Beyond Inscriptions: Runes Protocol Opportunity Analysis

As the Bitcoin halving passes, the Runes protocol is also gearing up for launch, generating widespread market attention amid the booming concept of inscription projects. Runes, conceived by Ordinals founder Casey as a token issuance protocol built upon Ordinals aims to provide a streamlined approach to creating and managing fungible tokens. Participating in the Runes protocol signifies engaging in an innovative experiment within the Bitcoin ecosystem, offering new opportunities for value creation and capture in the market.

I. Background of the Runes Protocol’s Birth

The Runes protocol’s origins can be traced back to December 2022, when Casey, founder of the Ordinals protocol, introduced a bold idea: to permanently inscribe NFT data into the witness data of Bitcoin transactions. This innovation enables any form of content to be permanently recorded on Bitcoin and opens up a new path for tightly integrating Bitcoin with NFTs.

1. Demand for On-chain Functionality on the Bitcoin Network: Since its inception, Bitcoin has occupied a central position in the realm of digital currencies with its decentralized, secure, and immutable characteristics. Over time, Bitcoin has evolved beyond being just a currency; its underlying technology—the blockchain—has become the cornerstone of numerous financial innovations and technological developments. Although Bitcoin’s script language is relatively limited in functionality, the community has been exploring how to implement more features on the Bitcoin blockchain, including but not limited to the issuance of NFTs and fungible tokens.

2. Introduction of the Ordinals Protocol: In December 2022, a developer named Casey introduced the Ordinals protocol. This protocol achieves the permanent on-chain recording of NFT data by recording information in the witness data of Bitcoin transactions, paving the way for the diversification of on-chain assets on the Bitcoin blockchain. The launch of the Ordinals protocol not only demonstrated the potential of the Bitcoin network in handling non-monetary assets but also inspired the community to further explore the possibilities of Bitcoin as a multi-functional blockchain platform.

3. Birth of the BRC-20 Protocol: Building upon the Ordinals protocol, in March 2023, an anonymous developer named Casey proposed the BRC-20 standard. BRC-20 is a new way to issue fungible tokens on the Bitcoin blockchain, leveraging the foundation of the Ordinals protocol to record relevant information about fungible tokens in the witness data of Bitcoin transactions, defining the uniform format and attributes of derivative assets in inscription form, thereby enabling token issuance and management. The introduction of the BRC-20 standard showcased the innovative capability of the Bitcoin ecosystem in asset issuance mechanisms. However, the popularity of BRC-20 led to rapid inflation of the Bitcoin UTXO dataset, placing a significant burden on Bitcoin nodes and prompting community concerns about data carrying capacity.

With these challenges, Casey began to ponder how to build a more efficient and concise protocol for fungible tokens that could alleviate the burden on the Bitcoin network while retaining Bitcoin’s decentralization and security characteristics. Thus, on September 25, 2023, Casey proposed the initial concept of the Runes protocol, with plans to officially launch it during the Bitcoin halving in 2024.

II. Definition and Principles of the Runes Protocol

The Runes protocol is a homogenized token issuance solution implemented on the Bitcoin network. It primarily utilizes Bitcoin’s UTXO model and the OP_RETURN opcode to support token issuance and transactions, bringing a more concise and efficient token issuance mechanism to the Bitcoin ecosystem. The Runes protocol focuses on the mechanism of public minting, ensuring transparency in the token issuance process without reservations, which significantly addresses the market’s strong demand for fair distribution.

1. Based on UTXO and OP_RETURN:

The Runes protocol achieves token issuance and management through Bitcoin’s UTXO model and the OP_RETURN opcode, which is technically simpler and effectively reduces the burden on the Bitcoin network. The UTXO model is at the core of Bitcoin transactions, where each transaction consumes the output (UTXO) of the previous transaction as the input for the new transaction, ensuring the security and consistency of the Bitcoin network. The OP_RETURN opcode allows attaching a small piece of unspendable data to Bitcoin transactions, and the Runes protocol utilizes this mechanism to record information related to tokens, such as token names and total supply. By storing transaction states using Bitcoin’s UTXO model and recording relevant information with the OP_RETURN opcode, the Runes protocol enables token issuance and management without altering the Bitcoin main chain, ensuring efficiency and security.

2. Issuance Mechanism:

The Runes protocol designs two issuance methods: “Fixed Total Supply” and “Public Minting.” The Fixed Total Supply method is more centralized, where the issuer directly mints all tokens and then distributes them. In contrast, the Public Minting method emphasizes fairness in participation, ensuring transparency in the token issuance process without reservations. This means that anyone can participate in the token minting process within the specified timeframe, and no one can mint or reserve tokens in advance. This design significantly reduces the threshold for token issuance, providing equal opportunities for every participant to acquire tokens.

The Runes protocol offers a lightweight and efficient token issuance and management mechanism. This mechanism not only alleviates the burden on the Bitcoin network but also enhances transaction efficiency and security. The Runes protocol supports simultaneous transfer of multiple assets and can be directly bound to UTXOs on the Bitcoin chain, bringing more possibilities to the Bitcoin ecosystem.

III. Differences Between the Runes Protocol and the BRC-20 Protocol

Both Runes and BRC-20 are token issuance standards built on top of Ordinals. Compared to the BRC-20 protocol, Runes is considered to be closer to the official token protocol because it shares the same Github code repository with Ordinals, and structurally, Runes and Inscriptions are at the same level.

1. Transaction and Data Storage:

The Runes protocol simplifies transaction steps and avoids generating unnecessary UTXOs, effectively reducing the data burden on Bitcoin nodes. It supports transferring multiple tokens to multiple recipients in a single transaction, demonstrating higher flexibility and efficiency. In contrast, the BRC-20 protocol may generate a large amount of useless data because each token operation requires initiating specific transactions on the Bitcoin chain, which not only increases the size of the UTXO set but also affects the performance of the Bitcoin network to some extent.

2. Compatibility and Scalability:

The design of the Runes protocol based on UTXO allows it to be compatible with other UTXO-based layer extensions, such as CKB, Cardano, and Fuel. This feature provides possibilities for the implementation of smart contracts and other advanced features, further enhancing the protocol’s flexibility and scalability. While BRC-20 can also achieve token issuance and management on the Bitcoin network, its compatibility and scalability are relatively limited.

3. Technical Implementation:

The Runes protocol uses the OP_RETURN opcode to mark “specific messages,” simplifying transaction steps and avoiding the generation of unnecessary UTXOs. This design not only simplifies the process of recording and verifying assets but also improves the efficiency of data storage and indexing. The BRC-20 protocol relies on the Ordinals protocol to store asset data in JSON format in the witness data of specific transactions and manages assets based on an account model, which increases the complexity of data on the Bitcoin chain to some extent.

4. New Market Participation Model:

The Runes protocol introduces a new market participation model, where deploying Rune tokens can earn deployers $2 for each Rune token. This model not only increases participation costs but also provides the project side with additional revenue possibilities, attracting more high-quality project participants. In contrast, BRC-20 and other inscription projects are free to participate in, so investors need to weigh their options when choosing Runes projects.

The birth of the Runes protocol is an important milestone in the development of the Bitcoin ecosystem. It not only addresses the data inflation problem brought by the BRC-20 standard but also provides new perspectives and directions for asset issuance mechanisms on the Bitcoin chain. Through the Runes protocol, we can see that Bitcoin is not only a digital currency but also an evolving ecosystem that adapts to new demands.

IV. Current Development Status of the Runes Track

As a standard for issuing fungible tokens based on the Bitcoin network, the Runes protocol itself does not issue tokens. Similar to Ethereum’s ERC-20 standard, the Runes protocol allows for the issuance and management of fungible tokens on the Bitcoin network. Its value lies in defining blockchain and ecosystem utility.

As of now, the mainnet of the Runes protocol has not been launched yet and is expected to be officially released when Bitcoin reaches its fourth halving, which is when the block height reaches 840,000. Currently, there are no genuine mainstream Runes runes. Nevertheless, the Runes protocol has already attracted widespread attention and discussions, especially within the Bitcoin community. Some concept projects based on the early standards of Runes have emerged in the market, such as RSIC and Runestone. These projects distribute inscription NFTs as pre-mining machines, allowing holders to receive corresponding Runes runes once the Runes mainnet is launched.

1. Pre-mining Rune Projects:

These projects distribute inscription NFTs as pre-mining machines, allowing holders to receive corresponding Runes runes based on the pre-mined number of runes once the Runes mainnet goes live. This model makes inscription NFT holders the subjects of pre-mining, altering the traditional concept of pre-mining.

Representative Projects: RSIC and Runestone:

By initially distributing inscription NFTs, holders of these NFTs will receive Runes runes from the project creators based on the pre-mined number of runes once the Runes mainnet is officially launched.

In terms of market performance, Runestone has shown strong liquidity, with the total trading volume on the OKX Web3 wallet reaching 1870 bitcoins, and the floor price reaching 0.06499 bitcoins.

2. Runes Concept Tokens Based on Early Standards

These projects demonstrate the community’s support for and expectations of the Runes protocol, indicating that after the launch of the Runes mainnet, these early tokens may be mapped to official Runes tokens.

Representative Project: RuneAlpha:

Based on the early standards of Runes, specifically version Ord-0.11.1 of the Runes standard (the latest version being Ord 0.17.0 released on April 1), RuneAlpha has already developed issuance and minting capabilities. The tokens issued by RuneAlpha, known as RuneAlpha runes, include COOK. The founder, Son Pin, has pledged to map RuneAlpha runes to official Runes once Casey’s Runes protocol goes live.

Currently, there are 8 Runes concept tokens listed on the RuneAlpha market, namely COOK, PSBTS, X, GOONFI, FIST, RUNE, GROK, and RUNES.

Here is an inventory of some representative Rune concept projects, showcasing the diversity and innovation within this space:

1. Rune Alpha:

Rune Alpha is currently the largest unofficial market for Rune trading, offering various functionalities such as browsers, indexes, and trading platforms. It aims to serve as the foundational infrastructure supporting the comprehensive development of the Runes protocol. The first token on Rune Alpha is COOK, which implements multi-party transactions and offline signatures through PSBT (Partially Signed Bitcoin Transaction), enhancing transaction flexibility and security. Currently, Rune Alpha is planning to migrate to the mainnet of the Runes protocol and is committed to migrating COOK tokens and other community-supported Runes to the new platform.

2. RSIC: Pioneer of Rune Mining Machines:

The RSIC project distributed “Rune Mining Machines” to Bitcoin NFT players through airdrops, with NodeMonkes holders being the biggest beneficiaries. RSIC not only sparked a frenzy around Rune projects but also further boosted the value of NodeMonkes, demonstrating its powerful “shovel effect.” The driving force behind the RSIC project is speculated to be the orchestrators behind Ord Rocks, NodeMonkes, and RSIC, showcasing a complex and intriguing ecosystem interaction.

3. Runestone: The $SATS of Runes:

Runestone, with its fair and transparent airdrop rules and large-scale airdrop, is considered the $SATS of the Rune world. Its funding primarily relies on community donations, demonstrating strong support and anticipation for the project from the community. Led by the prominent figure @LeonidasNFT in the Ordinals community, Runestone has become an essential cornerstone of the Ordinals ecosystem.

4. The Rune Guardians: Unique Mechanism:

The Rune Guardians project has attracted attention with its unique gameplay concept and rich attribute bonuses. Unlike other Rune projects, the “Rune” token shares of The Rune Guardians are tied to small images, ensuring that even when sold, the mined token shares are not lost. This unique mechanism encourages long-term holding and participation among players.

5. Rune Mania Miner: Mining Bonus:

The Rune Mania Miner project conducted a special airdrop for RSIC BOOST holders, with a fixed total supply, demonstrating the project’s feedback to the community. On March 14, Rune Mania Miner announced its collaboration with Rune Alpha. This marks the first collaboration between pre-mined Runes and infrastructure, with Rune Mania Miner tokens being integrated into Rune Alpha.

6. Runic Miner: Integration with NFT Projects:

The Runic Miner project is closely integrated with Node Apes, demonstrating deep integration between Rune projects and other Bitcoin NFT projects. The project not only provides additional value to Node Apes holders but also incentivizes deep community participation through complex bonus rules.

7. ORANGE: Fusion of Art Forms:

The ORANGE series of projects, driven by OG artist @XCPinata, bring a new perspective to the Rune world through unique art forms and participation mechanisms. Particularly through activities like “defeating Hemi,” the project’s participation and fun are enhanced.

8. Bitcarbon: Long-Term Wager:

Bitcarbon project has sparked widespread discussion within the community with its unique concept and long-term perspective. Through a 30-year wager, the project explores the future direction of Bitcoin carbon emissions issues, demonstrating the potential of Rune projects in exploring significant societal issues.

V: How to Participate in the Runes Track?

Referencing the current classification and representative projects of the Runes track, there are several ways to participate:

1. Direct Casting of Tokens Deployed by the Casey Team: Casey released version 0.17.0 of ord on April 1st and announced the first hard-coded Genesis Rune named UNCOMMON·GOODS. Starting from the block height of this halving (840,000), tokens can be cast until the next halving, with a maximum of 1 token per transaction. Due to the high attention on Runes and the comprehensive infrastructure of Ordinals, it is estimated that many proxy tools will support it immediately, leading to a period of Gas War.

2. Casting Runes Concept Tokens through the Rune Alpha Market: Currently, the most popular ones are COOK and PSBTS. After the Runes protocol is online, they will be mapped to orthodox Runes. However, this might lead to issues such as Gas economy and conversion time.

3. Holding NFTs or Certificates of the aforementioned pre-mining projects: After the corresponding tokens are deployed on Runes by the project party, holders can directly receive corresponding airdrops. Representative projects include RSIC and Runestone. Note that the NFTs in the market now are based on Ordinals inscriptions and are not directly equivalent to future Runes symbols. Participants need to carefully consider the future commitments made by the project party and weigh the potential risks.

4. Participating in other projects that support the Runes protocol: For example, Merlin Network states that it will provide 100% support for Runestone and Runes protocol, including cross-chain bridges, DEX, indexers, casting services, and more incentives. The UniCross platform, officially invested by Merlin, initiated the fair launch of the first Runes symbol asset, RUFI. RUFI introduces the concept of “insignia interchange,” allowing BRC-20 tokens to be exchanged for Runes tokens at a ratio of 1:1. Out of the total issuance of 100 million RUFI tokens, 25% will be distributed to Merlin and Unicross users through airdrops, while the remaining 75% will be issued through fair casting.

VI: Opportunities, Risks, and Prospects of the Runes Symbol Track:

Based on the appeal of the Casey team and the comprehensive infrastructure of Ordinals, Runes has the potential to trigger the third wave of the BTC ecosystem boom. The development of the Runes protocol and related projects not only demonstrates the potential of blockchain technology but also injects new vitality into the development of the Bitcoin ecosystem.

Although the Runes protocol and its track projects demonstrate innovative vitality in the Bitcoin ecosystem, they also face a series of challenges. Firstly, since the Runes protocol itself has not yet officially launched, all projects based on it are currently in the conceptual stage, meaning that investors need to trust the project parties to a certain extent to fulfill their promises in the future. Secondly, this emerging issuance model and project form entail higher risks for investors, as their success depends on various factors such as technical implementation, market acceptance, and community consensus.

With the imminent launch of the Runes protocol mainnet, it is expected that more symbols tokens based on the Runes protocol technical standards will emerge. The key to choosing symbols lies in evaluating the positioning and narratives of the issuing party and how to capture value in the future. Since the Runes track is still in its early stages, there are many uncertainties and variables. Participants need to continuously learn new knowledge, pay attention to industry dynamics, and maintain a cautious investment attitude to avoid blindly following trends. With the launch of the Runes protocol mainnet, it is expected that more symbols tokens based on the protocol will be born, providing new opportunities for the community and issuers. At the same time, the development of the Runes track will also promote Bitcoin’s transformation from a single value storage to a diversified application platform, contributing to the vision of becoming the global economic settlement center.

Hotcoin Global, as a well-established exchange founded for 7 years, pays close attention to the development dynamics of the symbols track and will continue to follow and list high-quality symbols track assets. Stay tuned for more updates.

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