Interpretation of Rune Protocol: It will be launched on the 19th when it is halved, betting on its possibility of replacing BRC-20

With the halving approaching, speculators are eagerly awaiting the launch of Runes. Rune has attracted a lot of attention on cryptocurrency social platforms, with a lot of confusion and misinformation surrounding this new token standard. Adding to the confusion is the fact that many unrelated protocols have implemented “Rune” in their names and tokens.

Now, let us explain.

What are runes?

Casey Rodarmor, the developer behind Ordinal, is building another novel innovation - a Bitcoin fungible token standard called Runes Protocol. As a meta-protocol, Rune Protocol is not a token per se, but is, to quote Casey in his podcast, “a place for people to create shitcoins on Bitcoin.”

Tokens created using this token standard are called runes. Unlike BRC-20, Runes are a fungible token standard, meaning each rune is interchangeable. The best analogy here is ERC-20 tokens on Ethereum. The Rune Token standard is similar but simpler and was created for the Bitcoin network.

High Level Overview

• Rune Protocol and Rune are launched in the halving block (approximately April 19th)

• Rune balances are stored in Bitcoin UTXOs

The Rune protocol extends UTXOs, adopting Bitcoin’s security framework to store Bitcoin and Rune balances. Therefore, users can create and trade runes through ordinary Bitcoin transactions.

• Runes 0-9 are hardcoded to guarantee fair launch

Many protocols are scrambling to launch their own rune tokens and Use creative gamification patterns and hopeful airdrops. Be wary of false marketing from projects claiming to be the first rune tokens, the best they can do is secure and engrave the 11th rune.

The Genesis Rune, Rune 0, will be open to minting at the beginning of this halving and will end in approximately the next 4 years. Each coin receives a Genesis Rune with zero divisibility.

• Initially, only 13 or more characters are available as rune names

Approximately every 4 months, one with fewer characters The token name will be available. The maximum length of the name is 28 characters. To prevent the frontend from running, a "submit-reveal" scheme was implemented. The unlocking schedule for the token name can be found here. Anyway, get ready for crazy token names:

• OP_Return field is used to create runes

This makes each rune name unique. Additionally, each coin will have a Unicode code point as the currency symbol.

Will Rune replace BRC-20?

BRC-20 has a total market capitalization of US$2.65 billion and has a huge market size on Bitcoin. Rune’s narrative is largely driven by speculators who are betting that Rune will replace BRC-20 and become the new widely used token standard on Bitcoin.

Are runes a superior token standard?

The differences between the two are clear, as we highlighted in our in-depth look at Ordinals and Runes:

Runes Instead of using witness data, the OP_RETURN field simplifies the process of creating tokens. Users can carve (deploy), mint, and transfer runes, making regular Bitcoin transactions possible.

Runestones are a type of Runestone protocol message that stores transfer instructions in Bitcoin’s unspent transaction output, or UTXO for short. These transfer instructions determine how the runes are transferred within the output, such as the destination address and the transfer amount. By default, rune balances on input UTXOs are destroyed when transferred to a new UTXO.

This is more network friendly than the BRC-20 standard, which currently creates many unused UTXOs, cluttering the network. Another disadvantage of BRC-20 is that a new inscription must be created every time a token is transferred.

The creation of runes is also more flexible. They can feature open minting, fair distribution, and users can also choose to mint the entire supply to a single address (just like ERC-20). BRC-20, on the other hand, is limited to open minting.

More importantly, the BRC-20's inscription is more susceptible to preemption. This is because anyone can see your Inscription transaction in the mempool and decide to front-run it by paying higher transaction fees - especially frustrating when trying to deploy new tokens. Instead, Rune attempts to prevent frontrunning by using a "submit-reveal" scheme. At a high level, this allows users to privately commit to transactions. Details were only revealed shortly before confirmation, significantly shortening the early access window.

Finally, Rune supports compatibility with SPV wallets and Bitcoin L2 using the UTXO model. Therefore, implementation with lightweight wallets and integration with the Lightning Network are theoretically possible for faster and cheaper transactions. It is worth emphasizing that while interoperability exists, the corresponding infrastructure must first be developed.

Some FUD

On paper, the Rune solves many of the problems the BRC-20 faced in terms of user experience and compatibility. However, I am cautious about thinking that the Rune will unquestionably replace the BRC-20.

To enable protocol upgrades and ensure clients stay in sync, Casey added what he calls the Cenotaphs model to the Rune Protocol. Cenotaphs are misshapen Runestones created from incorrect input. When included in a trade, runes associated with Cenotaphs will be destroyed or become unavailable.

This is a controversial point as it brings the risk of accidental loss of runes. For example, if you interact with an application that creates rune transactions and it accidentally generates a Cenotaphs, you may lose all rune balances stored in the same UTXO.

Is this a serious or trivial risk? It's hard to tell until the protocol is launched, but it's something to keep in mind. Casey addresses these issues in this post, in short: In his view, the risks are trivial. Regardless of its importance, avoiding third-party services that have not been tested since Rune's launch is a good way to reduce your risk.

By the way, there was a rumor 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 this proves true, many current design issues may be resolved, making the BRC-20 more competitive with the Rune. Again, this is just a rumor and should be taken with a grain of salt.

Ultimately, the success of Runes will depend on the user experience. If Rune's broad compatibility is quickly integrated and exploited, the chances of replacing the BRC-20 could be great.

Redphone’s Summary

Special thanks to Redphone, who first proposed the concept of the BRC-20 and shared his thoughts on Rune below:

• Unless BRC-20 develops, Runes may become the dominant token standard on Bitcoin.

• Runes are more efficient.

• Rune stores token balances in UTXOs, transferring trust from the indexer level to the Bitcoin blockchain. This alone is a huge victory.

• Since they exist in the UTXO set, Runes should be easier to integrate with L2, bridging, and other DeFi applications.

• If runes make it into the Lightning Network, the Lightning Network will never be the same. Can you imagine running a rune-based stablecoin there? Currently, Coinbase is working on supporting the Lightning Network. Maybe one day we will be able to withdraw our Bitcoins directly into a Lightning wallet.

• Rune extends the token firing mechanism. Unlike the BRC-20, it is not limited to fair launches. This will drive more adoption as fair launch makes it difficult to align contributors for any sustained period of time.

• In another life, Casey Rodarmor was a game designer. I say this because he is an absolute master at gamifying protocol launches. For example, with the introduction of Ordinals, he gave each numerical Satoshi a corresponding alphabetical name. He also created rarity levels for each type of satoshi (starting an entire sub-industry known as "sat panners"). Similarly, he's gamifying the rollout of runes by gradually allowing shorter names. Initially, each token name must be at least 13 characters. Approximately every four months, new token names can be shortened by 1 character. It's a fantastic, progressive evolution of Rune Protocol that will attract continued attention. Every protocol designer in the world can learn something from his approach.

• Coupling the launch of Runes with Bitcoin’s halving is another brilliant marketing move from Rodarmor. Normally, what I look forward to is the halving itself. Now, I'm almost entirely looking forward to Runes.

• Many BRC-20s will transition to Rune and survive in new forms.

• Despite this, BRC-20 has ardent fans and the BRC ecosystem will grow. I'm not sure where it's going to go. As we mentioned above, there are rumors that the BRC-20 indexer will soon be able to calculate EVM smart contract code on token balances. This would make them significantly more competitive with Rune, and perhaps even surpass any innovation being built on Bitcoin Core.

• It is perfectly acceptable to have many coexisting token standards. What’s more important is what you can do with the tokens. BRC-20 has been integrated into centralized exchanges. This to me is a testament to their longevity.

• Bitcoin is developing too slowly for native junk coins to enter the true promised land. This means that the competition between Bitcoin L2 is one of the biggest opportunities in cryptocurrencies. I would like to see Ordinals (and BRC-20) indexers win this battle by launching a tokenized L2 network. Regardless, we're going to see a groundbreaking L2 ecosystem in the coming months and years, and I imagine Runes will be one of the key parts of that story.

All in all, I am a fan of Rune and the BRC-20. In the short term, both will likely continue to thrive, but the BRC-20 must evolve to avoid being replaced over time.

In addition to runes, I like Rodarmor's creativity even more. From the moment I first encountered Ordinals, I viewed him as one of the biggest names in cryptocurrency, visionaries who have gone down in history like Hal Finney, the first Bitcoin contributor, and Vitalik, the co-founder of Ethereum. Buterin, Uniswap founder Hayden Adams and others. The successful release of Rune is just the icing on the cake for Rodarmor.

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