Runes protocol and the “open etching” issuance mechanism

Forward the Original Title‘An expanded discussion on the Runes protocol and the “open etching” issuance mechanism’

On March 2, 2024, the founder of Rune Alpha, the Runes ecosystem infrastructure project, discussed with Casey, the founder of the Runes protocol, in a public topic on Github. The two sides discussed how to expand the “public engraving” mechanism of the Runes protocol. Topics include:

·Should the requirement that “open etching” cannot be reserved be relaxed?

·Pointed out that there are no owners for Runes that adopt the “open etching” issuance method.

·Proposed a set of issuance mechanism ideas based on the cooperation of inscription NFT and Rune FT.

Due to the strong interest in the Bitcoin derivative asset protocol,The author of this article combined some of the latest topics of Runes mentioned above and wrote this article to conduct a developmental exploration of the past of Runes and Ordinals protocols, as well as similar asset issuance methods.I believe it can help everyone understand the Bitcoin ecosystem.

What is the Runes protocol

The so-called Runes protocol is a protocol for issuing fungible tokens on the Bitcoin network. It was rebuilt by Ordinals founder Casey after the release of the Ordinals scheme, and is built based on the characteristics of Bitcoin UTXO, with an overall very concise design.

It’s worth mentioning that the Runes protocol plans to go live on the mainnet in late April this year, coinciding with Bitcoin’s halving in 2024 (block height 840000). The Runes protocol is still in the process of optimization and version iteration.

Before briefly popularizing the principle of Runes, let’s quickly understand its context, and what the so-called “open etching” represents.

Casey, the proposer of Runes, didn’t initially have the idea to make a fungible token protocol. As early as December 2022, Casey released the Ordinals protocol, which aimed to permanently chain NFT data to Bitcoin. Simply put, it is to inscribe the NFT metadata like inscriptions into the witness data of Bitcoin transactions (witness mainly contains digital signature information), which can inscribe any form of content (such as text, images, etc.) on the specified Satoshi.

(Image source: https://yishi.io/a-beginner-guide-to-the-ordinals-protocol/)

Then, the gears of history began to turn. On March 8, 2023, an anonymous developer @domodata, based on the typical NFT issuance protocol Ordinals, ingeniously created a standard for issuing fungible tokens, the BRC-20. This is done by inscribing the derivative asset data that needs to be uploaded to the Bitcoin chain in a uniform format and attributes (Token name, total supply, maximum single issuance, etc.), and then parsing and tracking this information through an indexer, displaying the wallet accounts and asset amounts related to the BRC-20 token.

Here comes the key point. The issuance of BRC-20 depends on the Ordinals Bitcoin inscription NFT protocol. Therefore, its initial issuance mechanism becomes similar to the NFT minting process, naturally possessing a “first come, first served” characteristic. Whoever mints first, owns it, completely different from the asset issuance of Ethereum’s ERC-20 where “the project team first deploys the asset contract, defines the asset allocation mechanism, and the official can control the disk however they want.”

This Fair Launch feature gives most people a fair chance to participate in the initial issuance of fungible tokens. There are no reserves or lock-ups by the project team, and everyone can participate at the very first moment of asset issuance. Soon, BRC-20 brought a boom in the issuance of derivative assets on the Bitcoin chain, even directly kicking off this bull market. It can be seen that the “open etching” issuance method we are discussing today is very important for the Runes protocol.

But BRC-20 also brought many problems: each operation of BRC-20 assets requires initiating specific transactions on the Bitcoin chain. With the popularity of BRC-20 assets, the Bitcoin UTXO dataset also rapidly expanded, causing BTC core developers to publicly question BRC-20.

Casey, the founder of Ordinals, not only opposed BRC-20, but also did not recognize FT assets issued based on Ordinals. However, the popularity of BRC-20 made him feel that although 99% of the tokens are scams and gimmicks, these things will not disappear like a casino.

At the same time, BRC-20 left “too many traces” on the Bitcoin chain, bringing data-bearing burdens to Bitcoin nodes. But if someone proposes a set of asset protocols that can “reduce the burden” in terms of on-chain data, it may alleviate the problems brought by BRC-20.

Therefore, Casey decided to build a “better fungible token protocol” for Bitcoin. Subsequently, on September 25, 2023, he released the preliminary concept of the Runes protocol.

From a technical perspective, the Runes protocol is built upon Bitcoin UTXO and additional information. Every transaction trigger requires the on-chain of digital signature information generated off-chain, and we can carry messages of specific formats in the signature information. The Runes protocol uses the OP_RETURN opcode to mark out “specific messages,” which are information related to Runes asset changes.

Compared with BRC-20 protocol, Runes have many advantages, the most important ones are:

1. Simplified transaction steps and no generation of unnecessary UTXOs: This helps to “reduce the burden” on Bitcoin nodes. Additionally, a single transfer transaction in BRC-20 only supports one recipient and one token, while Runes supports transferring to multiple recipients simultaneously and can transfer multiple Runes tokens.

2. More concise storage and indexing of asset data: BRC-20 data is stored in JSON format in the witness data of a specific transaction, and BRC-20 is based on an account model, where the asset balance is associated with a specific account. In contrast, Runes protocol data is stored in the OP_RETURN field of a specific transaction, and the asset record method uses the UTXO model, which can be directly “isomorphically bound” to UTXOs on the Bitcoin blockchain.

To confirm someone’s Runes asset status, it is only necessary to verify the special UTXOs they own that are bound to Runes assets. While some information still needs to be traced back to complete the calculation, it is not necessary to scan the entire UTXO set on the Bitcoin blockchain like BRC-20. This lightweight approach is more friendly to data indexing.

1. Compatibility with UTXO function extension layers: Runes’ UTXO-based design makes it more compatible with UTXO-based function extension layers such as CKB, Cardano, and Fuel. Through “UTXO isomorphic binding” similar to RGB++, these function extension layers can provide smart contract scenarios for Runes.

After briefly talking about technology, let’s return to the issuance mechanism discussed at the beginning of this article. Casey designed two sets of issuance methods for Runes, namely “fixed total amount” and “open etching”:

1. The fixed total amount means that the issuer directly inscribes all Runes and then distributes them, which is relatively more centralized.

2. Open etching is to set parameters for the way Runes are issued, such as specifying a block height or timestamp, within a time period that conforms to the rules, how many assets the user Mint will determine the total amount of the runes in the end.

The scenarios and mechanisms corresponding to the two distribution methods are completely different. In the following, we will only talk about “Open etching”.

In fact, Sondotpin started discussing this topic from Issues #124 of Runes, and was recognized by Casey.

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The specific content of Issues#165 is as follows:

Sondotpin：An open etching does not have the ability to allow the owner to premint a certain amount (exceeding the limit). This limits the ability to create a suitable Rune economics for degens

Casey：See (Issues) #124. I’m planning on relaxing this, and allowing the initial etching to allocate any amount, including above the limit, but if this is done it will be displayed prominently on the rune’s info page.

Sondotpin：Is it also possible to create a Rune with 2 (multiple) rounds of open etching with different limits and terms?

Casey：I don’t want to do this because a rune doesn’t have an “owner” in any sense. There isn’t an address or public key attached to the etching which has special privileges. However, you can create an inscription when creating a rune, and then later use that inscription to create a new rune under it, and you can give meaning to that, i.e., that the two runes represent the same asset. You can also premine a bunch and use some other allocation mechanism.

Ideally CTV is activated, which would allow trusted airdrops and open etchings without any explicit support from the protocol.

Discussion around Casey and SondotPin, my personal opinion:

1. Pre-allocating a portion of tokens is necessary in the early stages of a project.

In the early stages, project teams need a certain token reserve to incentivize core team members and build a community to achieve self-reliance. If the protocol can be implemented as discussed in this thread, it will complement the fairness and value of public inscription and open participation, allowing more valuable underlying project teams to participate in the Runes ecosystem through public inscription.

1. Whether and how to pre-allocate is to hand over the means of self-certification to the issuer.

In fact, Casey has repeatedly stated in Youtube videos that 99.9% of homogeneous tokens are scams, and no one should put on airs about changing the world. Frankly admit that this is an industry full of gambling and speculation, and it is good for everyone to be honest. IT’S JUST FOR FUN!

From issue #124 to #165, we can see that Casey has more recognition for the use cases of homogeneous tokens. There is no need to question the method of “public inscription”. On this basis, extensions such as adding pre-allocation mechanisms are to hand over the right to choose and the means of self-certification to the issuer. It is also a good way to prevent bad coins from driving out good coins.

1. There will be more room for innovation in Inscription NFTs and Rune FTs

Casey’s idea of a multi-round issuance mechanism in which Inscription NFTs and Rune FTs work together is quite interesting. As mentioned in the background knowledge, Ordinals and Runes are both protocols designed by Casey, which are considered parallel protocols. However, they are both implemented in the Ord project on Github, and there are a lot of technical intersections and cooperation, such as sharing the underlying logic of synchronization blocks.

Popular projects such as Runestone and Runecoin are also innovative combinations of inscriptions and runes. Runecoin’s gameplay is the most mainstream inscription pre-mining, holding RSIC inscriptions issued by Runecoin will continuously mine the project’s runes, and then the FT will be distributed again when the Runes protocol goes online at the end of April. I look forward to more projects to innovate and bring more novel gameplay in the future.

1. Runes issued in the “open etching” method do not have ownership.

Casey only expressed in the original text that “a rune does not have owner”, but I believe that this should specifically refer to Runes issued in the “open etching” method do not have ownership. The two-round “open etching” scheme proposed by SondotPin will definitely have an address with very high permissions to operate, which is not what the Crypto field wants to see.

Just like the Runecoin project quickly sent the parent inscription to the Satoshi address after issuing 21,000 RSIC inscription NFTs, which means that no one can use it again, that is, it promises not to make additional issuance through technical means. This operation itself has brought it a lot of praise and is very popular.

PS: What is a parent inscription? Because the interaction speed on BTC is slow and the gas is high, when the number of operations is relatively large. In order to improve efficiency, a parent inscription is usually set first. In the transaction of the parent inscription, multiple child inscriptions are directly processed in batches, which can save blockchain storage space and processing time during interaction.

Finally, let’s talk about the CTV mentioned by Casey, which is “Check Template Verify”.

CTV is a proposed protocol upgrade for Bitcoin that aims to enhance the smart contract and locking capabilities of the Bitcoin network by allowing users to specify a template for future transactions when creating transactions. The activation of CTV will enable users to create more complex transaction types, such as trusted airdrops and open-ended etchings, without the explicit support of the protocol.

This CTV proposal increases the programmability and flexibility of the Bitcoin network. In this discussion, in simple terms, it is possible to create a template for unlocking conditions using UTXOs, which may create more ways to play Runes. For example, through “Runes protocol + CTV”, 10 users can jointly use CTV technology to mint runes together, and then preset promises for some future Bitcoin payment transactions.

Disclaimer：

1. This article is reprinted from [极客web3]. Forward the Original Title‘An expanded discussion on the Runes protocol and the “open etching” issuance mechanism’. All copyrights belong to the original author [MiX]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
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