What Are Bitcoin Runes?
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Bitcoin Runes, also known as the Runes protocol, is a protocol for issuing fungible tokens directly on the Bitcoin network. The Runes protocol was proposed by Casey Rodarmor, the founder of the Ordinals protocol, in September 2023. Bitcoin Runes officially went live with the Bitcoin halving event.
1. Features of Bitcoin Runes
1.1 Simplified token creation and management. Runes use the UTXO model to issue and manage tokens, avoiding the problem of UTXO explosion caused by past inscriptions and minimizing on-chain space while improving overall efficiency.
1.2 Reduced network load. By minimizing the data used in token transactions, Runes help reduce network congestion, making Bitcoin more scalable and user-friendly.
1.3 Compatibility with the Lightning Network. Runes are natively compatible with the Lightning Network, enabling faster and cheaper token transactions and opening up new possibilities for Bitcoin DeFi.
1.4 Automatic destruction of tokens from erroneous transactions. Runes feature automatic destruction of tokens with errors, encouraging users to manage UTXOs correctly.
2. Operation Process of Bitcoin Runes
2.1 Inscription. The process of creating a new Rune is inscription, where the creator defines parameters such as the name, symbol, supply, ID, decimal places, etc., and records them in the OP_RETURN output. Token supply is allocated to specific UTXOs, which are used to track Rune token balances. In the code, Runes can be set to be pre-mined. In actual project creation, many projects choose a no pre-mine form to ensure fairness.
2.2 Minting. After inscription, Runes can be minted through open or closed methods. Open minting allows anyone to mint Runes after inscription, and anyone can create a minting transaction to mint a certain number of new Runes. New tokens can only be created through closed minting after meeting certain conditions, such as the termination of minting after a specific time period, limiting the token supply.
2.3 Transfer/Transaction. The transfer of Runes is achieved through Edict, which transfers Runes from one owner to another. Using the Edict function, batch Rune transfers, airdrops, and transferring all minted Runes to a single account can be executed.
2.4 Destruction. Runes can be permanently removed from circulation by sending them to an unspendable address.
3. The Difference Between Bitcoin Runes and Inscriptions
3.1 Relationship Between Runes and Inscriptions
The Ordinals protocol was introduced by Casey Rodarmor at the end of 2022 as a Bitcoin NFT protocol, which achieved issuing NFTs on the Bitcoin network without smart contracts.
Based on the Ordinals protocol, developer Domo proposed the BRC-20 standard, also known as what we commonly refer to as "inscriptions," for issuing fungible tokens on the Bitcoin network. Subsequently, this standard ignited the network, causing market FOMO. The popularity of inscriptions also resulted in a large number of junk UTXOs, causing congestion on the Bitcoin network, which was criticized by developers represented by Casey Rodarmor.
In September 2023, Casey Rodarmor proposed the Runes protocol, which simplified token creation and management, reducing the burden on the Bitcoin network caused by the BRC-20 protocol.
3.2 Differences Between Runes and Inscriptions
Runes improve the BRC-20 token standard based on the Ordinals protocol, and to some extent, Runes can be seen as an upgrade and improvement over inscriptions.
The key difference between Runes and inscriptions lies in the location of the engraving. Runes are engraved in the OP_RETURN data, while inscriptions are engraved in the witness data.
In addition, the differences between the two are shown in the following table:
Comparison | Runes | Inscriptions |
Based on UTXO | Yes | No |
Based on Ordinals | No | Yes |
Token Type | Fungible | Fungible |
On-chain Footprint | Minimized | High |
Compatibility with Lightning Network | Yes | No |
Public Minting | Supported | Supported |
4. Bitcoin Runes Ecosystem Development
4.1 Wallets: Like regular cryptocurrencies, managing Runes requires specific wallet applications. Common applications include Unisat, Xverse, and Web3 wallets provided by exchanges.
4.2 Runes Launchpools: Websites for the release and distribution of Rune projects and tokens.
4.3 Trading Markets: NFT platforms like Magic Eden now support Rune trading, making it familiar even to beginners.
4.4 DeFi: In the DeFi field of the Rune ecosystem, attempts such as lending and Rune bridges (cross-chain) have emerged. Runes' existence has opened the door for DeFi development on the Bitcoin network.
5. How to Invest in Bitcoin Runes
Bitcoin Runes are still in their early stage, primarily driven by speculation and trading, as acknowledged by Rune protocol founder Casey Rodarmor.
If you wish to participate and invest in Bitcoin Runes, you can trade them on specialized platforms or use lending protocols to earn interest by lending out your Runes.
It is important to note that Runes currently rely heavily on market sentiment. Once the market sentiment fades, your Runes may become illiquid and untradeable, leading to investment losses. Therefore, before engaging in Rune trading, please manage your risk expectations.
6. Conclusion
The emergence of Runes has attracted more attention to the Bitcoin network and brought new use cases. Runes have just been introduced, and whether they will expand into more use cases and change significantly in the future remains unknown. For the emergence of new technologies, we should remain patient and see how they will ultimately contribute to the prosperity of the Bitcoin network ecosystem.
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