Parallel to the "halving," decoding Runes: native fungible tokens on Bitcoin

Original Author: Marlon

Original Compilation: Yangz, Techub News

As the Bitcoin "halving" approaches, speculators are eagerly anticipating the launch of Runes. While it has attracted a lot of attention on CT, there has also been much confusion and misinformation surrounding this new token standard. Even unrelated protocols are using "Rune" in their names and tokens, exacerbating the chaos.
To avoid misleading information, we have provided a simple overview.

What are Runes?

As the developer of Ordinal Theory, Casey Rodarmor is building a fungible token standard for Bitcoin, known as the Runes protocol. As a meta-protocol, the Runes protocol itself is not a token; as Casey mentioned in a podcast, it is "where people create shitcoins on Bitcoin."
Tokens created using this token standard are called Runes. Unlike BRC-20, Runes is a fungible token standard, meaning each Rune is interchangeable. The Runes token standard is similar to ERC-20 tokens on Ethereum but simpler.

Overview

• The Runes protocol will launch on April 19 at the halving block.
• Runes balances are stored in Bitcoin UTXOs.

The Runes protocol adopts Bitcoin's security framework, extending UTXOs to store Bitcoin and Rune balances. Therefore, users can create and trade Runes through regular Bitcoin transactions.

• Runes 0-9 are hardcoded to ensure fair issuance.

This is an important nuance. Many protocols are rushing to launch their own Rune tokens, some through creative gamification, others through enticing airdrop promises. Be cautious of false marketing claims from those who claim to be the first Runecoin project; at best, they can only ensure and engrave the 11th Rune.
The genesis Rune, Rune 0, will open for minting from this halving until the next halving approximately four years later. Each minting receives one genesis Rune, with zero divisibility.

• Initially, only 13 or more characters are available for Rune names.

About every four months, the Rune name length will decrease by one character. The maximum length for names is 28 characters. Additionally, to prevent "front-running," the protocol employs a "submit first, disclose later" scheme. The unlocking schedule for token names can be found here. In summary, be prepared for some crazy token names:

• Runes are created using the OP_Return field.

This makes each Rune name unique. Additionally, each token will have a single Unicode code point as its currency symbol.

Can Runes Replace BRC-20?

The total market cap of BRC-20 tokens is 2.65 billion USD, holding a significant market share in the Bitcoin ecosystem. The narrative around Runes is primarily driven by speculators who believe Runes will replace BRC-20 as the new widely used token standard on Bitcoin.
Are Runes a superior token standard?
As we emphasized in our in-depth exploration of Ordinals and Runes, the differences between the two are quite clear:

Runes do not use witness data but simplify the token creation process using the OP_RETURN field. Users can inscribe (deploy), mint, and transfer Runes through Runestones, enabling regular Bitcoin transactions.
Runestones contain Runes protocol information, storing transfer instructions in Bitcoin's unspent transaction outputs (UTXOs). These transfer instructions determine how Runes are transferred in the output, such as the target address and transfer amount. By default, the Rune balance on the input UTXO is destroyed when transferred to a new UTXO.
Compared to the BRC-20 standard, this approach is more network-friendly, as the BRC-20 standard currently generates a large number of unused UTXOs, cluttering the network. Another drawback of BRC-20 is that a new inscription must be created for each token transfer.
Moreover, the creation of Runes is also more flexible. They can be minted through open minting and fair distribution, and users can choose to mint the entire supply to a single address (similar to ERC-20). In contrast, BRC-20 is limited to open minting.
More importantly, BRC-20 inscriptions are more susceptible to "front-running." This is because anyone can see inscription transactions in the mempool and preemptively execute them by paying higher transaction fees, which is a concern for those trying to deploy new tokens. In contrast, Runes attempt to prevent front-running using a "submit first, disclose later" scheme. At a higher level, users can also privately commit transactions. Disclosing details shortly before confirmation can significantly reduce the time window for front-running.
Finally, Runes support compatibility with SPV wallets and Bitcoin L2s that use the UTXO model. Therefore, theoretically, it is possible to use lightweight wallets and integrate with the Lightning Network for faster and cheaper transactions. The emphasis on "theoretically" is because, although interoperability exists, the infrastructure must first be developed.

Some FUD

In theory, Runes address many of the user experience and compatibility issues of BRC-20. However, I am cautious about the view that Runes will indisputably replace BRC-20.
To facilitate protocol upgrades and ensure clients remain in sync, Casey has incorporated what he calls the Cenotaph model into the Runes protocol. Cenotaphs are malformed Runestones created by bad inputs. When included in a transaction, Runes associated with Cenotaphs will be destroyed or rendered unusable.
This is one of the contentious points, as it introduces the risk of unintentionally losing Runes. For example, if you interact with an application that creates Rune transactions and it accidentally generates a Cenotaph, you could lose all Runes stored in the same UTXO.
So how significant is this risk? It's hard to say before the protocol goes live, but users need to keep this in mind. Casey mentioned these issues in this Thread - TLDR: In his view, the risk is negligible. Regardless of its significance, avoiding untested third-party services after the launch of Runes is a good way to minimize risk.
Additionally, there have been recent rumors on Twitter that BRC-20 may soon receive updates. It is said that the BRC-20 indexer will be able to calculate EVM smart contract code on token balances. If the rumors are true, many of the current design issues will be resolved, making BRC-20 more competitive than Runes. However, it is important to note that this is just a rumor and should be taken with caution.
Ultimately, the success of Runes depends on user experience. If it can quickly integrate and leverage Runes' broad compatibility, it has the potential to replace BRC-20.
If you are interested in getting a simple introduction before Runes goes live, you can check out Haze's insightful analysis on $PUPs. For more information about the technology, I highly recommend checking the official documentation and listening to Casey's podcast about the product launch.

Overview by Redphone

Finally, special thanks to Redphone, who first proposed the BRC-20 concept, for sharing his views on Runes below:

1. Unless BRC-20 continues to evolve, Runes are likely to become the mainstream token standard for Bitcoin.
2. Runes are more efficient.
3. Runes store token balances in UTXOs, shifting trust from the indexer layer back to the Bitcoin blockchain. This alone is a huge victory.
4. Since Runes are located in UTXOs, they are easier to integrate with L2s, cross-chain bridges, and other DeFi applications.
5. If Runes can integrate with the Lightning Network, it will also revitalize the Lightning Network. Can you imagine a stablecoin based on Runes operating in the Lightning Network? Coinbase is already working to support the Lightning Network. Perhaps one day, we can directly bring shitcoins on Bitcoin into Lightning wallets.
6. Runes expand the token issuance mechanism. Unlike BRC-20, it is not limited to fair issuance. This helps drive more adoption, as fair issuance makes it difficult for contributors to remain consistent over a period.
7. Casey Rodarmor is undoubtedly a master at gamifying protocol releases. For example, when launching ordinals, he assigned a corresponding name represented by letters to each Satoshi represented by numbers (learn more about Sats naming). He also created rarity levels for each type of Sats, sparking the "Sat Gold Rush" craze. Similarly, he gamified the launch of Runes by gradually allowing shorter names. Initially, each token name had to be 13 characters or longer. About every four months, new Rune names can be shortened by one character. This is the magical progressive evolution of the Runes protocol, continuously attracting attention. All protocol designers in the world can learn from this approach.
8. Combining the launch of Runes with the Bitcoin halving is another brilliant marketing move/gamification tactic by Rodarmor. Typically, I would look forward to the Bitcoin halving itself. Now, I am almost exclusively looking forward to Runes.
9. Many BRC-20s will bridge to Runes (perhaps through remote destruction "teleburns"?)
10. BRC-20 has a fervent fan base, and its ecosystem will continue to develop. But I am not sure in which direction it will evolve. As mentioned above, there are rumors that the BRC-20 indexer may soon be able to calculate EVM smart contract code on token balances. This would greatly enhance their performance, making them competitive with Runes, and could even surpass any innovations on Bitcoin Core.
11. It is perfectly fine for multiple token standards to coexist. What matters more is what you can do with these tokens. Many BRC-20 tokens have already entered centralized exchanges. In my view, this has proven its sustainability.
12. For native shitcoins, Bitcoin is evolving too slowly. This means that the battle for Bitcoin L2s will be one of the biggest opportunities in the cryptocurrency space. I would love to see ordinals (and BRC-20) indexers win this battle by launching tokenized L2 networks. In any case, in the coming months or years, we will see a breakthrough L2 ecosystem, and I believe Runes will be a key part of this story.

In the end, both Redphone and I are fans of Runes and BRC-20. Both may continue to thrive in the short term, but BRC-20 must continually evolve to avoid being left behind.
Beyond Runes, I prefer Rodarmor's creativity. From the moment I first encountered ordinals, I viewed him as an innovator in the crypto space, akin to those historical visionaries… like the first Bitcoin contributor Hal Finney, Ethereum co-founder Vitalik Buterin, and Uniswap founder Hayden Adams. The successful launch of Runes would only be the icing on the cake for Rodarmor. He has already changed the fate of this orange currency, and Runes seem poised to change it again.