Key aspects

• Bitcoin Runes is a protocol that allows the creation of fungible tokens on the Bitcoin blockchain.

• The Bitcoin Runes protocol uses Bitcoin's UTXO model and OP_RETURN opcode to simplify the creation and management of fungible tokens on the Bitcoin network.

• Some of the benefits of Bitcoin runes include increased efficiency and a simple approach to creating fungible tokens.

Introduction

Over the years, the Bitcoin ecosystem has expanded to incorporate fungible and non-fungible tokens (NFTs) within its network. In this article, we will explore the Bitcoin Runes protocol, how it works, the key differences from BRC-20 tokens, and its potential benefits.

What are Bitcoin runes?

Bitcoin Runes is a protocol that allows the creation of fungible tokens on the Bitcoin blockchain. Unlike the BRC-20 and SRC-20 tokens that also operate on the Bitcoin blockchain, runes do not depend on the protocol. a-42>Ordinals

How does Bitcoin Runes work?

The Bitcoin Runes protocol operates through two fundamental mechanisms of the Bitcoin blockchain: the Bitcoin UTXO (Unspent Output Transaction) transaction model and the OP_RETURN opcode. 

In the UTXO transaction model, each transaction results in outputs that are treated as separate pieces of digital currency. To start a transaction, you use these outputs as inputs. The UTXO model allows tracking of each cryptocurrency unit. In the context of Bitcoin Runes, each UTXO can contain different amounts or types of runes, simplifying token management.

The OP_RETURN opcode allows users to attach additional information to Bitcoin transactions. This opcode makes it easy to include up to 80 bytes of additional data in an unspent transaction. Bitcoin Runes specifically use the OP_RETURN opcode to store the token data such as the token name, ID, symbol, commands for specific actions, and other essential data. The data is stored in what is known as a Runestone within the OP_RETURN opcode of a Bitcoin transaction.

Engrave and mint runes in Bitcoin

The process of creating a new rune is called engraving. Engraving involves specifying some key details, such as the rune name, symbol, ID, supply quantity, divisibility, and other parameters. All of this data is recorded in the OP_RETURN output of a blockchain transaction. During the engraving process, creators also have the option to include a "premine," which allows them to allocate a certain portion of the rune before it is made available to the public.

Once a rune is engraved, it can be minted through open or closed coinage. Open minting allows anyone to generate new runes after the initial engraving by creating minting transactions. In contrast, closed minting allows new tokens to be minted only when predetermined conditions are met, such as a specific period of time, after which the minting process ends.

Bitcoin Runes vs. BRC-20

Operation model

Bitcoin Runes operates on the Bitcoin UTXO (Unspent Transaction Output) model. In contrast, BRC-20 tokens are based on the Bitcoin Ordinals protocol, in which data is directly attached to individual satoshis (sats).

Token transfer

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

Token minting

Runes can be minted using open or closed minting procedures, with the option of premining available to developers. In contrast, BRC-20 minting is limited to the open minting procedure, which limits flexibility in how tokens can be initially distributed.

Management

The Bitcoin Runes protocol is compatible with the Bitcoin Lightning network and is compatible with both Lightning clients and wallets SPV (Simplified Payment Verification). ). In contrast, BRC-20 tokens require wallets that support the Ordinals protocol.

Benefits of Bitcoin Runes

Efficiency

Bitcoin Runes provides an efficient method of handling tokens on the Bitcoin network by using the OP_RETURN model. This prevents the creation of unspent UTXOs that can clog the network. The OP_RETURN code only takes up 80 bytes of data, unlike BRC-20 entries which can use up to 4 MB. This contrast in data usage helps reduce the load on the Bitcoin network, improving its performance and reducing the risks of congestion.

Simplicity

Relative to other alternatives, Bitcoin Runes allows for more direct creation and management of multiple fungible tokens directly on-chain. This is achieved without the need for off-chain data or the creation of native tokens, thus avoiding the generation of excessive UTXO "garbage$. This approach simplifies the token management process and makes it more accessible to a greater number of users.

Potential to expand user base

Ordinals and BRC-20 have previously facilitated the creation of fungible meme coins, which has attracted more users to the Bitcoin network. The introduction of Bitcoin Runes has also sparked interest among cryptocurrency communities and meme coin enthusiasts, especially before and just after its launch in April 2024. While the protocol's activity declined after the launch, it presents a new case of use for Bitcoin that may attract more users in the future.

Conclusions

Bitcoin Runes is a protocol that allows the creation of fungible tokens on the Bitcoin blockchain. It uses both the UTXO model and the OP_RETURN opcode to improve the efficiency of token handling on the Bitcoin network. Runes have the potential to attract more users to Bitcoin and simplify the process of creating new tokens.

Further reading

• What are BRC-20 tokens?

• What is the Binance Registration Platform?

• A step-by-step guide on how to create your own Ordinals Inscriptions

• What are Bitcoin Stamps?

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