ᛝ RUNES 101: What Is Runes Protocol?
The expansion of the Bitcoin Blockchain ecosystem has been notable since the advent of the Ordinals protocol. Each novel undertaking introduces its unique merits and demerits, with community acceptance standing as a pivotal factor. Impressively, Runes Protocol demonstrates adept management in this regard. In this artical you will find out the new era of RUNES PROTOCOL.
Runes Protocol On Bitcoin Blockchain
The Runes Protocol provides a standard for issuing fungible tokens on Bitcoin, which is similar to the BRC-20, but instead of operating on the Ordinals protocol, it utilizes the UTXO model.
Runes are assets introduced into the Bitcoin blockchain through a process called “Etching” (which is distinct from “Inscription,” the technology for creating BRC-20 tokens). Each Rune is unique and possesses specific attributes such as name, symbol, divisibility. Once set, they cannot be altered.
The official launch of the Runes Protocol will coincide with block 840.000, the same block that activates the Bitcoin Halving event on the Bitcoin blockchain. The first 10 Runes issued (from Rune #0 to Rune #9) have been hard-coded into the Runes Protocol.
Runes Protocol Inception
The Impact of Ordinals Protocol
Taking a glance at Ordinals — the predecessor of Runes.
The beginning of the Ordinals Protocol marks a remarkable moment in Bitcoin’s growth, started by Casey Rodarmor’s Ordinals plan. This new approach has led to many fascinating projects as fully on-chain NFT, Inscription, and Layer 2 ideas. All helps to bring about a flood of Fungible Token projects into the Bitcoin world.
There’s been a significant rise in Inscriptions on the Bitcoin network. Before Ordinals, Bitcoin only had its main token, BTC, and could not handle more. But with Ordinals, the story is different. Now we have tokens like BRC-20, ARC-20, and ORC-20.
Challenges and How Runes Protocol Came About
While these new ideas have made Bitcoin more lively, some people still worry about spam and fake tokens. The folks behind Ordinals witnessed these problems and created the Runes Protocol to tackle them. It’s a fresh way to deal with splitting up UTXOs and solve the problems of the predecessors. Therefore, Runes Protocol offers hope for better handling of tokens on the Bitcoin network.
Runes Protocol Operation
Understanding UTXO on the Bitcoin Network
Before diving into how the Runes Protocol works, it’s vital to understand what UTXO means on the Bitcoin network. Unlike many other blockchains, Bitcoin uses UTXO instead of Account-Based systems. UTXO, or Unspent Transaction Output, works, for example cash, where each UTXO is a balance certificate on the network. People could own many UTXOs with different values, and when they spend, those UTXOs become spent, and new ones are created. This setup helps prevent double spending, which is similar to cash tearing after spending and getting new.
Comparison of UTXO and Account-Based Models
BRC-20 tokens use the Ordinals protocol, in which each transaction creates new UTXOs, leading to more UTXOs as more tokens and transactions happen, which might cause network spam. Furthermore, BRC-20 token data is stored separately, adding complexity. The complexity, user experience, state model compatibility, and native token characteristics are all fundamental for fungible tokens on the Bitcoin network.
Introduction of the Runes Protocol
The Runes Protocol stands out because it stores data directly in UTXOs. This means one UTXO can hold multiple tokens, making UTXO management more efficient. Removing extra data improves system performance and makes tokens more “on-chain.” Using the UTXO model makes Runes more user-friendly, for example regular Bitcoin transactions. It’s also compatible with scaling solutions as the Lightning Network, making it more versatile.
Functionality of the Runes Protocol
The Runes Protocol manages tokens using messages stored in UTXOs, called Runestones. Users can create new runes, mint more, or transfer them using runestones. It’s important to take in mind that runestones are just messages, not like the Inscription/NFT collections you might see elsewhere. The protocol supports these functions:
Etching
This is the method used to create Rune tokens. Similar to deploying an ERC token contract on the Ethereum network. The information in the Etching section will describe the attributes of the rune. Once an Etching transaction is confirmed, this information becomes immutable and cannot be altered.
Attributes of Rune tokens:
- Name: Characters from A to Z, with lengths ranging from 1 to 28.
- Divisibility: The level of divisibility of the rune token.
- Symbol: Symbol representing the rune token.
- Premine: The creator of the rune token can allocate tokens for themselves.
- Terms: Conditions set for minting rune tokens.
Minting
This method allows users to continue minting tokens that are already being mined (according to the conditions set in Etching).
Transferring
Users who own rune tokens can transfer them to another wallet address or burn them.
Comparison with BRC-20 Tokens
Runes Protocol has several advantages, including its UTXO-based structure, unnecessary for off-chain data, better UTXO management, faster transactions, user-friendliness, and flexible balance handling. Since its introduction, Runes has received positive feedback, partly because of its great features and its connection to the respected founder of the Ordinals protocol.
Runes Protocol Potential
The Runes protocol brings several potential benefits to the Bitcoin ecosystem, promising a new era of possibilities.
Widen User Base
Runes protocol allows for the creation of various fungible tokens directly on the Bitcoin blockchain, including security tokens, stablecoins, and governance tokens. This could attract more users seeking fast and affordable transactions, especially with the possibility of Lightning Network compatibility. Essentially, Runes could help Bitcoin gain more users and become more widely used.
Increased Earnings
More interaction with Runes tokens means more transaction fees, which will boost revenue for miners. This is essential, especially as the block reward is set to decrease further in April 2024. Runes could provide an additional source of income for miners, motivating them to continue securing the Bitcoin network.
Encouraging Innovation
The Runes protocol fosters an environment where developers can innovate, as seen with examples like RSIC. This encourages developers to create new and exciting experiences on the Bitcoin blockchain. Additionally, it provides developers with the opportunity to work on Bitcoin development, the most stable and secure public blockchain, fostering further innovation in the ecosystem.
Efficient Token Creation
Runes protocol aims to simplify the process of creating assets directly on Bitcoin with minimal drawbacks. Unlike existing token protocols that rely on native tokens and off-chain data, Runes protocol offers a more thorough design. This serious approach positions Runes as a potentially more successful alternative to protocols like BRC-20, which were initially introduced as demonstrations of the capabilities of the Ordinals protocol.
Conclusion
Notable features of the Runes Protocol:
- UTXO-based structure
- No requirement for off-chain data
- Optimization of unused UTXOs
- Enhanced transaction performance
- User and developer-friendly
- Flexible storage and allocation of balances
The Runes Protocol has garnered attention due to its association with Casey Rodarmor, the developer behind Ordinals. The Genesis Rune, named UNCOMMON•GOODS, offers a free minting process starting from the Halving event in April 2024. This minting process will occur continuously over 4 years, with one mint per transaction, up to a maximum of approximately 7,751 mints per block.
This could potentially be a significant catalyst for Bitcoin in the future, increasing demand for blockspace. As mentioned earlier, the Runes Protocol officially operates from the Bitcoin halving event, so protocols claiming to operate on Runes are currently only in the testnet phase, spanning various fields such as NFTs, Launchpads, Lending, and more.
From its early introduction, Runes has received positive feedback from the community, partly due to its outstanding characteristics and also because of its creation by the respected founder of the Ordinals protocol.
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