With the Bitcoin “halving” approaching, speculators are eagerly awaiting the launch of Runes. While it has attracted a lot of attention on CT, there has also been a lot of confusion and misdirection surrounding this new token standard. The confusion was even exacerbated by the use of “Rune” in the name and token by unrelated protocols.
To avoid misleading, we’ve done a brief combing.
What are Runes?
As the developer of Ordinal Theory, Casey Rodarmor is building Bitcoin’s fungible token standard, the Runes protocol. As a meta-protocol, the Runes protocol is not a token per se, as Casey put it on the podcast, “where people create shitcoins on Bitcoin.”
Tokens created using this token standard are known as Runes. Unlike BRC-20, Runes is a fungible token standard, that is, each Runes is interchangeable. The Runes token standard is similar to the ERC-20 token on Ethereum, but simpler.
overview
The rune protocol will be launched on April 19 at the halving block
Rune balances are stored in Bitcoin UTXOs
The Runes protocol employs Bitcoin’s security framework, extending UTXOs to store Bitcoin and Rune balances. As a result, users can create and trade runes through regular Bitcoin transactions.
- Runes 0-9 are hardcoded to ensure fair distribution
This is an important nuance. Many protocols are scrambling to launch their own Rune tokens, either through a creative gamification model or through enticing airdrop promises. Be cautious of fake marketing that claims to be the first Runecoin project, as they will at best secure and etch the 11th rune.
The Genesis Rune, known as Rune 0, will be minted from this halving until the next halving in about 4 years. Each coin receives one genesis rune with zero divisible.
- Initially, only 13 or more characters could be used as rune names
Approximately every 4 months, the rune name is reduced by one character. The maximum length of the name is 28 characters. In addition, in order to prevent “front-running”, the agreement adopts a “submit before disclose” scheme. The unlocking schedule for the token name can be found here. In conclusion, mentally prepare for the crazy token names:
- Use the OP_Return field to create runes
This makes each rune name unique. In addition, each token will have a single Unicode code point as the currency symbol.
Can Runes replace BRC-20?
With a total market capitalization of $2.65 billion, the BRC-20 token has a sizable market size in the Bitcoin market. And the narrative about runes is largely driven by speculators who believe runes will replace BRC-20 as the new widely used token standard on Bitcoin.
Are runes a better token standard?
As we highlighted in our deep dive into Ordinals and Runes, the differences between the two are pretty clear:
Instead of using witness data, Runes utilizes OP_RETURN fields to simplify the process of creating tokens. Users can etch (deploy), mint, and transfer runes through Runestones, making regular Bitcoin transactions possible.
Runestones are rune protocol information that stores transfer instructions in Bitcoin’s unspent transaction output (UTXO). These transfer instructions determine how the runes are transferred in the output, such as the destination address and the amount transferred. By default, the rune balance on the input UTXO is destroyed when transferred to the new UTXO.
This approach is more network-friendly than the BRC-20 standard, which currently generates a large number of unused UTXOs, cluttering the network. Another disadvantage of BRC-20 is that a new inscription must be created for each token transfer.
In addition, the creation of runes is also more flexible. They can be open-minted, fairly distributed, and users can choose to mint their entire supply to a single address (like ERC-20). The BRC-20, on the other hand, is limited to open minting.
What’s more, the BRC-20 inscription is more likely to encounter “front-running”. This is because anyone can see inscription transactions in the mempool and then execute them early by paying higher transaction fees, which is bound to be a nuisance for trying to deploy new tokens. In contrast, Runes tries to use a “submit before you disclose” approach to prevent front-running. At a higher level, it’s okay for users to commit to transactions privately. Disclosing details only shortly before confirmation can greatly reduce the window of time for front-running.
Finally, Runes supports Bitcoin L2 compatibility with SPV wallets and using the UTXO model. So, theoretically, it’s possible to use a lightweight wallet and integrate with the Lightning Network for faster and cheaper transactions. The emphasis on “theoretical” is because while interoperability already exists, the infrastructure must be developed first.
Some FUD
In theory, Runes solves many of the problems with the BRC-20 in terms of user experience and compatibility. However, I am cautious about the opinion that the Runes will indisputably replace the BRC-20.
To implement protocol upgrades and ensure that clients stay in sync, Casey incorporated what he calls the Cenotaph model into the Runes protocol. Cenotaphs are deformed runestones created by bad input. When included in a transaction, the runes associated with Cenotaphs are destroyed or rendered unusable.
This is one of the points of contention, as it carries the risk of inadvertently losing runes. For example, if you interact with an app that creates rune trades and it accidentally generates a Cenotaph, you could lose all the runes stored in the same UTXO.
It’s hard to say until the protocol goes live, but users need to keep that in mind. Casey has mentioned these issues in this thread – TLDR: In his opinion, the risk is negligible. Regardless of its importance, avoiding untested third-party services after Runes launches is a great way to minimize risk.
Also, there have been rumors on Twitter recently that the BRC-20 may get an update soon. It is said that the BRC-20 indexer will be able to calculate the EVM smart contract code on the token balance. If the rumors are true, many of the current design issues will be solved, making the BRC-20 more competitive than the Runes. However, it is important to note that this is just a rumor and should be treated with caution.
At the end of the day, Runes’ success depends on the user experience. If it can be quickly integrated and take advantage of Runes’ wide compatibility, it could potentially replace the BRC-20.
If you’re interested in getting a little bit of touch before Runes goes live, check out Haze’s insightful analysis of $PUPs. For more information on the technology, I highly recommend checking out the official documentation and listening to Casey’s podcast about the product launch.
A roundup of Redphone
Finally, a special thank you to Redphone, who first came up with the BRC-20 concept, for sharing his thoughts on Runes below:
- Unless BRC-20 continues to evolve, Runes is likely to become the mainstream token standard for Bitcoin.
- Runes are more efficient.
- Runes stores token balances in UTXOs, which shifts trust from the indexer level back to the Bitcoin blockchain. This in itself is a huge victory.
- Since Runes is located in a UTXO, it’s easier to integrate with L2, cross-chain bridges, and other DeFi applications.
- If Runes can fit into the Lightning Network, the Lightning Network will be completely new. Can you imagine a Runes-based stablecoin running on the Lightning Network? Coinbase is already working hard to support the Lightning Network. Maybe one day, we can directly refer the shitcoin on Bitcoin to the lightning wallet.
- Runes expands the token issuance mechanism. Unlike the BRC-20, it is not limited to fair distribution. And this helps drive more adoption, as fair distribution makes it difficult for contributors to be consistent over a certain period of time.
- Casey Rodarmor is definitely a master at gamifying protocol releases. For example, when ordinals were introduced, he gave each Satoshi represented by numbers a corresponding name in alphabetical terms (learn more about the naming of Sats). He also created rarity levels for each type of Sats (leading to the “Sat Gold Digger” craze in Sat collectibles). Likewise, he gamified the rollout of runes by gradually allowing the use of shorter names. Initially, each token name must be 13 characters or longer. Approximately every four months, new rune names can be shortened by 1 character. It’s a magically progressive evolution of the Runes protocol that continues to attract attention. This approach can be borrowed from all the protocol designers in the world.
- Combining the launch of Runes with the Bitcoin halving is another clever marketing move/gamification by Rodarmor. Normally, I would expect the Bitcoin halving itself. Now, I’m pretty much looking forward to Runes exclusively.
- Many BRC-20s will bridge to Runes (perhaps by destroying “teleburns” remotely?)
- The BRC-20 has a cult fan base, and its ecosystem will grow. But in which direction, I’m not sure. As we mentioned above, there are rumors that the BRC-20 indexer may soon be able to calculate EVM smart contract code on token balances. This will greatly improve their performance and rival Runes, and possibly even surpass any innovation on Bitcoin Core.
- It’s perfectly fine for multiple token standards to coexist. What’s more important is what you can do with these tokens. Many BRC-20 tokens have already made their way to centralized exchanges. In my opinion, this has proven its sustainability.
- Bitcoin is too slow for native shitcoins. This means that the Bitcoin L2 war will be one of the biggest opportunities in the crypto space. I’d love to see ordinals (and BRC-20) indexers win this battle by launching tokenized L2 networks. Regardless, in the coming months and years, we’re going to see a groundbreaking L2 ecosystem, and I think Runes will be a key part of that story.
Finally, I, including Redphone, am a fan of runes and BRC-20. Both may continue to thrive in the short term, but the BRC-20 must continue to evolve to not be obsolete.
Aside from runes, I prefer Rodarmor’s creativity. From the moment I first came into contact with Ordinals, I saw him as an innovator in the crypto world, one of those visionaries who went down in history…… For example, Hal Finney, the first Bitcoin contributor, Vitalik Buterin, Ethereum co-founder, Hayden Adams, Uniswap founder, etc. The successful launch of Runes will only be the icing on the cake for Rodarmor. He’s changed the fate of this orange coin, and Runes looks ready to change again.