Author: Ash Li

I. Overview of the Bitcoin Inscription Ecosystem

Background

Since the wealth effect generated by $ORDI starting in March last year, to the first wave of inscriptions rising in May, and then to the second wave of inscription trends in November to December, everyone has been discussing what to inscribe today and what to inscribe tomorrow with high spirits. Returning to the blockchain itself, what are the Bitcoin inscriptions being inscribed daily, what is the Ordinals protocol, and what are the various protocols ending with "20" such as BRC-20, ARC-20, SRC-20, etc.? What are their connections and differences, and why has the Runes protocol suddenly emerged? Today, let's continue to explore the rich and colorful Bitcoin ecosystem protocols with these questions in mind.

Protocol Introduction

Ordinals Protocol

Originally released by Casey (@rodarmor) in December 2022, this protocol allows data to be inscribed on the smallest unit of Bitcoin, Satoshis, including text, images, audio, video, and other data information. The Bitcoin inscriptions we often refer to are metadata inscribed (Inscribe) on Satoshis using the Ordinals protocol, which is what we commonly call NFTs on Bitcoin. For detailed information, you can refer to a previous article introducing the Ordinals protocol: https://www.spectrumlab.io/zh/reports/看完這篇，你對於ordinals銘文的了解將超過99, which provides a detailed introduction.

BRC-20 Protocol

The BRC-20 protocol was launched by the anonymous developer @domodata on March 8, 2023, based on the previously introduced Ordinals protocol. This protocol enables the deployment, minting, and transferring of tokens by writing information such as the token's name and quantity into Satoshis in a specific JSON format. On the second day after its release, over 30,000 inscriptions were minted, with nearly 27,000 of them being text types. Named after the Ethereum ERC-20 token standard, BRC-20 is equivalent to a token issuance protocol based on the Ordinals protocol, with the first token named $ORDI, which saw astonishing increases during both the first and second waves of inscriptions. Recently, @domodata and the organization he founded, @L1Fxyz, proposed a new proposal: to upgrade at block height 837090 to support self-issuance mode, 5-character token names, and methods for burning BRC-20 assets. The original link is https://l1f.discourse.group/t/brc-20-proposal-for-issuance-and-burn-enhancements-brc20-ip-1/621.

ARC-20 Protocol

ARC-20 is a colored coin model, which differs from the Ordinals protocol in that each ARC-20 token must have a supporting Satoshi, rather than being distinguished by sorting like BRC-20. It inscribes information into the transaction script, with balances represented by the number of UTXO's satoshis, and the transfer function is entirely handled by Bitcoin's mainnet. Changes related to the tokens can be intuitively reflected on-chain. At the same time, Artomicals uses command operations to treat each ARC-20 token as the first "output" of a transaction to avoid being spent as miner fees. Initially, when wallets did not support this protocol, there were instances of asset burning.

SRC-20 Protocol

SRC-20 utilizes the BTC STAMPS protocol, which is the Bitcoin stamps protocol, rather than the Ordinals protocol. We can also see this from the addresses when inscribing and transferring. SRC-20 still uses Bitcoin addresses starting with "bc1q" instead of the more commonly used "bc1p" addresses. The main difference between Stamps and Ordinals lies in their architecture; the Stamps protocol stores metadata in multi-signature UTXOs, while the Ordinals protocol stores metadata in the SegWit part of Bitcoin transactions.

II. Runes Protocol

Timeline Background

On May 8, 2023, a core developer of BTC published an article claiming that the BRC-20 protocol was causing too much garbage and frequent transactions, leading to BTC network congestion, and that the BTC community should take action to stop it. Subsequently, on September 1, Casey publicly opposed the BRC-20 protocol and hoped to stop the minting of BRC-20. On September 26, 2023, Casey Rodarmor redeveloped a protocol called Runes as an alternative to BRC-20. This protocol is a UTXO-based alternative token protocol that provides a good user experience for Bitcoin users. Casey believes that the improved Runes can reduce the phenomenon of generating a large number of garbage UTXOs, making it a better, lighter, and simpler asset issuance solution compared to the previously experimental BRC-20 protocol. At least for now, the popularity of BRC-20 has already created a large number of "garbage" UTXOs.

Runes Implementation

The balance of Runes tokens is directly included in the UTXO. If a transaction contains an output, and the script pubkey of that output includes an OP_RETURN, followed by a data output representing the ASCII uppercase letter R, then the transaction contains a protocol message. The runes of transactions inputting invalid protocol messages will be burned, allowing future upgrades to change the allocation or creation of runes, avoiding the previous old client errors in allocating rune balances.

Transfer

The first data output in the protocol message is decoded into an integer sequence, which will contain three pieces of information: ID, OUTPUT, and AMOUNT. ID specifies which Runes token is being transferred. Each token is assigned an ID when created, starting from 1, with earlier creations having smaller values. OUTPUT determines which output is allocated. AMOUNT indicates the quantity being transferred.

Creation

If there is a second data output after the protocol message, the transaction is a Runes token creation transaction. This part of the data output will be decoded into two integers: SYMBOL and DECIMALS. If there are more integers, it is invalid. SYMBOL is equivalent to the Ticker of BRC-20, which is the token name, supporting a maximum of 26 characters, with available characters being A-Z. DECIMALS: precision, determines how many decimal places the Runes token can support. If the SYMBOL has not been used, the Runes token will be assigned an ID value, with the first created "rune" Token ID value being 1. The names BITCOIN, BTC, and XBT are disabled, and the Runes protocol still does not support the creation of tokens with the same name.

Comparison with Other Protocols

Casey compared the Runes protocol with other existing Bitcoin inscription protocols in the following four aspects on his blog:

• Complexity: How complex is the protocol? Is it easy to implement? Is it likely to be widely adopted?
• User Experience: Are there any implementation details that could negatively impact user experience? Especially protocols that rely on off-chain data.
• State Model: UTXO-based protocols are more naturally suited to Bitcoin and minimize the creation of "garbage" UTXOs.
• Native Tokens: Protocols requiring a native token for operations are cumbersome and are less likely to be widely adopted.

In comparison to existing Bitcoin token protocols:

• BRC-20: Not UTXO-based and quite complex, as it requires the use of the Ordinals protocol for certain operations.
• RGB: Very complex, relies on off-chain data, and has not been adopted after a long development period.
• Counterparty: Requires a native token for certain operations, rather than being UTXO-based.
• Omni Layer: Requires a native token for certain operations, rather than being UTXO-based.
• Taproot Assets: Somewhat complex, relies on off-chain data.

According to Casey, the Runes protocol is a better and simpler choice for creating fungible tokens on the Bitcoin network, whereas the BRC-20 token standard is the first experimental protocol for creating fungible tokens on the Bitcoin network. However, this protocol has led to a large number of UTXOs and caused network congestion. Unlike other Bitcoin token standards, Runes does not rely on off-chain data to operate. Instead, it adopts a UTXO-based model and uses UTXOs to track the balance of Runes. Each transfer transaction is split into different UTXOs, each holding a different number of Runes.

Technical Features

UTXO Model

First, the compatibility and scalability of the Runes protocol are outstanding, allowing seamless integration with Bitcoin's UTXO model and layer two protocols based on it, such as the Lightning Network and CKB. Compared to other fungible token protocols like BRC-20, Runes significantly enhances operational efficiency and user experience through a simplified transaction process and direct binding of token balance management to UTXOs.

Token Issuance

Runes offers greater flexibility in token issuance, allowing token name lengths from 1 to 28 characters, and employs various innovative issuance mechanisms, including but not limited to fixed total issuance and public inscription issuance, even considering more expressive issuance methods. The fixed total issuance method is relatively centralized, with the issuer directly inscribing all Runes before distribution; while the public inscription method is based on specific parameters, such as block height or timestamp, where the quantity of assets inscribed by users within a specified time determines the final total of that Runes.

In terms of UTXO management, Runes uses the OP_RETURN script to avoid the complexities and security risks that the witness part of transactions may bring, reducing unnecessary UTXO generation, thereby enhancing the overall health and efficiency of the network. The design philosophy of the Runes protocol aims to reduce on-chain "footprints," encouraging optimized UTXO usage, allowing seamless integration with Bitcoin's infrastructure. It promotes the development and innovation of the Bitcoin ecosystem in a more concise and intuitive manner.

User Experience

The Runes protocol supports Simple Payment Verification (SPV) wallets, providing users with a lightweight transaction experience, which traditional BRC-20 has failed to achieve. It also offers a more friendly and accessible development environment for developers by providing reference implementations and emphasizing compatibility with existing Bitcoin scripts and address types. Whether there are still some undisclosed details or more innovative aspects, we can conduct further analysis after the official release of the Runes protocol.

III. Potential Opportunities of the Runes Protocol

Currently, many projects utilizing the Runes protocol are starting to heat up. Since the official Runes protocol has not yet been released, strictly speaking, there are no Runes inscriptions at the moment; many are still being released in the form of Bitcoin NFTs. Once the official version of the protocol goes live, they will be distributed through airdrops or 1:1 exchanges to become runes. Below are some early projects expected to utilize the Runes protocol.

RSIC

RSIC simply utilizes a pre-mining mechanism and can only be minted after the Runes protocol goes live. There are four types of reward distribution methods for RSIC, including fixed rewards, enhanced rewards, random rewards, and halving rewards. The issuance process employs technologies such as parent-child inscriptions, Metaprotocol fields, and recursive inscriptions. This project is the most diverse in gameplay and utilizes impressive technology, increasing playability. Moreover, different RSICs have different rarities, adding randomness. According to the mining mechanism, holding RSIC will yield the Runes runes issued by the project party in the future. Once the Runes protocol officially launches, the project party will airdrop the Runes runes they issued to these pre-mined addresses based on the amount pre-mined. Twitter user @wutaner created an RSIC_DATA table to calculate mining quantities, with the link as follows: https://docs.google.com/spreadsheets/d/1xlAS5-_XS5aCHSozkcF_SCW8M1Kl2SDeolLWEvK4Sgg/edit?pli=1#gid=308398888

Runestone

Following RSIC, another highly anticipated project is Runestone, which is also in the form of pre-mining. It is led by the founder of Ord.io, @LeonidasNFT, and its airdrop rules are simple and transparent: at block height 826600, Bitcoin wallets need to hold 3 inscriptions, excluding text and JSON format inscriptions, such as BRC-20 inscriptions.

The Rune Guardians

The Rune Guardians have a total of 10,000, and different attributes will have different effects on mining. Notably, this project will become a true PFP series during the Bitcoin halving. The Rune Guardians gameplay is similar to RSIC, with airdrops for holders of Ordinals blue-chip NFTs, with the project party covering all gas costs.

Rune Alpha

Rune Alpha is an early practical project based on the Runes protocol, which has released an experimental platform, initially offering unlimited minting based on block height intervals, and has launched a trading market based on PSBTS technology for the first time. At the same time, RuneAlpha's first-generation token $COOK will seamlessly migrate at a perfect ratio of 1:1 once the Runes protocol goes live, and it has also announced the latest airdrop plan and published a roadmap, containing many future construction directions regarding runes.

Unicross

$RUFI is the first rune token on @merlinlayer2, which can be converted to runes at a 1:1 ratio from BRC-20. Unicross is dedicated to supporting Runes Asset minting and protocol indexing. The token has a fair launch, with 25% airdropped to Merlin chain users, while the remainder is in the minting phase.

Participation Methods

Currently, there are many other Runes concept projects, and we have only selected a few of the more popular ones. Meanwhile, founder Casey recently decided to deploy tokens numbered 0-9, with specific names still being solicited from the community. Additionally, when Runes first goes live, all token name lengths will start from 12 characters and above, while token lengths of 12 characters or less will be gradually released, allowing projects in need to pay for shorter tokens. Therefore, after the official launch, participation can be done in the following ways:

1. Directly mint the first 10 tokens numbered 0-9 deployed by Casey's team. Since the current infrastructure for Ordinals is relatively complete, and there are many tools available, those with conditions can also synchronize with the full node of Ordinals in advance to participate.
2. Hold NFTs or other credentials from the aforementioned pre-mining projects, and once the project party deploys the corresponding tokens on the Runes protocol, directly receive the corresponding airdrop or 1:1 exchange tokens.

IV. Introduction to the Runestone Project

Among the recent Rune protocol-related projects, the most talked-about is undoubtedly the Runestone. On March 9 of this year, a 3.97MB, the largest Ordinals inscription to date, was successfully auctioned for 8 BTC. Its creator @LeonidasNFT (an Ordinals OG and also the founder of Ord.io) stated that all proceeds from the auction, along with 2.25 BTC previously raised through Twitter donations, will be used to pay for the miner fees of the Runestone airdrop plan, which will airdrop to over 112,383 Bitcoin addresses, making it one of the largest Ordinals airdrop projects in history, and generating great anticipation within the global Bitcoin community for the upcoming Runes protocol.

When Leonidas initially proposed the idea for this airdrop, Casey commented below the tweet, discussing ways to reduce gas consumption. The name also comes from a tweet by Casey, where he mentioned he was developing a feature implementation for the Runes protocol called Runestone. It carries meme attributes and the soft support buff from the founder.

Another important factor for the Runestone project to gain traction is that it has mined the largest block on the Bitcoin blockchain, thanks to collaborations with @ordinalsbot and @MarathonDH. The Runestone, auctioned for 8 BTC, left its mark on Block 832947: the largest Bitcoin block ever, the largest Bitcoin transaction ever, and the largest Ordinals inscription ever. The auction proceeds used to pay for the airdrop miner fees also reflect the Runestone project's commitment to the entire community.

The rapid development of the inscription ecosystem itself is largely due to fairness, and Runestone has added the characteristic of "fairness" right from the start of its airdrop. The narrative features of "airdrop" + "fairness" + "Runes" can also be seen in the FOMO sentiment in the secondary market. Unlike previous inscriptions, Runestone has the consensus of users from both Eastern and Western communities, while previous BRC-20 inscriptions were primarily played in the Chinese-speaking region. Leonidas also tweeted in Chinese, stating: "Runestone becoming a bridge between the East and West is truly remarkable. I have noticed the efforts and contributions of the Eastern Runestone community. Although I only understand English, that does not prevent me from seeing your contributions. Without the joint efforts of the East and West, the achievements of Runestone today would absolutely not be possible."

Currently, more than a dozen projects have airdropped to Runestone holders, and Runestone is likely to become the new golden shovel of the rune ecosystem. Twitter user @0xquqi created a comprehensive table to record the summary information of the Rune Stone airdrops, with the link as follows: https://docs.google.com/spreadsheets/d/1F27vFEzlJsJtvuaOpgX5YyXEOwfhDDvf4KOSA5m0_5M/edit#gid=0. Reminder: Quality projects will directly issue airdrops, so be cautious of links to wallets or those requiring authorization signatures.

V. Future Outlook

Both Runestone and other projects under the Runes protocol have recently attracted widespread attention from both Eastern and Western communities. They not only showcase the new technological potential of Ordinals but also reflect the entire market's anticipation for this rune protocol. With the Bitcoin halving and the launch of new protocols, will this open a new round of rotation in the Bitcoin ecosystem? Can the long-awaited third wave of inscriptions also smoothly arrive with the wind of runes? Let's all wait and see!

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