Key points:
Bitcoin Runes is a protocol that allows for the creation of fungible tokens on the Bitcoin blockchain.
The Bitcoin Runes protocol uses Bitcoin's UTXO model and the 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 include both fungible and non-fungible tokens (NFTs) in its network. In this article, we'll look at 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 for the creation of fungible tokens on the Bitcoin blockchain. Unlike BRC-20 and SRC-20 tokens, which also run on the Bitcoin blockchain, Runes are protocol independent Ordinals and designed to be simpler and more efficient. They use established Bitcoin blockchain models such as the UTXO model and the OP_RETURN opcode.
How do Bitcoin Runes work?
The Bitcoin Runes protocol works through two fundamental mechanisms of the Bitcoin blockchain: the Bitcoin UTXO (Unsent Transaction Output) transaction model and the OP_RETURN opcode.
In the UTXO transaction model, each transaction results in outputs that are treated as individual pieces of digital currency. To initiate a transaction, you use these outputs as inputs. The UTXO model allows you to track each unit of cryptocurrency. In the context of Bitcoin Runes, each UTXO can contain different numbers or types of runes (Runes), which simplifies token management.
The OP_RETURN opcode allows users to add additional information to Bitcoin transactions. This opcode facilitates the inclusion of up to 80 bytes of additional data in an unspent transaction. Bitcoin Runes specifically use the OP_RETURN opcode to store token data such as token name, ID, symbol, commands for certain actions, and other important data. The data is stored in a so-called Runestone in the OP_RETURN opcode of a Bitcoin transaction.
Engrave and mint runes on Bitcoin
The process of creating a new rune is called engraving. The engraving contains an indication of some key details, including the rune name, symbol, ID, bid amount, divisibility and other parameters. All this data is written in the OP_RETURN output of the blockchain transaction. During the engraving process, creators can also add premine, allowing them to allocate a portion of the rune to themselves before it becomes available to the public.
Once a rune is engraved, it can be stamped through open or closed minting processes. Open minting allows anyone to generate new runes after the initial minting by creating minting transactions. Conversely, closed mints allow new tokens to be minted only if predetermined conditions are met, such as a certain period of time after which the minting process ends.
Bitcoin Runes і BRC-20
Operational model
Bitcoin Runes are powered by Bitcoin's UTXO (Unsent Transaction Output) model. Conversely, BRC-20 tokens are based on the Bitcoin Ordinals protocol, in which data is attached directly to individual satoshis (sats).
Token transfer
Bitcoin Runes use a transfer mechanism where transactions create a new set of UTXOs based on data stored in the OP_RETURN field of a Bitcoin transaction. Conversely, the transfer of BRC-20 tokens requires the creation of new labels for each transaction.
Coining tokens
Runes can be minted using open or closed minting procedures, with a pre-mining option available to developers. Conversely, BRC-20 minting is limited to an open minting procedure, which limits flexibility in how tokens can be distributed.
Management
The Bitcoin Runes protocol is compatible with the Bitcoin Lightning network and supports both lightning clients and wallets SPV (Simplified Payment Verification). Conversely, BRC-20 tokens require wallets that support the Ordinals protocol.
Benefits of Bitcoin Runes
Efficiency
Bitcoin Runes provide an efficient method of handling tokens on the Bitcoin network through the use of the OP_RETURN model. This prevents the creation of unspent UTXOs that can litter the network. The OP_RETURN code only takes up 80 bytes of data, unlike the BRC-20 labels, which can use up to 4 MB. This contrast in data usage helps reduce the load on the Bitcoin network, increasing its performance and reducing the risks of congestion.
Simplicity
Compared to other alternatives, Bitcoin Runes make it easier to create and manage various interchangeable tokens from onchain. This is achieved without the need for offchain data or the creation of native tokens, thus avoiding the generation of excessive unnecessary UTXOs. This approach simplifies the token management process and makes it more accessible to a wider range of users.
The possibility of expanding the user base
Ordinals and BRC-20 previously contributed to the creation of interchangeable meme coins, attracting more users to the Bitcoin network. The introduction of Bitcoin Runes also generated interest among the cryptocurrency community and meme coin enthusiasts, especially before and immediately after the launch in April 2024. Although the protocol activity has decreased since its launch, it represents a new use case for Bitcoin that could potentially attract more users in the future.
Results
Bitcoin Runes is a protocol that allows for 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 processing on the Bitcoin network. Runes can attract more users to Bitcoin and simplify the process of creating new tokens.
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