2024-04-23
Runes, a revolutionary fungible token protocol for Bitcoin (BTC), was launched on April 20, 2024, coinciding with the fourth halving event of the Bitcoin blockchain.
Runes carries high expectations, particularly in its potential to drive the Bitcoin decentralized finance (DeFi) ecosystem in the near future.
This token protocol enables the creation of UTXO-based fungible tokens on the Bitcoin blockchain, surpassing the complexities and non-UTXO design of the widely used BRC-20 token standard.
Casey Rodsrmor, the creator of Runes, developed this protocol in September 2023. Rodarmor is also known for his contribution to Bitcoin through the Ordinals theory, which facilitated the creation of non-fungible tokens (NFTs) on the Bitcoin blockchain in December 2022.
To comprehend the significance of Runes, it is essential to delve into the history of Bitcoin.
When Satoshi Nakamoto, the pseudonymous creator, unveiled the Bitcoin white paper in 2008, it outlined a vision of a peer-to-peer (P2P) payment system free from centralized intermediaries.
Even today, a significant faction within the Bitcoin community strongly advocates for adhering to the original vision of Bitcoin as a decentralized P2P payment network.
The introduction of the Ordinals theory in December 2022 expanded the capabilities of Bitcoin by allowing the creation of NFTs on the blockchain.
Ordinals NFTs gained immense popularity, with weekly NFT sales on Bitcoin surpassing those on prominent NFT platforms like Ethereum (ETH) and Solana (SOL). Additionally, the introduction of BRC-20 tokens, equivalent to ERC-20 tokens, further enriched the Bitcoin blockchain.
Beyond creating a flourishing industry atop the Bitcoin blockchain, Ordinals demonstrated its potential in sustaining the security of Bitcoin by augmenting miner revenue.
Bitcoin operates on the principle of halving, reducing block rewards by half every four years. The final halving is expected to occur in 2140, after which no new Bitcoin will be rewarded to miners. Consequently, miners will solely rely on transaction fees for revenue.
Not everyone embraced the emergence of Ordinals.
Critics lambasted Ordinals for deviating from Bitcoin's original mission, while others highlighted the impact on blockchain bloat, slower transaction times, and spikes in gas fees.
The notion of an improved token protocol initially left Rodarmor, the creator of Ordinals, uncertain.
He expressed his reservations, stating, "I'm not sure creating a new fungible token protocol for Bitcoin is a good idea. Fungible tokens are 99.9% scams and memes. However, they don't appear to be going away any time soon, similar to the way in which casinos don't appear to be going away any time soon. Creating a good fungible token protocol for Bitcoin might bring significant transaction fee revenue, developer mindshare, and users to Bitcoin."
On September 25, 2023, Rodarmor introduced the world to the Runes token protocol.
Runes was designed to be easily implementable, seamlessly integrated into the Bitcoin blockchain, and minimize on-chain footprint.
The main enhancements of the Runes token protocol, as identified by Franklin Templeton Digital Assets, include:
1. Prevention of the creation of "junk" UTXOs that can bloat the Bitcoin network and drive up gas fees.
2. Independence from off-chain data.
3. Elimination of the need for an additional native token.
4. Compatibility with Bitcoin scaling solutions like the Lightning Network.
5. Enhanced privacy through the concealment of data within UTXOs.
To understand the UTXO model utilized by Bitcoin to track user balances, a brief overview is warranted.
Bitcoin operates on the UTXO model, distinct from the account models employed by Ethereum and many other blockchain networks.
The account model is straightforward, resembling a traditional bank account that records incoming and outgoing funds.
In contrast, the UTXO model is more intricate. It tracks the unspent amount of a Bitcoin transaction.
For instance:
1. Alice possesses 5 BTC.
2. She sends 3 BTC to Bob.
3. Bob receives a UTXO worth 3 BTC.
4. Subsequently, Bob receives another UTXO worth 5 BTC from Chad.
5. Ultimately, Bob owns two UTXOs, enabling him to spend 8 BTC.
According to Alchemy, a crypto company, each UTXO carries a hard-programmed code called a script. This script contains conditions, such as digital signatures, that determine when the UTXO can be unlocked for further spending.
