Introduction to Bitcoin Runes

Over the years, the Bitcoin ecosystem has continued to expand to include fungible tokens and non-fungible tokens (NFTs) in its network. This article will explore what the Bitcoin Rune Protocol is, how it works, its key differences from the BRC-20 token, and its potential advantages.

Introduction to Bitcoin Rune

Bitcoin Rune is a protocol that creates fungible tokens on the Bitcoin blockchain. Unlike BRC-20 and SRC-20 tokens that also run on the Bitcoin blockchain, Bitcoin Runes does not rely on the Ordinals protocol and is simpler and more efficient. They leverage established Bitcoin blockchain models such as the UTXO model and the OP_RETURN opcode.

How does Bitcoin Rune work?

The Bitcoin Rune Protocol operates based on two fundamental mechanisms of the Bitcoin blockchain, namely Bitcoin’s Unspent Transaction Output (UTXO) transaction model and the OP_RETURN opcode.

In the UTXO transaction model, the output generated by each transaction is regarded as an independent digital currency fragment. To initiate a transaction, these outputs are required as inputs. The UTXO model can be used to track every unit of cryptocurrency. In the case of Bitcoin runes, each UTXO can hold a different number or type of runes, simplifying token management.

OP_RETURN opcode allows users to append additional information to Bitcoin transactions. This opcode supports appending up to 80 bytes of additional data to an unspent transaction. Bitcoin Rune specifically uses the OP_RETURN opcode to store token data such as token name, ID, symbol, specific operation instructions, and other necessary data. This data is stored in Runestone in the Bitcoin transaction OP_RETURN opcode.

Etching and Minting Runes on Bitcoin

The process of creating new runes is called etching. Etching requires specifying a few key details, including the rune's name, symbol, ID, supply, divisibility, and other parameters. All this data is recorded in the OP_RETURN output of the blockchain transaction. During the etching process, creators can also choose to include "pre-mining," which allows them to obtain a certain number of etched runes before they become available to the public.

After the rune etching is completed, it can be cast by open or closed casting. When using the open casting method, anyone can create a casting transaction to generate new runes after the initial etching is completed. In contrast, closed minting only allows new tokens to be minted when predetermined conditions (such as a specific time period) are met, after which the minting process ends.

Comparison of Bitcoin Rune and BRC-20 Tokens

Operating Model

Bitcoin Rune operates based on Bitcoin’s Unspent Transaction Output (UTXO) model. In contrast, the BRC-20 token operates on the Bitcoin Ordinal Protocol, which attaches data directly to a single Satoshi (sat).

Token transfer

Bitcoin Rune uses a transfer mechanism where the transaction creates a new set of UTXO based on the data stored in the OP_RETURN field of the Bitcoin transaction. In contrast, BRC-20 token transfer requires the creation of a new inscription (Inscription) for each transaction.

Token Minting

Runes can be minted through an open or closed minting process, while developers also have the option of pre-mining. In contrast, BRC-20 tokens can only be minted through an open minting process, which limits flexibility in how the tokens are initially distributed.

Management

The Bitcoin Rune Protocol is compatible with the Bitcoin Lightning Network and supports both Lightning Network clients and Simple Payment Verification (SPV) wallets. In contrast, BRC-20 tokens are only available in wallets that support the ordinal protocol.

Advantages of Bitcoin Rune

Efficiency

Bitcoin Rune uses the OP_RETURN model, which provides a way to efficiently process tokens on the Bitcoin network, preventing the generation of unusable UTXOs and causing network congestion. The OP_RETURN opcode only takes up 80 bytes of data, while the BRC-20 inscription can take up to 4MB of data. This significant reduction in data usage helps reduce the load on the Bitcoin network, thereby improving its performance and reducing the risk of congestion.

Simple

Compared to other alternative protocols, Bitcoin Rune makes it easier to create and manage multiple fungible tokens directly on-chain. This process requires no off-chain data and no need to create native tokens, thus avoiding the generation of excessive “junk” UTXOs. This method simplifies the token management process and makes it easier for more users to use it.

Potential to expand user base

Ordinal Protocol and BRC-20 tokens have facilitated the creation of homogeneous meme coins, attracting more users to join the Bitcoin network. The launch of Bitcoin Runes has also piqued the interest of the cryptocurrency community and meme coin enthusiasts, especially around its April 2024 launch. While activity on the protocol has declined since its launch, it provides a new use case for Bitcoin that will hopefully attract more users in the future.

Conclusion

Bitcoin Rune is a protocol that creates fungible tokens on the Bitcoin blockchain. It leverages the UTXO model and OP_RETURN opcode to improve the efficiency of token processing on the Bitcoin network. Rune is expected to attract more users to Bitcoin, simplifying the creation of new tokens.

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