The main points


  • Rune is a new protocol for creating fungible tokens on the Bitcoin blockchain.

  • By using Bitcoin’s UTXO model and OP_RETURN opcode, Rune will simplify the creation and management of fungible tokens.

  • Runes will improve Bitcoin’s efficiency as a fungible token while also expanding the utility of the Bitcoin network to a wider audience by making it easier to create meme coins and other community-driven projects on the blockchain.



Over the past two years, the Bitcoin ecosystem has grown to include fungible and non-fungible tokens on the Bitcoin network. These tokens have reached a market cap 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 that will create tokens on Bitcoin, it will bring exciting changes in the Bitcoin ecosystem, such as MemeCoin.



Translation:


Runes was built 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 self-contained and does not rely on ordinals or inscriptions, making it very simple.


Balances are stored in UTXOs and can be locked in HTLCs so Runes can run on the Lightning Network.


Rune names are optional, and if a stone does not have a name specified, a reserved name is assigned. Stones with reserved names are unconditionally valid, and are well suited for lightweight clients if they have an uncapped supply.


The Ordinal library provides everything you need to encode and decode Runestones, so integration should be straight forward.


I am very skeptical about “serious” tokens, but Rune is undoubtedly a “serious” token protocol.


The runes will be released after the fourth Bitcoin halving, which is expected to have taken place on Saturday, April 20.

 

1. Understand Bitcoin Runes


Casey Rodarmor, creator of the Ordinals protocol, which allows users to create NFT-like inscriptions on the Bitcoin blockchain, is releasing Runes, a new protocol that will allow users to easily create tokens on top of Bitcoin like Solana and Ethereum.


While BRC-20 and SRC-20 token standards already exist, these standards are based on the Ordinals theory, which can lead to UTXO proliferation, thereby spamming Bitcoin. In order to create a healthier way of etching tokens on the Bitcoin network, Rodarmor announced Runes in September 2023 and has been working on it since then. As the release date of the protocol approaches, people are increasingly interested in runes and what they mean for Bitcoin.


“Creating a good alternative token protocol for Bitcoin could potentially bring significant transaction fee revenue, developer mindshare, and users to Bitcoin.” By Casey Rodarmor, creator of Rune


Bitcoin Runes will be launched at block 840,000 after the Bitcoin halving in April 2024. The creator clarified that this arrangement does not make sense for the operation of the protocol, although it adds to the market excitement after the fourth Bitcoin halving. Rodarmor said that the simplicity and overall architecture of Bitcoin Runes will help with the main reason for its development - creating fungible tokens on the Bitcoin blockchain. People are full of expectations for Runes, Franklin Templeton said:


Currently, Bitcoin’s fungible token market is quite small compared to ETH and SOL; however, with the introduction of more efficient token standards (Runes), Bitcoin is well-positioned to close the gap between its fungible market cap and other blockchains.


Bitcoin Runes are tokens created on the Bitcoin blockchain. They are a set of executable data that allows the creation and use of specified assets on the network. Just like BRC-20 and SRC-20 tokens, Runes rely on the Bitcoin blockchain to operate, however, Runes are designed to be simpler, not dependent on Ordinals, and healthier and more efficient than other token standards, and adopt key (existing) models of the Bitcoin blockchain, such as the UTXO model and OP_RETURN opcode. In addition, unlike other existing alternative token protocols on Bitcoin, Runes will not rely on off-chain data like RGB and Taprot 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 to understanding how the Bitcoin Rune 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, where the algorithm calculates the new balance after transferring the expected number of tokens to the recipient. Each UTXO can hold any number of runes.


The OP_RETURN opcode enables users to attach extra information to Bitcoin transactions without affecting network efficiency. The OP_RETURN opcode enables Bitcoin users to add up to 80 bytes of data to unspendable transactions. This data includes information about the token, including name, ID, symbol, commands for specific operations, and other required data. Rune Protocol messages stored in the OP_RETURN area of ​​a Bitcoin transaction may also be referred to as Runestones.


Each Rune transaction can specify multiple operations across different Runes. In the case of a token transfer, the Runes protocol splits the UTXO into multiple new UTXOs according to the instructions in the OP_RETURN data. Each UTXO represents a different number of tokens, which are then sent to their recipients.


If a rune transaction fails due to an invalid protocol message, the rune will be destroyed to prevent accidental creation of runes.


3. Carving and casting runes on Bitcoin


The process of creating a new rune is called inscribing. A user who wishes to inscribe a new rune needs to specify the rune's name, symbol, ID, supply, divisibility, and parameters related to rune generation and distribution, which are recorded in an OP_RETURN output. Creators can also include a "premine" in the inscribing process, where a certain number of runes are allocated to the creator before the rune is available to the public.


Once the inscription is complete, the rune can be minted through open or closed minting. Open minting allows anyone to mint runes after inscription, and anyone can create a minting transaction to mint a certain number of new runes. Closed minting can only create new tokens after meeting predetermined conditions, such as after a certain period of time, the minting process ends, limiting the token supply.


Fiat defines how runes are transferred after being inscribed or minted. Using the fiat function, it is possible to perform bulk rune transfers, airdrops, and transfer all minted runes to a single account.


Possible symbol squatting issues on Bitcoin Runes


The Rune Protocol will not regulate symbol squatting to keep the protocol simple. This means squatters can hold desirable symbols, which can be a combination of letters (A-Z) of any length. Rodarmor has proposed some solutions, such as only allowing symbols above a certain length to be allocated at launch, and gradually reducing the length over time. According to information on Ordiscan, the first three-character runes will not be available until about three years later.


4. Benefits of Bitcoin Runes


Runes are designed to simplify the creation of fungible tokens on the Bitcoin blockchain, along with other goals like minimizing on-chain usage and improving UTXO management. Let’s look in more detail at some of the benefits Runes will bring to users and the Bitcoin network.


1) Simplicity


Compared to other alternatives such as BRC-20, RGB, and Taproot, Bitcoin Rune is expected to provide users with a simpler way to create fungible tokens on the Bitcoin network. Using Rune, 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


BRC-20 is allegedly an expensive way to create and manage tokens on Bitcoin. This is due to the proliferation of UTXOs caused by its operating model. Bitcoin is currently dealing with an influx of UTXOs that will never be spent. This puts a burden on the network, causing performance issues. Bitcoin Runes avoid this problem through its design. The OP_RETURN model does not create UTXOs that cannot be spent, and storing parameters consumes fewer resources. Compared to BRC-20 inscriptions, which have a memory capacity of up to 4MB, the OP_RETURN opcode is only 80 bytes; this makes more economical use of the Bitcoin network's resources.


3) Integration with Bitcoin’s UTXO model


The UTXO model is how Bitcoin manages user assets. According to Rodarmor, Bitcoin Rune also inherits this design. This complements the Bitcoin blockchain, making Bitcoin Rune suitable for UTXO-based functions. Bitcoin Rune's spending model distinguishes it from standards such as BRC-20 and SRC-20.


4) Expand the user base


According to the protocol’s creators, the primary use case for Bitcoin Runes is as “fun and meme coins.” Meme coins are a novel community-building strategy that has attracted interest from crypto-native users and mainstream investors. Ordinals and BRC-20 have enabled the creation of fungible tokens used as meme coins and attracted a large number of new users to the Bitcoin network.


Bitcoin Runes have already attracted the attention of the memecoin community as memecoin projects dominate the list of pre-launch projects. The Bitcoin network is likely to welcome a new wave of users seeking to trade these memecoins before the official launch. A growing user base and increased network usage will also increase the network's revenue system and incentivize more miners to join the network.


Expanding the usefulness of the Bitcoin network


Different protocols that implement token creation on the Bitcoin blockchain add additional utility to the network. As Rune projects bring their individual strategies to the network, the scope of application of the Bitcoin network will become wider. This expansion will depend on the innovation capabilities of these projects.


5. Bitcoin Rune Ecosystem



There will be new projects launching in the Bitcoin Rune ecosystem, while some existing projects have shared plans to join the Rune ecosystem once the protocol goes live. Some of these projects will interact directly with the protocol to create assets on the Bitcoin blockchain, while others will provide utility tools for Bitcoin Rune enthusiasts. The following are examples of different types of projects that will join the Bitcoin Rune ecosystem.


1）Token


Interchangeable token projects that hope to use the Bitcoin Rune Protocol to carve runes on the Bitcoin network include Rune Pups, Runevo, Runestone, and RSIC. Currently, most of these are NFTs that earn corresponding runes for their holders until the Rune Protocol goes live. In the case of Runestones, three meme coins will be airdropped to each Runestone holder.


2) Launch the platform


Bitcoin Rune's launchpads will provide a platform for Rune projects to get started on their journey. One of the launchpads is Bitcoin Rune, which gives users a glimpse of what these platforms offer Bitcoin Rune projects. While still in the testnet stage, 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 Rune projects can begin trading.


3) Market


Certain markets will support Bitcoin Runes, allowing users to list and trade these tokens on their platforms. NFT platform Magic Eden has launched sections for Bitcoin Runes, including a pre-rune section for Bitcoin Rune projects that have not yet been released. Pre-market platform Whales Market has also launched a Bitcoin Rune market. This includes a pre-release platform where users can trade their TGE (Token Generation Event) allocations for Bitcoin Rune projects.


4) Wallet


Although 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 Rune and BRC-20


Similar to BRC-20, Rune Protocol makes it possible to create tokens on the Bitcoin blockchain. BRC-20 uses the Ordinals protocol – a technology that allows data to be attached to Bitcoin sats. Bitcoin Rune was introduced as an improvement over this design because it requires less resources on the Bitcoin network. There are important differences between the two designs in terms of asset creation, routine operation, and adoption. BRC-20Token has a first-mover advantage and has already seen significant adoption. Below is a summary of the differences between BRC-20 and Bitcoin Rune.



6. Final Thoughts


With Bitcoin Rune, the Bitcoin network gets another token issuance mechanism. While the network wasn’t originally designed for this, it’s refreshing to see more fun with the oldest model of modern blockchain. In preparation for the launch, many projects are already building communities in preparation for their respective launches. The model described for Bitcoin Rune is very interesting because it leverages some of the old properties of the network to provide what could be another great addition to the entire space. As excitement builds, so too does the use and adoption of the Bitcoin network. It’s uncertain what impact this will have on mainstream investors, however, for native crypto enthusiasts, more use cases for the Bitcoin network can’t hurt.


However, Bitcoin Rune is in the earliest stages of development and, like any other new product, it is susceptible to key changes and performance fluctuations. At the time of writing, projects that launch using this technology and join the Bitcoin Rune ecosystem are also highly speculative. Always do your own research before investing in any cryptocurrency. Please also note that this article only discusses Bitcoin Rune from a technical perspective and should not be considered financial advice.