RUNES: WHAT ARE THEY? A GUIDE FOR BEGINNERS (UPDATED APRIL 2024)
With the release of Ordinals in 2023, bitcoin-native assets gained traction. This momentum is expected to continue in April 2024 with the launch of the Runes Protocol.
You will discover more about Bitcoin Runes tokens and their potential effects on the Bitcoin ecosystem in this guide.
QUIZ: WHAT IS THE BTC RUNES PROTOCOL?
In order to provide users with a more effective means of producing fungible tokens, the Runes protocol is a token standard for issuing fungible tokens on Bitcoin.
Runes are scheduled to go live on block 840,000 in April 2024, just around the time of the impending Bitcoin halving.
Who Was the Runes Protocol Author?
In September 2023, Casey Rodarmor, a developer of Bitcoin, presented the Runes protocol as an enhanced token standard for the production of fungible assets on Bitcoin.
Since then, he has been working on the protocol in order to have it ready for launch in April 2024. A well-known developer in the cryptocurrency field is Rodarmor. He is the author of the Ordinals Protocol, which has been utilized by developers to create several token standards for the issuing of native assets on Bitcoin.
Despite not having launched on the Bitcoin mainnet yet, a few developers have already begun developing applications based on the Runes protocol. PipeBTC, RSIC, and Runealpha are a few of these initiatives.
Why Did Someone Develop the Runes Protocol?
Runes is a straightforward protocol with a small on-chain footprint and conscientious UTXO management, according to Rodarmor’s blog post.
Unspent Transaction Outputs, or UTXOs for short, are discrete Bitcoin values linked to particular addresses on the blockchain that stand for money that hasn’t been spent yet but can be used as inputs for fresh transactions.
Runes is not the same as the complicated, non-UTXO-based BRC-20 token standard. Due to the latter feature, the BRC-20 token standard generates an excessive number of trash UTXOs, which clog the Bitcoin network.
The less effective BRC-20 token standard, which is based on Ordinals, is intended to be replaced with Runes.
In addition, the Runes protocol aims to outperform other currently running Bitcoin fungible token technologies, such as Taproot Assets and RGB. Some choices depend on off-chain.
For example, Taproot Assets keeps its asset metadata off-chain, separating the asset data from the Bitcoin core. However, in order to function, solutions like Counterparty and Omni Layer require a native token. To put it briefly, Rodarmor feels that these problems make the current protocols difficult to use and unwieldy.
HOW ARE RUNES PROTOCOL FUNCTIONAL?
Let’s start with an overview of the Runes protocol’s operation.
Overview
Bitcoin, which also makes use of UTXOs, naturally integrates with the Runes UTXO-based paradigm. By doing this, the production of useless UTXOs—which might choke the network—is reduced.
A specific amount of Bitcoin that you haven’t yet used is known as a UTXO, and it can be used to make another payment. This is an output from a prior Bitcoin transaction that can be spent up until it’s utilized as an input for a different transaction.
A protocol message that uses OP_RETURN to specify the output, ID, and amount is used to assign a Rune to a UTXO.
On Bitcoin, OP_RETURN is a special function for data storage. Because OP_RETURN outputs are demonstrably unspendable, they do not clog the UTXO set.
The rune’s ID is its numerical identification, and the output indicates the output index where the rune token will be received. The quantity specifies the number of Rune tokens that will be sent.
A single OP_RETURN output is used in a transaction to encode all rune messages, including those pertaining to transferring or producing new runes (etching). Divisibility, rune name, and additional metadata are contained in the same transaction’s OP_RETURN.
A single UTXO contains all of a rune’s token supply. Because the amount being supplied or transferred is an unsigned 128-bit integer, the maximum value is 34028236692093846
3463374607431768211455. A rune’s “divisibility” is the maximum number of decimals it can include. 38 is the maximum. There are thus this many decimals in the human-readable maximum supply, for example, eighteen decimal places.
UTXOs are used to track the balances of Runes tokens. Interestingly, the Runes protocol doesn’t link the balance record of a token to a wallet address but holds it within a UTXO.
Runes are transferred with a bitcoin transaction with an OP_RETURN output that specifies what amounts of runes from inputs go to what UTXOs.
