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

Rune Protocol Origins

Casey Rodarmor, the Father of Runes

Creator of Ordinals Protocol

Casey Rodarmor is the founder of the Bitcoin Ordinals protocol, which introduces new features to the Bitcoin blockchain, allowing users to write data directly on Satoshis, the smallest unit of Bitcoin, to create unique digital artwork 2627. The Ordinals protocol was launched by Casey Rodarmor on January 21, 2023, with the aim of adding additional functionality to the Bitcoin blockchain to "make Bitcoin fun again."

Proposer of Runes Protocol

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

Support for Fungible Tokens

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

Public speaking and community engagement

Casey Rodarmor not only contributes to the development of the technology, but also promotes his work through public speaking and participation in community activities. For example, he made a rare public appearance at the Ordinals Summit in Singapore, which showed that he is open to promoting the development of Bitcoin and its related technologies.

Through the creation of the Ordinals and Runes protocols, Casey Rodarmor not only promoted the development of Bitcoin technology, but also added new functions and possibilities to the Bitcoin ecosystem, especially making significant contributions in expanding Bitcoin's capabilities as programmable currency.

The success of continuous innovation

The Ordinals protocol focuses primarily on non-fungible digital assets, which limits 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 that 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 fungible token that is more suitable for trading.

Technical Implementation and Features

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

The goal of the Rune protocol is to establish a token standard on the Bitcoin network to make it easier to issue homogeneous tokens. The protocol adopts a native UTXO model to ensure that the network is not affected by transaction congestion. This design helps to reduce the pressure on the Bitcoin network and improve transaction efficiency. The Rune protocol aims to simplify the token issuance process and provides a different solution compared to the existing BRC20 token standard.

• Startup time and storage mechanism : The Rune Protocol is expected to be launched at the next Bitcoin halving event. The protocol expands Bitcoin's UTXO model, allowing the storage of Bitcoin and Rune balances in UTXOs, and using Bitcoin's security framework to ensure transaction security;
• Token naming and creation : The Rune Protocol has hard-coded runes (0-9) to ensure a fair launch. The length of the token name is initially set to more than 13 characters, which will be gradually reduced over time, and a commit-reveal mechanism is used to prevent front-running;
• Comparison with BRC-20 : Compared with the BRC-20 standard, Rune simplifies the steps in the token creation process and uses the OP_RETURN field instead of witness data;
• Runes support the deployment, minting, and transfer of tokens through the Runestones mechanism, improving network friendliness and reducing the accumulation of UTXOs.

The following table lists the main technical features of Runes and BRC-20s.

Interoperability and scalability of the Runes protocol and the Bitcoin ecosystem

From a technical perspective, the Runes protocol supports interoperability with Bitcoin’s second-layer solutions such as the Lightning Network and Statechain.

• Based on the UTXO model: The Runes protocol is based on the UTXO (Unspent Transaction Output) model and has good interoperability with Bitcoin L2 solutions (such as the Lightning Network) or state chains (such as MercuryLayer). The UTXO model is widely used in Bitcoin and similar cryptocurrencies, allowing transactions on the blockchain without directly modifying the balance, but by creating new outputs to transfer funds. The commonality of this model provides a basis for interaction between different protocols.
• Simplified UTXO model and efficient token transfer mechanism : The Runes protocol brings new power and expansion capabilities to the Bitcoin network through its simplified UTXO model and efficient token transfer mechanism.
• Application of state chain : MercuryLayer uses state chain and blind joint signature technology to promote instant and free transactions, providing a new method for Bitcoin scalability. The state chain allows UTXO to be transferred between parties without on-chain transactions, which is achieved between the original owner and the recipient through shared keys, thereby reducing transaction costs and increasing transaction speed.
• Maintenance of interoperability : Different L2 solutions, such as the Lightning Network, maintain interoperability by conforming to specific specifications, such as the BOLT specification. These specifications are developed by the community to ensure compatibility and seamless collaboration between different implementations. Recent tests have proven that the major implementations are fully interoperable and they can work together seamlessly.

The interoperability and scalability of the Runes protocol with Bitcoin L2s or statechain is achieved through a shared UTXO model, a simplified and efficient token transfer mechanism, and statechain technology, which promotes effective interaction between different protocols within the Bitcoin ecosystem and the scalability of the overall network.

Runes Protocol’s appeal to developers and users

Efforts to attract developers:

• Simplify token creation and management : Runes simplifies the token creation and management process, making it easier for developers to launch their own token projects while being able to leverage Bitcoin infrastructure and avoid being bogged down in complex technical details.
• Coordination with Bitcoin infrastructure : Runes is a new Bitcoin ecosystem that is consistent with Bitcoin infrastructure. Developers can use the existing Bitcoin network for transactions and interactions without worrying about compatibility issues.
• Good compatibility and scalability : The Runes protocol is based on the UTXO model, which reduces the expansion of junk UTXO. It has good compatibility and scalability, supports more application scenarios, and provides developers with a broader development space.
• Easy to use : The Runes core protocol is simplified to 500 lines of code, which lowers the development threshold, allowing even developers with a shallow technical background to easily get started and quickly implement their own token projects.

Efforts to attract users:

By airdropping projects such as Runestone and Runes to the Ordinals community for free, it has successfully attracted a large number of users' attention and participation. This direct way of distributing benefits has greatly stimulated user interest and participation, especially in the NFT field.

Market potential and risk assessment

1. Transaction Fee Issues : While the Rune Protocol aims to improve user experience, Bitcoin transaction fees may become too expensive for traders with smaller funds to actively trade Rune.
2. The alternative possibilities for BRC-20 are limited.
3. The 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 moving towards a more diversified and innovative direction, but it still faces problems such as insufficient user experience, insufficient security, and lack of unified standards.

Investment Opportunities

The Rune ecosystem provides investors with an excellent opportunity to participate in a new ecosystem, focusing on infrastructure and Memecoin, which are expected to perform strongly. Investors can participate in the development of the Rune ecosystem by paying attention to the following projects and choosing projects with lasting strength and continued growth potential.

Runestones (Memecoins)

• Project Overview: The OG project launched by LeonidasNFT was initially distributed as a gift to the Ordinals community and later transformed into a pioneer project in the “Pre-Runes” stage.
• Development trend: Rune holders will receive 3 rune meme airdrops, which will spark community discussion and become a major catalyst for the community.

Runecoin (Memecoins)

• Project Overview: Allowing users to mine tokens when Runes are launched, 21,000 RSIC miners were airdropped to over 9,000 wallets containing the Ordinals series.
• Products: RSIC is currently trading OTC on @WhalesMarket, with more exciting releases expected in the future.

Pups (Memecoins)

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

RunesTerminal (Infrastructure)

• Project Overview: Provides tools for token launch and distribution, including the RunesScan browser and launchpad, designed to enhance the accessibility of DeFi, NFT, and RWA to the Runes Token Standard.
• Products: Including Rune Scanners, Rune Tablets, Rune Scrivers, and Rune Books, $RUNI tokens grant exclusive access to architectural features and investment opportunities in the Runes Protocol.

Nervos CKB (Infrastructure)

• Project Overview: Nervos CKB is the core component of the Nervos network. As a secure, decentralized and scalable blockchain protocol, it aims to support more transactions and smart contracts while achieving multi-asset support and a flexible state model.
• Products: Some application cases based on CKB include decentralized exchanges (DEX), stablecoin issuance, NFT markets, decentralized identity authentication, etc.

Conclusion and Outlook

The Rune Protocol represents a major advancement in token standards on the Bitcoin network, and its innovative technical implementation and market potential are worthy of attention. However, the potential update of BRC-20 and the market's acceptance of the new standard will be key factors affecting the success of Rune. As Bitcoin network technology continues to develop, the Rune Protocol and its contribution to the cryptocurrency ecosystem are worth monitoring.

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