Understanding the Explosive Rise of Runestone and the Runes Protocol in One Reading

In recent days, Runestone, with a total supply of 112,383, has garnered widespread attention in the market since its launch. Its total trading volume has surpassed an astonishing 1400 bitcoins, with the average price steadily increasing. Subsequently, the increasing distribution of airdrops has kept the momentum of Runestone high, giving it a sensation akin to striking gold. But what exactly is Runestone? And what is its relationship with the Runes protocol? This article will delve into the Runes protocol and its ecosystem, as well as provide insights into the future direction of the ecosystem.

1. Overview of Bitcoin Inscription Ecology

Background

From the wealth effect generated by $ORDI since March of last year, to the emergence of the first wave of inscriptions in May, and then to the second wave of inscription trends in November and December, everyone is discussing what to invest in today and tomorrow amidst heightened emotions. Returning to the essence of blockchain itself, what exactly are the daily inscriptions of Bitcoin? What is the Ordinals protocol? Various protocols ending in “20” are emerging rapidly, such as BRC-20, ARC-20, SRC-20, and so on. What are their connections and differences? And why has the Runes protocol suddenly emerged? Today, let’s explore the colorful ecosystem of Bitcoin protocols together with these questions in mind.

Protocol Introduction

Ordinals Agreement

Originally released by Casey (@rodarmor) in December 2022, the Ordinals protocol allows data to be inscribed on the smallest unit of Bitcoin, the satoshi. This data can include text, images, audio, video, and other information. What we commonly refer to as Bitcoin inscriptions are essentially metadata inscribed using the Ordinals protocol onto satoshis, which are often referred to as NFTs (Non-Fungible Tokens) on the Bitcoin network. For detailed information, you can refer to the article introducing the Ordinals protocol, which provides comprehensive insights: [Link to SpectrumLab Article](https://www.spectrumlab.io/zh/reports/). After reading this article, your understanding of Ordinals inscriptions will surpass 99, as it provides detailed explanations.

BRC-20 protocol

The BRC-20 protocol was introduced by an anonymous developer, @domodata, on March 8, 2023. It is based on the Ordinals protocol introduced earlier. This protocol enables the deployment, minting, and transfer of tokens by encoding token names, quantities, and other information into satoshis using a specific JSON format. On the second day of its release, over 30,000 inscriptions were minted, with nearly 27,000 of them being of text type. Modeled after the Ethereum ERC-20 token standard, BRC-20 is named after it, serving as a token issuance protocol based on the Ordinals protocol. The first token under the BRC-20 protocol is $ORDI, which saw astonishing growth during the first and second waves of inscriptions. Recently, @domodata and his creation @L1Fxyz proposed an upgrade at block height 837090, supporting self-issuance mode, 5-character token names, and methods for burning BRC-20 assets. You can find the original proposal here: BRC-20 Proposal for Issuance and Burn Enhancements).

ARC-20 protocol

ARC-20 is a colored coin model that differs from the Ordinals protocol. Each token under the ARC-20 protocol must be supported by a satoshi, unlike BRC-20 where tokens are distinguished through ordering. Information is inscribed into transaction scripts, and balances are represented using the quantity of satoshis in UTXOs (Unspent Transaction Outputs). The transfer functionality is entirely handled by the Bitcoin mainnet, and changes related to the tokens are intuitively reflected on the blockchain. Additionally, Artomicals ensures that each ARC-20 token is treated as the first “output” of a transaction through instructions, thus preventing it from being spent as a miner fee. Initially, when wallets did not support this protocol, there were instances of burning assets.

SRC-20 protocol

SRC-20 utilizes the BTC STAMPS protocol, also known as the Bitcoin Stamps protocol, instead of the Ordinals protocol. This can be observed from the addresses used during inscription and transfers. SRC-20 tokens are associated with Bitcoin addresses starting with “bc1q” rather than the commonly used “bc1p” addresses. The primary difference between Stamps and Ordinals lies in their architectures. The Stamps protocol stores metadata in multi-signature UTXOs (Unspent Transaction Outputs), while the Ordinals protocol stores metadata in the SegWit portion of Bitcoin transactions.

2. Runes Protocol

Timeline Background

On May 8, 2023, core developers of Bitcoin (BTC) published an article stating that the BRC-20 protocol has caused excessive garbage and frequent transactions, leading to network congestion. They called for action within the BTC community to prevent this. On September 1, Casey publicly opposed the BRC-20 protocol and hoped to halt the minting of BRC-20 tokens. On September 26, 2023, Casey Rodarmor developed a new protocol called Runes as a replacement for BRC-20. This protocol is a UTXO-based alternative token protocol designed to provide Bitcoin users with a better user experience. Casey believes that Runes, with its improvements, can reduce the creation of excessive garbage UTXOs compared to the experimental BRC-20 protocol. At least, the current popularity of BRC-20 has already created a large number of “garbage” UTXOs.

Runes Implementation

The balance of Runes tokens is directly contained within the Unspent Transaction Output (UTXO). If a transaction contains an output, and that output’s pubkey script contains an OP_RETURN followed by data representing an uppercase letter ‘R’ in ASCII, then the transaction contains a protocol message. Runes tokens in transactions with invalid protocol messages will be burned. This allows for future upgrades that can change the allocation or creation of Runes, avoiding previous client errors in allocating Runes balances.

Transfer

The first data output in the protocol message is decoded as an integer sequence, containing three types of information: ID, OUTPUT, and AMOUNT. ID specifies which Runes token is being transferred. Each token is assigned an ID upon creation, starting from 1, with smaller values assigned to tokens created earlier. OUTPUT determines which output the allocation is assigned to. AMOUNT represents the quantity being transferred.

Create

If there is a second data output following the protocol message, the transaction is considered a Runes token creation transaction. This section of data outputs will be decoded into two integers: SYMBOL and DECIMALS. Any additional integers will be invalid. SYMBOL is equivalent to the ticker symbol in BRC-20, representing the token name, with a maximum of 26 characters and only supporting letters A-Z. DECIMALS denotes the precision, determining how many decimal places Runes tokens can support. If the SYMBOL has not been used yet, the Runes token will be assigned an ID value. The first created Runes token will have an ID value of 1. The names “BITCOIN”, “BTC”, and “XBT” are prohibited, and Runes protocol still does not support creating tokens with the same name.

Comparing With Other Protocols

Casey compared the Runes protocol with other existing Bitcoin inscription protocols in 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 the user experience, especially those relying on off-chain data?

State Model: UTXO-based protocols are more naturally suited for Bitcoin and minimize complexity by avoiding the creation of “garbage” UTXOs.

Native Tokens: Creating native tokens for protocol operations is cumbersome and less likely to be widely adopted.

Comparing with existing Bitcoin token protocols:

BRC-20: Not based on UTXO and relatively complex due to the need to use the Ordinals protocol for certain operations.

RGB: Highly complex, relies on off-chain data, developed for a long time without adoption.

Counterparty: Requires native tokens for certain operations instead of being UTXO-based.

Omni Layer: Requires native tokens for certain operations instead of 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 alternative tokens on the Bitcoin network. In contrast, the BRC-20 token standard was the first experimental protocol for creating alternative tokens on the Bitcoin network, but it resulted in a large number of UTXOs and 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 Runes balances. Each transfer transaction is split into different UTXOs, each holding a different quantity of Runes.

Technical Features

UTXO Model

Firstly, the Runes protocol demonstrates outstanding compatibility and scalability, seamlessly integrating with Bitcoin’s UTXO model and second-layer protocols such as the Lightning Network and CKB. Compared to other homogeneous token protocols like BRC-20, Runes significantly enhances operational efficiency and user experience through simplified transaction processes and token balance management directly tied to UTXOs.

Token Issuance

Runes provides greater flexibility in token issuance by allowing token names of lengths ranging from 1 to 28 characters. It also adopts various innovative issuance mechanisms, including but not limited to fixed total supply issuance and public inscription issuance, and even considers more expressive issuance methods. Among these, the fixed total supply method tends to be more centralized, with the issuer directly inscribing all Runes and distributing them afterward, 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 supply of the Runes.

In terms of UTXO management, Runes avoids the complexity and security risks that the witness part of transactions may bring by using OP_RETURN scripts. This reduces unnecessary UTXO generation and improves the overall health and efficiency of the network. The design philosophy of the Runes protocol is to reduce on-chain “footprints,” encourage optimized UTXO usage, and seamlessly integrate with the Bitcoin infrastructure. It aims to promote the development and innovation of the Bitcoin ecosystem in a more concise and intuitive manner.

User Experience

The Runes protocol supports Simplified Payment Verification (SPV) wallets, providing users with a lightweight transaction experience, which was not achievable with traditional BRC-20. It also offers developers a more friendly and accessible development environment by providing reference implementations and emphasizing compatibility with existing Bitcoin scripts and address types.

As for undisclosed details or more innovative aspects, further analysis can be conducted after the official release of the Runes protocol.

3. Potential Opportunities of Runes Protocol

Currently, many projects based on the Runes protocol are beginning to generate buzz in the market. Strictly speaking, there are no Runes tokens available yet since the official Runes protocol has not been released. Many projects are still utilizing Bitcoin NFTs for issuance. Upon the official release of the protocol, tokens are expected to be distributed in the form of airdrops or 1:1 exchanges. Below are some early-stage projects anticipated to utilize the Runes protocol.

RSIC

RSIC, in simple terms, utilizes a pre-mining mechanism, with token minting awaiting the launch of the Runes protocol. RSIC offers four reward distribution methods: fixed rewards, enhanced rewards, random rewards, and halving rewards. During issuance, it employs techniques such as parent-child inscriptions, Metaprotocol fields, and recursive inscriptions. This project boasts rich gameplay and advanced technology, enhancing its appeal. Additionally, different RSIC tokens have varying levels of rarity, adding to the randomness. Holding RSIC tokens under the mining mechanism allows holders to mine Runes tokens to be issued by the project in the future. After the official launch of the Runes protocol, the project will airdrop the Runes tokens it has issued to these pre-mined addresses based on the pre-mined quantity. Twitter user @wutaner has created an RSIC_DATA table to calculate mining quantities. You can find the link here: https://docs.google.com/spreadsheets/d/1xlAS5-_XS5aCHSozkcF_SCW8M1Kl2SDeolLWEvK4Sgg/edit?pli=1#gid=308398888

Runestone

Following RSIC, another highly anticipated project is Runestone. It also operates on a pre-mining basis and is spearheaded by @LeonidasNFT, the founder of Ord.io. Its airdrop rules are straightforward and transparent. At block height 826600, Bitcoin wallets need to hold 3 inscriptions to be eligible for the airdrop. However, text-based and JSON-formatted inscriptions, such as those of BRC-20, are excluded from consideration.

The Rune Guardians

The Rune Guardians has a total supply of 10,000 tokens, and different attributes will have different effects on mining. It’s worth noting that this project will transform into a true PFP series during Bitcoin halving. The gameplay of The Rune Guardians is similar to RSIC, with airdrops for Ordinals blue-chip NFT holders, and the project covers all gas costs.

Rune Alpha

Rune Alpha is an early experimental project based on the Runes protocol. It released its experimental platform in advance, initially offering unlimited minting based on block height intervals. It also introduced the first transaction market based on PSBTS technology. Additionally, RuneAlpha’s native token, $COOK, will seamlessly migrate to a 1:1 ratio upon the launch of the Runes protocol. The project has announced its latest airdrop plan and roadmap, outlining various future development directions related to Runes.

Unicross

$RUFI is the first Runes token on @merlinlayer2, allowing for the conversion of BRC-20 tokens to Runes at a 1:1 ratio. Unicross is dedicated to supporting Runes Asset minting and protocol indexing. The token was fairly launched, with 25% airdropped to Merlin chain users, while the remaining tokens are in the minting phase.

Participation Method

Currently, there are many other projects based on the concept of Runes. We have only selected some of the more popular projects for this overview. Additionally, the founder Casey recently decided to deploy tokens numbered 0-9, and the specific names are still being collected from the community. Furthermore, when Runes initially launches, all token names are required to be 12 characters or longer. Token names shorter than 12 characters will be gradually released, allowing projects in need to purchase shorter token names. Therefore, after the official launch, participation can be done in the following ways:

Directly mint the first 10 tokens numbered 0-9 deployed by Casey’s team. Since the infrastructure for Ordinals is relatively mature and there are many tools available, those with the capability can also synchronize with Ordinals full nodes in advance for participation.

1. Hold NFTs or other certificates from the pre-mined projects mentioned above. Upon deployment of the corresponding tokens on the Runes protocol by the project team, holders will directly receive the corresponding airdrops or participate in 1:1 token exchanges.

4. Introduction to Runestone Project

One of the most topical projects related to the Rune protocol recently is Runestone. On March 9th of this year, a 3.97MB-sized Runestone inscription, the largest Ordinals inscription to date, was successfully auctioned for 8 BTC. Its creator, @LeonidasNFT (an Ordinals OG and founder of Ord.io), announced that all proceeds from the auction, along with the previously donated 2.25 BTC via Twitter, would be used to cover the mining fees for the Runestone airdrop program. This airdrop aims to distribute tokens to over 112,383 Bitcoin addresses, making it one of the largest-scale Ordinals airdrop projects in history. This initiative has generated considerable anticipation within the global Bitcoin community for the upcoming launch of the Runes protocol.

When Leonidas initially proposed the idea for this airdrop, Casey commented below the tweet, discussing ways to reduce gas consumption. The name “Runestone” itself originates from one of Casey’s tweets, where he mentioned developing a feature called Runestone under the Runes protocol. This project embodies meme attributes and receives strong support from its founders, creating significant buzz within the community.

Another significant factor contributing to the potential success of the Runestone project is its mining of the largest block on the Bitcoin blockchain, achieved through collaboration with @ordinalsbot and @MarathonDH. As mentioned earlier, the Runestone inscription auctioned for 8 BTC left its mark on Block 832947, marking it as the largest Bitcoin block ever, containing the largest Bitcoin transaction ever, as well as the largest Ordinals inscription ever. The proceeds from the auction being used to cover the mining fees for the airdrop also demonstrate the Runestone project’s commitment to the entire community.

One important reason for the rapid development of the Runestone ecosystem is its emphasis on fairness from the outset. Runestone incorporates the narrative features of “airdrops,” “fairness,” and “Runes,” which contribute to the FOMO sentiment in the secondary market. Unlike previous inscriptions, Runestone has garnered consensus from both Eastern and Western community users. Previously, BRC-20 inscriptions were primarily popular in the Chinese-speaking community, but Runestone has gained traction across different cultural and linguistic communities. Leonidas even tweeted in Chinese, stating: “Runestone plays a role as a bridge between East and West, which is remarkable. I noticed the efforts and contributions of the Eastern Runestone community. Although I only understand English, it does not prevent me from seeing your contributions. Without the joint efforts of the East and West, the achievements of Runestone today would definitely not be possible.” This recognition underscores the inclusive and collaborative nature of the Runestone project, contributing to its rapid growth and adoption.

Currently, more than a dozen projects have conducted airdrops for Runestone holders, cementing Runestone’s status as a new golden shovel in the Rune ecosystem. Twitter user @0xquqi has compiled a comprehensive spreadsheet to track the summary information of Runestone airdrops. You can find the link below: https://docs.google.com/spreadsheets/d/1F27vFEzlJsJtvuaOpgX5YyXEOwfhDDvf4KOSA5m0_5M/edit#gid=0. Remind everyone: high-quality projects will be airdropped directly. Those that link to wallets or require authorized signatures must be carefully screened.

5. Future Outlook

Both Runestone and other projects within the Rune protocol have recently garnered widespread attention from both Eastern and Western audiences. This not only showcases the new technological potential of Ordinals but also reflects the market’s anticipation for this rune protocol as a whole. With the Bitcoin halving coupled with the introduction of new protocols, there’s a possibility of initiating a new cycle of Bitcoin ecosystem rotation. People have been eagerly anticipating whether the third wave of inscriptions can also arrive smoothly with the wind of runes. Let’s all wait and see!

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Disclaimer：

1. This article is reprinted from [Marsbit], All copyrights belong to the original author [Ash Li]. 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.
3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.