06 October What are the runes in Bitcoin?
in education
Bitcoin Runes are unique, fungible tokens found on the Bitcoin blockchain. They are designed to represent fungible assets with distinct characteristics and metadata. Casey Rodamor, the creator of the Ordinals Protocol, recently dropped a proposal to replace the BRC-20 fungible token protocol, known as Runes.
Deciphering the Bitcoin rune codes
In the burgeoning world of Bitcoin-based tokens, the Runes Protocol stands as a disruptive newcomer, with the potential to recalibrate the current dynamics of poorly implemented tokenization schemes on Bitcoin, which originated from Ordinals.
Runes were developed by Casey Rodarmor, creator of the Ordinals Protocol. Runes aims to provide a user-friendly UTXO-based alternative to existing encoding protocols such as Ordinals, ORC-20, BRC-20, and Stamps.
Runes are a completely new type of fungible token on the Bitcoin network. These tokens differ from existing alternatives in several ways. First of all, runes are native to Bitcoin's Unspent Transaction Output (UTXO) model. This reduces the creation of “junk” UTXOs, thus enabling more responsible UTXO management and a smaller on-chain footprint.
The Bitcoin blockchain is designed to serve as a simple and efficient ledger for transferring value through Bitcoin transactions. Introducing tokenization schemes such as Ordinals and Stamps can add additional data to this lean architecture, which can have ramifications for the scalability and performance of the blockchain.
Arrangements and stamps provide additional data on each transaction of which they are part. For example, the ordinal system “scores” Satoshi with additional information, and adds stamps “data points” to create digital artefacts. While each piece of data may be small, the overall impact can be large, especially if these coding methods are widely adopted.
In the case of stamps, the data is stored on-chain and cannot be pruned, meaning it takes up permanent space on the blockchain. This differs from other systems where additional data can be stored off-chain or trimmed to save space.
Designed for ease of use, Runes lack the complexity of implementation often found in other protocols, such as Ordinals, Stamps, or BRC-20 tokens. Runes herald many impactful changes in the Bitcoin token ecosystem. By adhering to Bitcoin's UTXO model, Runes offer a form of “damage reduction” by reducing unnecessary bloating of the UTXO pool, an important issue with existing protocols like BRC-20 and Stamps.
Its simpler design could attract more developer interest and engagement, which could accelerate innovation within the Bitcoin development community. A seamless user experience can attract more mainstream adoption as users don't need to deal with native codes or deal with off-chain complexities.
Ordinals, stamps, BRC-20's, runes, oh my!
What are ordinals and inscriptions?
Ordinals and Inscriptions offer a somewhat controversial method for creating NFTs within the Bitcoin network. They are mined for individual satoshis, the smallest unit of Bitcoin, with 100 million satoshis making up one Bitcoin. Through Ordinals, these Satoshis gain monetary significance and can be “tokenized” with any chosen content, forming token digital assets on the Bitcoin blockchain that can be bought or sold. Although this data is kept on-chain, its storage design allows for optional pruning.
Rankings, by giving individual Satoshis unique characteristics or “monetary value,” could jeopardize Bitcoin’s fungibility. In a fully replaceable asset, each unit is interchangeable with any other unit; In the case of Bitcoin, this means that one Satoshi must be identical to another. However, ordinalists differentiate satoshis with unique characteristics, which makes them distinct from each other.
This could create a market where some Satoshis are valued more than others due to their unique ranking patterns, thus breaking the inherent fungibility that is one of the core features of cryptocurrencies like Bitcoin. This move away from fungibility could lead to complications in the transaction process and could have a broader impact on how Bitcoin is used and valued.
What are stamps?
SRC-20 stamps and tokens share similarities with Ordinal Inscriptions and BRC-20 tokens, as all of these tokenization schemes use the Bitcoin blockchain to embed random data, thus creating unique Bitcoin digital items. However, stamps embed data into the Bitcoin blockchain that cannot be pruned.
This means that data is stored permanently on each full node, which contributes to the continuous increase in the size of the blockchain. The addition of data points by Stamps contributes to “blockchain inflation.” As more people use stamps to add additional data to transactions, the size of each block can increase, which could cause blocks to fill up faster and leave less space for financial transactions. Over time, this could make running a full node more complex and resource-intensive, thus centralizing the network and making it less accessible to ordinary users.
Additionally, SRC-20 tokens differ from ordinal-based BRC-20 tokens in that they do not leverage Segwit witness data; Instead, they are part of multi-signature transactions where the SRC-20 token information is contained within the space allocated for the other key's signature data.
What are BRC-20 tokens?
BRC-20 codes build on the concept of ordinals by adding an additional layer of complexity. Instead of just including a serial number on a single Satoshi, the BRC-20s use JSON (JavaScript Object Notation) to create the underlying token contracts for issuance. These tokens have a predefined width limit and show certain limitations when compared to other tokenization methods.
What are ORC-20 codes?
ORC-20 codes enhance the approach initially developed for BRC-20 codes. Like their predecessors, they use Segwit and JSON witness data but come with additional advanced features. ORC-20 tokens offer the flexibility of variable supply and can use the “mint” function to facilitate transfers between transactions, thus conserving block space.
What are runes and how do they differ?
Runes represent a new way of creating a fungible token protocol. Unlike existing protocols like BRC-20, Runes is based on UTXO, which means it integrates seamlessly with existing Bitcoin architecture while minimizing unnecessary outputs. Runes are uniquely identified balances contained within UTXOs (Unspent Transaction Outputs). Transactions involving runes have protocol-specific messages that are initiated by OP_RETURN outputs and additional data pushes.
This allows for flexible customization and transfer of rune credits, with invalid protocol messages resulting in runes being burned as collateral for future upgrades. Additionally, runes can be issued in specific human-readable symbols and hexadecimal configurations, and their issuance and transmission do not require the use of native symbols, making the protocol less complex and more user-friendly. Overall, runes provide a simpler and more intuitive way to transact with fungible tokens on the Bitcoin blockchain.
Will runes catch on or will they fade away like other symbolism fads?
The Runes Protocol is at a crossroads. On the one hand, it provides a simplified and efficient alternative to the BRC-20, with the potential to address the inefficient Bitcoin encoding issues introduced via the Ordinals. On the other hand, its rapid and reckless adoption carries with it the risk of long-term sustainability. Society must decide whether to prioritize thoughtful, scalable solutions or continue on a reckless path to make quick gains.
Runes represent a promising but controversial development in the field of Bitcoin meta-protocols. Its streamlined, efficient design stands in stark contrast to the shortcomings of the BRC-20, stamps, and ongoing debates within the Ordinals community. Runes promise to bring transaction fee revenue, developer interest, and more users to the Bitcoin network. The key question is whether Runes will provide scalability and sustainability in the long term.
For now, the Runes Protocol can either emerge as an innovative solution to token functionality and scalability or become another cautionary tale for hasty blockchain innovation. The responsibility now falls on the community to determine its fate.
The introduction of runes, ordinals, and stamps as new coding protocols on the Bitcoin blockchain raises questions about their necessity and efficiency, especially when compared to more established protocols like Counterparty and Omni Layer.
First, Counterparty and Omni Layer have already been used for a number of years, benefiting from community trust, real-world testing, and ongoing development. They are more mature protocols with larger user bases and support networks, making them more reliable choices for many developers and end users.
Second, complexity and user experience are important considerations. Runes, ordinals, and stamps offer new encoding mechanisms that may or may not offer any advantages over existing solutions. For example, a UTXO-based state model used in Runes may reduce “unwanted” UTXOs, but it introduces its own complexities and may not significantly improve the state models used at the counterparty or Omni Layer.
Third, introducing multiple different coding protocols can fragment developers' attention and resources. Each new protocol has its own characteristics, requiring time and effort to learn. This dilutes developers' mental engagement that could be focused on improving a smaller set of well-understood and widely used protocols.
Finally, one of the biggest challenges in blockchain technology is interoperability. The proliferation of multiple tokenization methods may further complicate the seamless exchange of tokens and assets across different protocols, or “layers,” of Bitcoin, hindering broader Bitcoin adoption.
In short, while runes, ordinals, and stamps offer interesting ways to encode on the Bitcoin blockchain, they may represent excessive effort that fragments the ecosystem, rather than a true improvement to existing, more elegant solutions.
