Runes: How the New Bitcoin Token Standard Works

On April 20, Bitcoin ushered in its fourth halving moment, and this significant event was accompanied by a major technological innovation - the launch of the Runes protocol. This new standard introduces a novel solution for fungible tokens to the Bitcoin network, expanding Bitcoin’s application potential without compromising the network’s core security and decentralized characteristics.

Understanding the Runes protocol from scratch

What is Runes? In short, this is a new set of rules developed by Casey Rodarmor, the creator of the Ordinals protocol, to make creating and managing tokens more convenient and efficient. Compared to the cumbersome token issuance method in the past, Runes greatly simplifies the process while reducing the consumption of blockchain resources.

What makes this protocol special is that it makes full use of Bitcoin’s unique technical architecture. Traditional token standards often take up a lot of on-chain space, and Runes can do the same with minimal data.

Detailed explanation of the technical operation mechanism

UTXO model and data storage

At its core, Runes is deeply integrated with Bitcoin’s UTXO (Unspent Transaction Output) system. The inputs and outputs in each transaction are accurately tracked, so that each address can accurately record how many tokens are held, effectively preventing the risk of double spending.

Using OP_RETURN output is another clever design of this protocol. This particular transaction output allows a small amount of data (up to 80 bytes) to be embedded in the transaction without compromising the spendability of this output. Token IDs, supply, and transaction details are securely stored within this space.

From casting to transfer

The process of creating a new token is called “etching”. Developers need to set the basic properties of the token – including name, divisibility, and maximum supply. This information is recorded on the blockchain via Runestone (protocol message).

Subsequent casting and transfer operations are also carried out by embedded instructions. These directives clearly indicate the amount and recipients of token transfers, making the entire process both concise and transparent.

Why was it launched at the time of the Bitcoin halving?

The choice of this timing is not accidental. Bitcoin halving is a significant event that has captured global attention, often accompanied by adjustments in miners’ earnings. The development team capitalized on the high level of attention during this period by introducing the community to a technical upgrade that expands Bitcoin’s capabilities.

The result is evident – transaction fees immediately rise significantly, reflecting a surge in network activity and strong user interest in the new protocol. This change fully shows that Runes has generated an immediate market response in the ecosystem.

Practical Applications and Cases

Runes provides a flexible distribution platform for all types of projects. Community-driven meme coins are particularly popular – they often launch informally but quickly accumulate popularity and value, capturing the attention of the masses and crypto professionals alike.

RunestoneThe project covers more than 112,000 Ordinals assets. These assets are distributed free of charge to eligible collectors, and holders are also promised multiple token airdrop opportunities.

RSIC•GENESIS•RUNEis another typical case, its rapid success, with a market capitalization of over $325 million, fully demonstrating the appeal of Runes as a token issuance tool.

Quick Start Guide

Want to use Runes? Here are the key steps:

First, delve into the protocol’s workings, specifically how the UTXO model and OP_RETURN mechanisms work together to minimize on-chain footprint.

Second, choose a Bitcoin wallet that supports Runes. Clients such as ME Wallet provide essential UTXO tracking and protocol interaction features.

Third, make sure you have enough Bitcoin in your wallet. As an essential resource for fees and subsequent operations, it serves as the foundation for all token interactions.

Fourth, learn core operations such as “etching” (creating new tokens), “minting” (minting according to preset parameters), and transfers. Tokens can be set with different divisibility, symbols, and supply caps as needed.

Finally, stay in sync with the community. Get the latest protocol updates and ecosystem progress through official channels and social media.

Runes vs BRC-20 vs SRC-20 vs ARC-20: Standard Comparison

Data storage scenarios

Different token standards use very different data recording methods.RunesThrough the UTXO model and OP_RETURN, efficient and flexible data management is achieved with minimal impact on on-chain load.

BRC-20relies on the inscription mechanism of Ordinals to write data directly to the witness part of a single satoshi, which can easily lead to blockchain expansion.

SRC-20Also based on UTXOs, but emphasizing the immutability of data - once recorded, it is permanent and cannot be modified.

ARC-20Built on the Atomicals protocol, each token is tied to a specific satoshi, leveraging the value of Bitcoin itself to ensure the authenticity of the data.

Flexibility vs. scalability

Runes’ strength lies in its minimal data footprint and operation without additional tokens, making it smoother to integrate with existing Bitcoin infrastructure.

BRC-20 lacks smart contract functionality and relies on Ordinals protocols, which limits flexibility, which also leads to high transaction costs.

Although SRC-20 provides data persistence, its immutable nature brings scalability difficulties, which may increase transaction costs for users.

ARC-20 provides greater freedom in token issuance and management, supporting both decentralized and direct issuance models.

Degree of adoption and usage scenarios

RunesUsage ranges from community-driven meme coins to complex financial instruments like stablecoins and utility tokens. Its streamlined creation process and resource efficiency make it easier for developers to launch projects, expanding their user base.

BRC-20It has gained widespread adoption due to its early launch and compatibility with the Bitcoin system, with use cases ranging from digital collectibles to asset tokenization.

SRC-20While the advantages are clear in scenarios requiring permanent documentation, the overall adoption rate is relatively limited.

ARC-20As an emerging standard, its features such as decentralized distribution and permanent file storage may find more applications in areas where verifiable authenticity and long-term data retention are required.

Runes’ relationship with Bitcoin Ordinals

Both protocols leverage Bitcoin’s data storage capabilities, but there are fundamental differences in how they are implemented. Ordinals engrave data onto individual satoshis, while Runes store token operation information through OP_RETURN output, avoiding the occupation of the satoshis themselves.

Challenges

Network integration issues

The existing Bitcoin infrastructure is primarily optimized for simple transactions and is not seamlessly adapted to complex token operations. This means that while Runes has simplified the process, it still needs to overcome the issue of extensive support from nodes and wallet software.

Technical considerations

Scalability dilemmaWhile Runes strives to minimize its data footprint, the impact on the overall network’s performance remains to be observed as the number of tokens surges. Protocols need to prove that they can handle large-scale transactions without compromising network performance.

Security risksNew protocols are always subject to security review. Protecting Runes tokens from attacks and exploits is a top priority, especially in the Bitcoin ecosystem.

Fee fluctuationsAfter the Bitcoin halving, transaction fees soared to $170 at one point. History shows that when new standards like BRC-20 become popular, network congestion drives up fees. As Runes popularity rises, peak fees may surge again, which can drive up token creation and transfer costs for users and hinder mass adoption.

Outlook outlook

Since its launch, Runes has sparked polarized reviews in the Bitcoin community. Innovators appreciate its potential to expand Bitcoin’s capabilities, while conservatives worry that it will complicate concise trading models, introducing unknown risks.

The development team is focusing on improving protocol stability and strengthening security mechanisms to address these concerns.

In the long run, Runes has the potential to significantly improve Bitcoin’s utility. It could make Bitcoin more competitively competitive with other blockchains that support complex financial instruments and decentralized applications. This expansion of functionality could attract a new wave of developers and users seeking to build token projects on top of Bitcoin’s security and liquidity.

As developers continue to experiment and adopt Runes, we can expect deeper ecosystem integrations, including wallet interface optimizations and user experience enhancements, making token interactions ultimately as intuitive and convenient as regular Bitcoin transfers.