspent transaction output (UTXO) model. In contrast, BRC-20 tokens operate on the Bitcoin Ordinal Protocol, which attaches data directly to a single satoshi (sat).

Token Transfer

Bitcoin Runes uses a transfer mechanism whereby a transaction creates a new set of UTXOs based on the data stored in the OP_RETURN field of a Bitcoin transaction. In contrast, BRC-20 token transfers require the creation of a new Inscription for each transaction.

Token Minting

Runes can be minted through an open or closed minting process, with developers also having the option of pre-mining. In contrast, BRC-20 tokens can only be minted through an open minting process, which limits the flexibility of how tokens are initially distributed.

manage

The Bitcoin Rune protocol is compatible with the Bitcoin Lightning Network and supports both Lightning Network clients and Simple Payment Verification (SPV) wallets. In contrast, BRC-20 tokens only work with wallets that support the Ordinal protocol.

Advantages of Bitcoin Runes

efficiency

Bitcoin Runes use the OP_RETURN model, providing a way to efficiently process tokens on the Bitcoin network, preventing the generation of unusable UTXOs that could cause network congestion. The OP_RETURN opcode only takes up 80 bytes of data, while BRC-20 inscriptions can take up up to 4MB of data. This significant reduction in data usage helps reduce the load on the Bitcoin network, thereby improving its performance and reducing the risk of congestion.

Simple

Compared to other alternative protocols, Bitcoin Runes makes it easier to create and manage multiple fungible tokens directly on-chain. This process requires no off-chain data and does not require the creation of native tokens, thus avoiding the generation of excessive "junk" UTXOs. This approach simplifies the token management process and makes it easier for more users to use.

Potential to expand user base

The Ordinal Protocol and BRC-20 tokens facilitated the creation of fungible memecoins, attracting more users to the Bitcoin network. The launch of Bitcoin Runes also sparked interest in the cryptocurrency community and memecoin enthusiasts, especially around its launch in April 2024. While activity on the protocol has declined since its launch, it provides a new use case for Bitcoin that is expected to attract more users in the future.

Conclusion

Bitcoin Rune is a protocol for creating fungible tokens on the Bitcoin blockchain. It utilizes the UTXO model and the OP_RETURN opcode to improve the efficiency of token processing on the Bitcoin network. Rune is expected to attract more users to Bitcoin and simplify the process of creating new tokens.

Further reading

• What is a BRC-20 token?

• What is the Binance Inscription Market?

• Teach you step by step to create your own ordinal inscription

• What are Bitcoin Stamps?

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