What are the advantages of Rune Protocol? Can it replace BRC20?

Cryptocurrency researcher Haotian has shared his views on the recently launched Rune protocol. Haotian believes that the Rune protocol, as a token standard that combines the advantages of various other protocols, has the potential to become the asset issuance foundation for the future construction of a vast ecosystem on the Bitcoin network.

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This article does not constitute investment advice.

Rune Will Become the Bitcoin Token Standard

Background: BRC20, ARC20, SRC20

The Ordinals protocol is a protocol that achieves assets based on the Bitcoin network through off-chain indexing. Initially more suitable for issuing NFT-type assets. However, the Bitcoin ecosystem still lacks a standard for fungible tokens.

After many improvements by other developers, a series of derivative homogeneous token standards such as BRC20, ARC20, SRC20, etc., were derived. BRC20, as the token standard first created based on the Ordinals protocol, achieves asset issuance by placing data in Witness segregated witnesses and is subsequently managed by multiple external indexers; ARC20 achieves the transfer management of derivative inscription assets based on the transfer characteristics of UTXO itself, reducing reliance on indexers; SRC20 directly embeds the original data in UTXO transactions in the form of stamp encoding, enabling asset issuance and management without relying on third-party indexers.

However, these standards revolve around the Script space in UTXO, and the disadvantages are also very clear. Although BRC20 has an early consensus advantage, under market FOMO sentiment, it can cause the dust problem of UTXO expansion, which will harm the Bitcoin network in the long run; Although ARC20 has a concise model for the transfer of colored coins, its reliance on segregated witnesses for data storage is not perfect, and subsequent token splits also encounter some troubles; SRC20, although it can operate without relying on indexers, does not solve the dust problem caused by data storage for the Bitcoin network.

Rune Solves Existing Bitcoin Fungible Asset Issues

The chaotic era of heroes vying for supremacy has lasted for a long time, and Ordinals developer Casey has proposed a new standard to resolve this chaos—Runes, with two innovations:

• Introducing the OP_RETURN Bitcoin opcode, which can mark and store arbitrary data unrelated to payments, fundamentally solving the problem of UTXO garbage data;
• Adopting the UTXO model asset transfer feature of ARC20, users can achieve asset transfer and management by transferring UTXO.

The first point, OP_RETURN, is equivalent to the Blobs space in the Ethereum ecosystem, which can effectively record data but will not be executed by all nodes. Through the marking of OP_RETURN, the Ordinals protocol can manage and account for transactions based on the transfer direction of UTXO, which not only avoids creating data burdens on nodes but also effectively achieves asset splitting and prevents asset loss issues.

As for how the second point achieves asset splitting and management? For example, if Alice has 10 Rune tokens and now wants to send 2 Rune tokens to Bob. Alice initiates a regular transaction transfer on the chain and specifies Bob's address as the receiving address. The wallet or asset management platform will then initiate a transaction and mark 2 tokens transferred to Bob with an OP_RETURN transaction, with the remaining 8 tokens transferred to Alice's change address, so there are actually two transactions. The Ordinals protocol indexer finds that the OP_RETURN has recorded a request to transfer 2 tokens, so it records the address for Bob +2 and the new address for Alice +8, completing the asset split and transfer management.

The reason for the risk of assets being burned in ARC20 is that if the wallet or asset management platform does not specify a change address, the default asset will disappear along with the UTXO transfer to the miner.

Considering the advantages of the above two points, the Runes protocol is actually a set of homogeneous token standards attached to the Ordinals protocol, eliminating the drawbacks of excessive reliance on indexers of BRC20, and more utilizing the transfer capability of UTXO itself to assist in marking, thereby achieving a standard closer to the native asset form of BTC.

Runes protocol has all the advantages that other standards have and none of the drawbacks that other standards cannot solve. Ordinals + Runes is currently the most perfect standard for Bitcoin derivative assets.

Will Rune Replace Existing Asset Forms such as BRC20?

Haotian believes that the combination of Rune and the inscription protocol will have an impact on the issuance standards of tokens such as BRC20, ARC20, SRC20 in the short term, as they have advantages in comprehensive consensus, technical superiority, long-term stability, etc., and other standards may even be directly drained.

However, it is not expected to completely replace them. Other standards still have room for innovation, for example, ARC20 still does not rule out the possibility of other surprising developments in the future. Haotian believes that Ordinals can be seen as an indexer or a Layer2 indexing chain, and to some extent, it competes on an equal footing with CKB networks that have binding characteristics.

Although the consensus of the Ordinals protocol is powerful, it is not possible to prevent the development of other protocols that coexist with it. However, if you still try to break away from Ordinals protocol and innovate with Runes, it is basically impossible.

Runes Contributes to the Long-Term Development of the Bitcoin Ecosystem

The Rune protocol may bring new growth to the Bitcoin ecosystem. The emergence of the Runes standard fills the shortcomings of the Bitcoin ecosystem in issuing and managing homogeneous token assets, providing a more stable and long-term asset standard to facilitate the sustainable development of higher-level applications.

On the other hand, the importance of the inscription protocol has undoubtedly increased. The Runes standard adopts the strengths of all and fundamentally solves the problem of UTXO expansion, and the key is that the Rune protocol, in conjunction with the Ordinals protocol, can separately realize the issuance of homogeneous and non-homogeneous NFT assets, further consolidating the foundation of the Ordinals protocol.

Franklin Rune Report: Rune issuance will become the standard for homogeneous token assets in the Bitcoin ecosystem

This article is not investment advice