Background

On April 20, 2024, Bitcoin completed its fourth halving, and the Rune Protocol was officially launched. The Rune Protocol introduced a new interchangeable token standard to the Bitcoin network, aiming to enhance the functionality of issuing interchangeable tokens on Bitcoin while maintaining the principles of decentralization and security.

During this Bitcoin halving, ViaBTC mining pool mined the 840,000th block marking the beginning of the fourth halving, and users spent a total of 37.7 BTC in fees on this block, equivalent to more than $2.4 million. Although the miner reward was reduced from 6.25 BTC per block to 3.125 BTC, the market still generated high fees due to FOMO about the launch of Runes Protocol.

What is Rune Protocol

Rune Protocol was founded by Casey Rodarmor, also the creator of Ordinals Protocol. Rune represents a major breakthrough in the evolution of Bitcoin, introducing a new protocol for fungible tokens that leverages unique aspects of Bitcoin's architecture. Unlike previous token standards that often relied on complex approaches, Rune simplifies the process, making it more accessible and efficient.

The Rune Protocol on Bitcoin is a system for creating and managing fungible tokens on the Bitcoin blockchain that leverages UTXO technology. This approach allows data to be embedded directly into Bitcoin transactions, making the process more efficient and resource-friendly. Unlike traditional methods, which can increase the size and complexity of the blockchain, the Rune Protocol minimizes space usage by using OP_RETURNs of up to 80 bytes, helping to reduce pressure on the network while ensuring transaction integrity.

How it works

The Rune protocol adopts Bitcoin's existing UTXO model without using the traditional account-based approach. Each transaction involves outputs from previous transactions as inputs, and creating new outputs can be tracked through UTXOs. This model helps track token balances and ensure that tokens are not double-spent. Specifically, Runes uses the OP_RETURN output in Bitcoin transactions to include token information, including token ID, supply, and transaction details, while not affecting the spendability of the output and not bloating the Bitcoin network. We can divide Runes into several links such as token definition, minting, and transfer:

Token definition (Etching), which involves setting specific token properties such as name, divisibility, supply, pre-mine portion, minting start and end times, etc.

Token minting (Mint, minting), if the Runes token meets the minting requirements, such as reaching the minting height, the public minting part is not minted, etc., the user can mint it for free, similar to BRC-20 minting.

Token transfer (Edicts), when Runes tokens need to be transferred, the UTXO representing the Runes needs to be used as input, and the amount to be transferred is written in the OP_RETURN field of the transaction. The target address of the transfer will be designated as the new UTXO, and the remaining Runes tokens will continue to be bound to other UTXOs. During the transfer process, if the number of Runes transferred out is less than the number in the UTXO representing the Runes, the remaining Runes will be automatically allocated to other UTXOs.

Difference between Rune and BRC-20

BRC-20 is a relatively mature token standard that has established a solid foundation in the Bitcoin ecosystem. However, the criticisms faced by BRC-20 mainly focus on network efficiency issues. The popularity of BRC-20 easily leads to network data expansion, making the operation of full nodes more expensive and complicated. In contrast, Runes introduces a new concept that attempts to bring a more efficient and compatible token solution to the Bitcoin network by utilizing the UTXO model and OP_RETURN data.

Technically, BRC-20 mainly puts the token data into the signature part of the isolated witness and associates this data with a specific number of Bitcoins (satoshis). Since Bitcoin is only used as a data storage medium, BRC-20 relies on the off-chain indexer and needs to identify and record related inscription transactions; and BRC-20 adopts an account model. When transferring tokens, the indexer calculates and confirms the token balance of each account to ensure the accuracy of the transaction. Although Runes still requires an indexer to identify the data contained in OP_RETURN, it is strictly bound to UTXO, and the token balance is not associated with the wallet address. Unlike BRC-20, it is easy to generate too many useless UTXOs, causing network congestion.

The innovation of Runes lies in its utilization of Bitcoin's native features, especially the UTXO model and the OP_RETURN data field. This approach aims to improve the efficiency of on-chain data processing and maintain a high degree of compatibility with the Bitcoin network. In addition, Runes is designed with compatibility with the Lightning Network in mind, which may open up new possibilities for fast and low-cost transactions. However, one of the main challenges facing Runes is that its ecosystem is relatively early. Despite the challenges, the emergence of Runes has undoubtedly injected new vitality and possibilities into Bitcoin's alternative token ecosystem, which can not only enhance the functionality of the Bitcoin network, but also bring more value and choices to users and developers.

Rune Ecosystem Project

After understanding the background and technical details of the Runes Protocol, we also took stock of the ecological projects of the Runes track, including preheating projects, key projects, infrastructure, and data analysis tools.

Rune Warm-up Project

Before the launch of the Runes protocol, many projects tried to position themselves as pioneers of Runes. By holding the original NFT or BRC-20 tokens, players can transition to become the first to join the Runes protocol project. These projects include:

Runestone: A voluntary, decentralized initiative to airdrop 112,383 Runes to the Year 1 Ordinal community, the largest Ordinal airdrop ever.

RSIC (Rune Specific Inscription Circuits): An NFT project with a mining concept. To put it simply, the more and longer you hold the RSIC NFT, the more Runes airdrops you can get.

Rune Pups: A BRC-20 meme project featuring a monkey puppet with a hat. The project also cross-chains to the Solana chain.

Prometheans: A rune pre-launch project of ETH blue-chip NFT project CyberKongz, airdropped to the Ordinals community and CyberKongz holders.

Key Rune Items

As of May 6, 2024, the market value of the entire Rune market has reached $900m, and the number of holders has exceeded 500,000. We have sorted out the basic information and data of the top 10 Rune market and some key projects, and the details can be seen in the following list. It is worth noting that none of the key projects have a 100% fair launch arrangement, which shows that the Rune track is still dominated by the project owners.

Rune Tools

wallet

Currently, the mainstream wallets that support Runes include:

• Xverse
• UniSat
• OKX

Primary market engraving

Many platforms that support BRC-20 casting inscriptions already support rune engraving, but users need to pay attention to the handling fees of different tools.

• UniSat Marketplace (https://unisat.io/market)
• OKX Marketplace (https://www.okx.com/en/web3/marketplace/runes)
• GeniiData (https://geniidata.com/ordinals/home)
• Luminex (https://luminex.io/runes/mint)
• RuneStore (https://runestore.io/)
• DotSwap (https://tools.mempool.com/)
• BTCBot: A Telegram Bot application that allows you to easily create wallets and engrave runes in Telegram

Secondary trading market

Markets with higher trading volume and liquidity include:

• UniSat Marketplace (https://unisat.io/market)
• OKX Marketplace (https://www.okx.com/en/web3/marketplace/runes)
• Magic Eden (https://magiceden.io/)

Data analysis tools

If you want to know the fundamental data of the rune market, including etching progress, rune deployment information, market value and number of holders, you can go to the following platforms:

• Ord.io (https://www.ord.io/runes)
• GeniiData (https://geniidata.com/ordinals/home)
• Luminex (https://luminex.io/runes/alpha)
• RuneStore (https://runestore.io/)
• RuneData (https://runedata.io/)
• SatScreener (https://www.satscreener.com/runes)
• SatoSea (https://satosea.xyz/en)