What are Runes, and which projects are notable？

by WOO X Research

1. What are Runes?

Runes, a token standard for fungible tokens on Bitcoin, is an enhanced version of BRC-20, enabling asset creation, minting, and transfers on the Bitcoin chain with a lower blockchain footprint, requiring only one transaction compared to BRC-20's three. 

Runes protocol was founded by Casey Rodarmor who also created Ordinals protocol, a method of creating Bitcoin NFTs but directly on an individual satoshi on the base Bitcoin blockchain. Runes was developed to overcome the shortcomings of BRC-20, similar to Ethereum's ERC-20 standard. 

BRC-20's generation of invalid UTXOs (Unspent Transaction Outputs) leads to chain inflation and higher transaction costs. Runes addresses this by minimizing unnecessary UTXO data and ensuring compatibility with the Lightning Network, making it a more efficient token standard for Bitcoin.

2. How does Runes operate?

1. Basic concept of UTXO: In the Bitcoin system, whenever you receive Bitcoin, this money is recorded as a UTXO, much like an unspent change in your wallet. Each time you initiate a transaction, you use these UTXOs as the source of payment.
2. Expansion of UTXO by Runes: The Runes protocol extends the use of UTXOs, allowing a UTXO to contain not only Bitcoin but also various types of Runes tokens. For example, a UTXO can hold several different types of tokens at the same time (such as 10 Rune A, 100 Rune B, and 1000 Rune C)
3. Adding data with OP_RETURN: Runes uses a special type of Bitcoin transaction, namely OP_RETURN, to attach additional data to UTXOs. This data is used to record the quantities of different Runes tokens, allowing multiple tokens to be contained in a single UTXO.
4. Token transfer and destruction: When you initiate a transaction with a UTXO containing Runes, you can choose to transfer some or all of the Runes tokens to a new UTXO. The Runes tokens that are not transferred in the transaction will be destroyed, meaning that they no longer exist in the original UTXO and will not be transferred to the new UTXO.
5. Comparison with BRC-20: The traditional BRC-20 protocol can only handle one type of token per transaction, which creates a large number of UTXOs and causes network congestion. This is a problem that Casey wants to solve. The Runes protocol allows multiple tokens to be processed in a single transaction, moving from one UTXO to another, making transactions more efficient.

3. How to Participate?

Less than five days after its launch, Runes had more than 2 million transactions and generated more than 1,500 Bitcoin fees. The current high-priority fee is as high as 300 sats/byte (up to 2,000 sats/byte when it first launched), making it a recent market focus. So how should we participate?

To quickly mint Runes, you might consider splitting your UTXO in advance.

Splitting your Bitcoins into multiple small UTXOs in advance has the following two advantages:

1. Flexibility: When you need to make quick transactions, such as participating in the minting of new tokens or specific events, small UTXOs can be processed faster.

2. Multi-tasking: Owning multiple small UTXOs allows you to participate in multiple transactions or mint multiple Runes at the same time, without having to wait for a large transaction to complete.

Imagine this process as shopping in a store:

If you bring a $100 bill to buy a $10 item, you will need to wait for change. In contrast, if you already have a $10 bill, you can pay directly and complete the transaction quickly.

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4. Key Projects

Before the official launch of Runes, the projects RSIC, Runestone, and PUPS have already experienced considerable increases. We can focus our attention on the first 10 launched Runes.

• UNCOMMON•GOODS: Rune #0, also the lead project, deployed by Casey in a fair-launch manner. It has a large total supply and hasn't been fully minted yet. Interested readers can mint when the Gas price drops, or buy on the secondary market.
• Z•Z•Z•Z•Z•FEHU•Z•Z•Z•Z•Z: Rune #1, only 1% of the total supply is available for minting, with 99% pre-mined. This strategy intentionally delays the minting process, which is beneficial for price control.
• DECENTRALIZED: Rune #2, 100% pre-mined for airdrop. Created by the NFT project CyberKongz, it was airdropped to its holders.
• DOG•GO•TO•THE•MOON: Rune #3, 100% pre-mined and airdropped to Runestone holders. Each Runestone NFT holder could receive an airdrop of 889,806 DOG Runes. DOG will be automatically airdropped to user wallets in the coming days, no need to claim. In the meantime, Runestone's price also fell from 0.09 BTC to 0.019 BTC. 
• THE•RUNIX•TOKEN: Rune #4, created by Bitcoin L2 - BVM. They bridged Runes to ETH, creating the first Rune on ETH.
• SATOSHI•NAKAMOTO: Rune #6, named after Satoshi Nakamoto, it is also an anonymous team, with 20% pre-mined. The quantity is also 4,200,000.
• RSIC•GENESIS•RUNE: Rune #8, 100% pre-mined for airdrop. It is an RSIC airdrop project. 

From the above, we can categorize Runes into three types:

1. Fair launch

2. Partial pre-mine

3. 100% pre-mine, used as airdrop rewards.

5. Conclusion 

Runes is an evolved version of inscriptions, making Runes more flexible and efficient. However, the core logic of the two is similar. Inscriptions heavily rely on memes. Due to technical limitations, inscriptions can only use four letters, which is easy to remember and easier to spread. This plays an important role in meme culture.

For the first four months after its launch, the Rune protocol required a minimum name length of 13 letters. After that, the minimum length of the name will be reduced by one letter every four months or so until the next halving event. At that time, it will be possible to create Runes with just a single character (26 in total).

This approach reduces the total issuance, which in the long run, benefits the overall health and growth of Runes. But in the initial stage, the longer name makes it more difficult for Runes to spread in cryptocurrency culture.

However, the next Bitcoin halving will drastically reduce the mining revenue for miners, hence, frequent transactions are needed to increase fee income to compensate for the decrease in mining revenue. Therefore, the group that has the most incentive to make the Bitcoin ecosystem thrive are the ones who benefit the most from the blockchain, and Runes can be their new narrative, their new hope.

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