Introduction to 9 Runes on the Bitcoin Halving Block

Beginner7/24/2024, 1:12:00 AM

Since April, the Bitcoin ecosystem has been buzzing, indicating a possible third wave of growth. The community's excitement peaked with the launch of the Runes protocol on the mainnet, as everyone scrambled to get ahead. However, project teams snapped up early runes, driving Gas prices to unbelievable levels. This article explores the current status of the first nine runes.

Bitcoin

Introduction

In April 2024, the Bitcoin Runes (Runes) protocol was introduced, marking a new era of creating fungible tokens on the Bitcoin network. Runes can be used in various applications, similar to Ethereum’s ERC-20 tokens. Whether for meme coins or decentralized finance (DeFi) projects, Runes offer a flexible platform. As an alternative to the BRC-20 standard, the Runes protocol simplifies token creation and management while seamlessly integrating with Bitcoin’s infrastructure. Since its launch on April 20, the Runes protocol has seen significant success, with hundreds of runes minted on its first day. The popularity of the Runes protocol continues to rise as Bitcoin’s halving approaches.

What are Runes?

Runes are a new type of Bitcoin token standard developed by Casey Rodarmor. Unlike BRC-20, each rune is interchangeable and uses Bitcoin’s security framework to store balances. The first nine runes are hard-coded, each with a unique name and Unicode code point as its currency symbol.

Key Features:

Developer and Background: Casey Rodarmor created the Runes protocol, a standardized framework for creating fungible tokens on the Bitcoin network.
Characteristics: Runes are similar to Ethereum’s ERC-20 tokens but are designed to be simpler and specifically tailored for Bitcoin. Each rune is interchangeable.
Storage and Transactions: Rune balances are stored in Bitcoin’s UTXO (Unspent Transaction Output), leveraging Bitcoin’s security. Users can create and trade runes through regular Bitcoin transactions.
Token Creation Process: Runes simplifies the token creation process using OP_RETURN, making it more efficient. To ensure fairness, Runes also supports open minting, fair distribution, and total minting.
Token Names and Minting: Rune token names follow specific rules, initially requiring 13 or more characters. Every 4 months, a token name with one fewer character becomes available, up to a maximum of 28 characters. The genesis rune, Rune 0, will be open for minting at the start of the halving and will last about 4 years.

How Does Runes Work?

The protocol assigns information to UTXO (Unspent Transaction Output) using the OP_RETURN function to create or transfer Runes tokens.

Token Issuance

When issuing Runes tokens, the protocol message must include SYMBOL and DECIMALS. The SYMBOL field defines the new rune’s code, containing only letters A to Z. If the token name is already taken, the transaction will be rejected. The DECIMALS field specifies the decimal precision of the new token.

Token Transfer

When transferring Runes tokens, the information assigned to the UTXO must include three fields: ID, OUTPUT, and AMOUNT. ID is the identifier of the token being transferred, OUTPUT specifies the receiving UTXO, and AMOUNT represents the actual transfer amount. The OP_RETURN message data must include an uppercase “R” to indicate a Rune transaction.

Pros and Cons of Runes

Pros

Based on UTXO Model: The Runes protocol uses Bitcoin’s native UTXO model, allowing each UTXO to contain any number of Runes tokens. This design integrates Runes tokens naturally into the Bitcoin system.
No Off-Chain Data Dependence: All information of the Runes protocol is included in on-chain transactions, reducing complexity and enhancing user experience.
Native BTC Token: Runes protocol operations do not require additional tokens, simplifying the process.

Cons

No Anti-Squatting Mechanism: The Runes protocol lacks a mechanism to prevent token symbol squatting. Currently, all token names must be 13 characters or longer, with the minimum length reducing every four months until the next halving.
Long Names Hinder Promotion: Initial Rune token names are long, potentially affecting promotion and ease of listing on exchanges.
Allows Project Parties to Reserve: The protocol allows project parties to reserve tokens, raising questions about fair distribution.
Scalability Issues: Transactions may involve multiple UTXOs, leading to complex and large transactions, especially with many small UTXOs. This can cause scalability issues.
Increased Transaction Fees: Bitcoin transaction fees are calculated per byte of data. Transactions involving many UTXOs are larger and more expensive.
Management Complexity: Managing UTXOs effectively requires complex wallet software, posing a challenge for developers and users.
Limited Smart Contract Functionality: The UTXO model supports less complex smart contracts compared to account-based models like Ethereum, limiting decentralized applications.
Transaction Speed: The Runes protocol may be inconvenient for users prioritizing transaction speed.
High Entry Barrier: The current complexity of the Bitcoin ecosystem sets a high entry barrier for new users.

Market Data Overview

With the BTC halving Runes project officially launched, the excessive demand for runes caused severe congestion on the BTC network, with Gas fees reaching thousands of dollars. However, the sector did not see significant wealth effects, and the hype quickly subsided.

From BTC network data, transactions accounted for up to 81.3% during the Runes protocol launch, then quickly cooled down to about 2.4%.

Source: Dune@cryptokoryo

Comparing Runes with BRC-20, Runes have become the most active L1 asset outside BTC transactions. The highest proportion of Runes appeared at the halving launch, about 99%, and the lowest was about 45.1%. Currently, Rune trading has surpassed BRC-20 tokens.

Source: Dune@cryptokoryo

From the fee contribution perspective, native Bitcoin transaction fees account for about 95%, Runes for 3%, and Ordinals and BRC-20 combined for 2%. On the halving day, Runes accounted for up to 70%.

Source: Dune@cryptokoryo

Summary:

In the first half of 2024, Bitcoin transaction types and fee structures changed significantly, especially the rapid rise of Runes transactions.
Traditional BTC transactions still hold importance in quantity, but their proportion and fee contribution are being gradually replaced by emerging transaction types like Runes.

Overview of Runes 1 to 9

Rune 1

Rune 1: Z•Z•Z•Z•Z•FEHU•Z•Z•Z•Z•Z, Fehu is the first rune engraved on Bitcoin.
Total Supply: 111,111,111
Reserved: 99.99%
Minted: 0.99%
Deployer: Fehu

According to Geniidata, Rune 1’s current market value is $12.2 million, with a 24-hour trading volume of $0.6 million and a floor price of 18,887 sats.

Introduction to 9 Runes on the Bitcoin Halving Block

Introduction

What are Runes?