With the upcoming Bitcoin halving event, the cryptocurrency market has shown strong interest in a new token standard called Runes. This report aims to clarify the confusion and misconceptions surrounding the Runes protocol and provide an in-depth analysis of its technical details, market potential, and potential challenges to the existing BRC-20 token standard.

Origin of the Runes Protocol
Father of Runes: Casey Rodarmor
Creator of the Ordinals Protocol

Casey Rodarmor is the founder of the Bitcoin Ordinals protocol, which introduces new functionalities to the Bitcoin blockchain, allowing users to directly inscribe data on Bitcoin’s smallest unit — Satoshis, thereby creating unique digital artworks. The Ordinals protocol was launched by Casey Rodarmor on January 21, 2023, aiming to add additional functionality to the Bitcoin blockchain to “make Bitcoin interesting again.”

Originator of the Runes Protocol

Following the Ordinals protocol, Casey Rodarmor proposed a new protocol called Runes, which is a UTXO-based token protocol designed to issue and manage tokens on the Bitcoin network.

Support for Fungible Tokens

Through the Runes protocol, Casey Rodarmor further expands his contributions to Bitcoin blockchain technology, particularly in the area of fungible tokens.

Public Speeches and Community Interaction

Casey Rodarmor not only contributes to technical development but also promotes his work through public speeches and community involvement. For example, at the Ordinals Summit held in Singapore, he made a rare appearance, demonstrating his open-mindedness towards advancing Bitcoin and its related technologies.

Through the creation of the Ordinals protocol and Runes protocol, Casey Rodarmor has not only advanced Bitcoin technology but also added new functionalities and possibilities to the Bitcoin ecosystem, particularly making significant contributions to expanding Bitcoin’s capabilities as a programmable currency.

Successful Continuous Innovation of Runes

The Ordinals protocol primarily focuses on non-fungible digital assets, limiting its use in broader decentralized finance (DeFi) applications. To address this limitation and further expand Bitcoin’s functionality, Rodarmor proposed the Runes protocol.

The Runes protocol aims to create a new standard for fungible tokens, which can be created and traded on the Bitcoin network, similar to ERC-20 tokens on Ethereum. The Runes protocol addresses the limitations of the Ordinals protocol in handling multiple assets, smart contracts, and complex financial instruments by implementing a more suitable fungible token for trading.

Technical Implementation and Features

The Runes protocol attempts to address the limitations of the existing BTC token protocol.

The goal of the Runes protocol is to establish a token standard on the Bitcoin network to facilitate the issuance of fungible tokens.

The protocol adopts a native UTXO model to ensure that the network is not affected by transaction congestion. This design helps alleviate pressure on the Bitcoin network and improves transaction efficiency. The Runes protocol aims to simplify the token issuance process and provides a different solution compared to the existing BRC20 token standard.

1. Launch Time and Storage Mechanism: The Runes protocol is expected to launch at the next Bitcoin halving event. The protocol extends Bitcoin’s UTXO model, allowing the storage of Bitcoin and Runes balances in UTXOs, ensuring transaction security with Bitcoin’s security framework;
2. Token Naming and Creation: The Runes protocol has hardcoded Runes (0–9) to ensure fair launch. The length of token names was initially set to be more than 13 characters and gradually decreased over time, adopting a commit-reveal mechanism to prevent front-running transactions;
3. Comparison with BRC-20: Compared to the BRC-20 standard, Runes simplifies the token creation process, using the OP_RETURN field instead of witness data;
4. Runes supports token deployment, minting, and transfer through the Runestones mechanism, improving network friendliness and reducing UTXO accumulation.

The table below lists the main technical features comparison between Runes and BRC-20s.

Interoperability and Scalability of the Runes Protocol with the Bitcoin Ecosystem

From a technical perspective, the Runes protocol supports interoperability with Bitcoin Layer 2 solutions such as the Lightning Network and state chains.

1. Based on the UTXO model: The Runes protocol is based on the Unspent Transaction Output (UTXO) model, which has good interoperability with Bitcoin Layer 2 solutions like the Lightning Network and state chains such as MercuryLayer. The UTXO model is widely used in Bitcoin and similar cryptocurrencies, allowing transactions on the blockchain without directly modifying balances but rather by creating new outputs to transfer funds. This common model provides a foundation for interaction between different protocols.
2. Simplified UTXO model and efficient token transfer mechanism: The Runes protocol brings new dynamics and scalability to the Bitcoin network through its simplified UTXO model and efficient token transfer mechanism.
3. Applications of state chains: MercuryLayer utilizes state chains and blind joint signature technology to facilitate instant and fee-less transactions, providing new methods for Bitcoin scalability. State chains allow transfer of UTXOs between parties without on-chain transactions, achieved through shared keys between the original owner and recipient, reducing transaction costs and improving transaction speed.
4. Maintenance of interoperability: Different Layer 2 solutions (such as the Lightning Network) maintain interoperability through adherence to specific specifications (e.g., BOLT specifications). These specifications are developed by the community to ensure compatibility and seamless cooperation between different implementations. Recent tests have shown that major implementations are fully interoperable and can work together seamlessly.

The interoperability and scalability of the Runes protocol with Bitcoin Layer 2s or state chains are achieved through the shared UTXO model, simplified efficient token transfer mechanism, and state chain technology, facilitating effective interaction between different protocols within the Bitcoin ecosystem and overall network scalability.

Attraction to Developers and Users of the Runes Protocol

Efforts to attract developers include:

1. Simplified token creation and management: Runes simplifies the process of token creation and management, making it easier for developers to launch their token projects while leveraging the Bitcoin infrastructure without getting bogged down in complex technical details.
2. Alignment with Bitcoin infrastructure: Runes is a new ecosystem within Bitcoin that aligns with the Bitcoin infrastructure, allowing developers to transact and interact on the existing Bitcoin network without worrying about compatibility issues.
3. Good compatibility and scalability: The Runes protocol, based on the UTXO model, reduces garbage UTXO inflation and has good compatibility and scalability, supporting more use cases and providing developers with broader development space.
4. Simple and user-friendly: The core Runes protocol is simplified to 500 lines of code, lowering the development threshold so that even developers with less technical background can easily get started and quickly realize their token projects.

Efforts to attract users include:

Free airdrop of projects to the Ordinals community, such as Runestone and Runes, which successfully attracted a large number of users’ attention and participation. This direct distribution of benefits greatly stimulates user interest and participation, especially in the NFT field.

Market Potential and Risk Assessment

1. Transaction fee issues: While the Runes protocol aims to improve user experience, Bitcoin transaction fees may become overly expensive for traders with limited funds, making it difficult for them to actively trade Runes.
2. Limited potential for BRC-20 alternatives.
3. Potential risks introduced by the Cenotaph model need to be further observed after the protocol is launched.
4. Ecosystem Diversification and Standardization Challenges: The Bitcoin ecosystem is evolving towards more diversification and innovation, but still faces challenges such as insufficient user experience, lack of security, and lack of unified standards.

Investment Opportunities

The Runes ecosystem provides investors with excellent opportunities to participate in the new ecosystem, with a focus on infrastructure and Memecoins, expected to perform strongly in both tracks. Investors can participate in the development of the Runes ecosystem by focusing on the following projects and selecting those with enduring strength and continuous growth potential.

Runestones (Memecoins)

1. Project Overview: OG project launched by LeonidasNFT, initially distributed as gifts to the Ordinals community, later transformed into a pioneer project in the “Pre-Runes” phase.
2. Development Trends: Runestone holders will receive 3 Runes meme airdrops, sparking community discussions and becoming a major catalyst for the community.

Runecoin (Memecoins)

1. Project Overview: Allows users to mine tokens at the launch of Runes, with 21,000 RSIC miners airdropped to over 9,000 wallets containing the Ordinals series.
2. Product: RSIC is currently traded over-the-counter at @WhalesMarket, with more exciting releases expected in the future.

Pups (Memecoins)

1. Project Overview: Currently in the Pre-Runes stage, with a supply of 10 million, of which 7.7 million tokens can be purchased on unisat_wallet or Jupiter Exchange.
2. Product: 2.3 million tokens will be airdropped to Rune Pup ordinal holders, with tokens being burned and redeemed at a ratio of 100:1 when the total market value of Runes reaches 1 billion.

RunesTerminal (Infrastructure)

1. Project Overview: Provides tools for token launch and distribution, including the RunesScan browser and launch board, aimed at enhancing accessibility to the Runes Token Standard for DeFi, NFT, and RWA.
2. Product: Includes Rune Scan, Rune Board, Rune Carver, and Rune Book, with the $RUNI token granting exclusive access to architectural features and investment opportunities within the Runes protocol.

Nervos CKB (Infrastructure)

1. Project Overview: Nervos CKB is the core component of the Nervos network, serving as a secure, decentralized, and scalable blockchain protocol designed to support more transactions and smart contracts, while achieving multi-asset support and a flexible state model.
2. Product: Some application cases based on CKB include decentralized exchanges (DEXs), stablecoin issuance, NFT markets, decentralized identity authentication, etc.

Conclusion

The Runes protocol represents a significant advancement in token standards on the Bitcoin network, with its innovative technological implementations and market potential being noteworthy. However, the potential updates to BRC-20 and the market’s acceptance of the new standard will be key factors influencing the success of Runes. As Bitcoin network technology continues to evolve, monitoring the Runes protocol and its contributions to the cryptocurrency ecosystem remains worthwhile.

Website: Frontier Lab

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