Rodarmor announces “Runes Protocol” to compete with BRC-20.

Rodarmor announces "Runes Protocol" to compete with BRC-20.

Exploring the Runes Protocol: The Future of Fungible Tokens on Bitcoin

Introduction

The blockchain industry is constantly evolving, and innovators are always looking for new ways to improve the technology. One such figure, Casey Rodarmor, the creator of Bitcoin Ordinals, has recently introduced a new protocol called “Runes.” This alternative fungible token protocol on Bitcoin aims to mitigate certain challenges faced by existing protocols and provide significant user experience benefits. In this article, we will delve into the concept of Runes, its unique features, and its potential impact on the blockchain industry.

What Are Runes?

Runes is a fungible token protocol designed specifically for Bitcoin. It offers an alternative to existing protocols such as BRC-20, Taproot Assets, RGB, Counterparty, and Omni Layer. Unlike these protocols, which either operate off-chain or are address-based, Runes takes a different approach.

Traditional off-chain fungible token protocols require users to reconcile off-chain data with the blockchain, leading to a cumbersome user experience. Address-based protocols don’t align well with Bitcoin’s UTXO-based approach, which further complicates matters for end users.

This is where the magic of the Runes protocol comes into play. Instead of linking balance records to wallet addresses, Runes stores records in UTXOs (Unspent Transaction Outputs) themselves. Each new Rune starts with an issuance transaction, specifying supply, symbol, and number of decimals, and assigns it to a specific UTXO. The UTXOs are effectively used to keep track of balances.

To transfer Runes, a transfer function splits the UTXO into multiple new UTXOs of varying sizes, each containing different amounts of Runes. For example, a single UTXO with ten thousand satoshis can hold a million Runes. If you want to send 100k Runes to two friends, you simply create a transaction that splits the UTXO into three new UTXOs: two with 100k Runes each for your friends and one with 800k Runes for yourself.

The Return of OP_RETURN

In the Runes protocol, Casey Rodarmor chose to use the OP_RETURN opcode instead of the Witness part of the transaction, as he did with the Ordinals protocol. This decision was driven by the complexity that using the Witness could introduce, particularly in terms of swaps and partially signed Bitcoin transactions (PSBTs).

With the OP_RETURN approach, Runes and Ordinals are separate entities. While this simplifies development, it also means that Runes cannot take advantage of the existing user base and decentralization of Ordinals. However, if Runes gain significant popularity, they may attract current BRC-20 Ord node runners to switch to Runes, as BRC-20 tokens currently dominate in terms of volume.

UTXO-Based Fungible Token Tracking

The key advantage of the Runes protocol lies in its UTXO-based approach to fungible token tracking. By storing records within UTXOs themselves, Runes enable a simpler and clearer way of managing balances. This approach also allows for easy compatibility with Lightning and DLCs (Discreet Log Contracts).

In this regard, Runes have a significant edge over BRC-20 tokens, as they can seamlessly integrate with multisig wallet configurations and settle balances with a diverse set of parties. This compatibility enhances the potential use cases of Runes and introduces Lightning Network users and developers to the protocol.

Standardness Rules Are For B*tches

One challenge faced by Runes is the potential violation of Bitcoin Core’s “standardness” rules. Some transactions involving Runes may exceed the limit of 80 bytes for OP_RETURNs or use multiple data pushes, rendering them non-standard according to Bitcoin Core’s rules. However, it is important to note that these rules only dictate what the vanilla Bitcoin Core will relay once a transaction is broadcasted, not what can be included in a block. If miners can earn fees from Runes, there is no technical limitation preventing them from including larger OP_RETURN transactions in blocks.

Benefits to Bitcoin

While Casey Rodarmor expresses his disdain for the majority of fungible tokens, regarding them as scams and memes, he acknowledges their presence in the industry. Instead of expecting their disappearance, he proposes a different approach. Runes, designed to have a minimal on-chain footprint and promote conscientious UTXO management, can contribute fees to fortify Bitcoin. This would attract more users and developers who are currently focused on other blockchains, creating a mutually beneficial ecosystem.

The Ordinals Community Goes Wild

After Casey unveiled the Runes protocol, the excitement within the Ordinals community was palpable. Despite Casey’s initial portrayal of Runes as a “terrible idea” and an “unfinished concept,” independent developers quickly embraced it. Within hours, the first Rune token, $RUNE, was issued and confirmed in a Bitcoin block. This rapid implementation, rarely witnessed in the blockchain world, showcases the enthusiasm surrounding the potential of Runes and its impact on the industry.

Conclusion

The introduction of the Runes protocol signals an exciting development in the blockchain industry. Casey Rodarmor’s innovative approach to fungible tokens on Bitcoin offers a unique alternative to existing protocols. By leveraging UTXOs for balance tracking and ensuring compatibility with Lightning and DLCs, Runes brings simplicity, efficiency, and new use cases to the world of fungible tokens. While there are technical challenges to overcome and the protocol is still in its early stages, the enthusiasm from the Ordinals community indicates a promising future for Runes. As the blockchain industry continues to evolve, Runes may well be an important piece in the ever-expanding puzzle of blockchain technology.

Note: This is a guest post by Trevor Owens. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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