Author: Haotian, independent researcher Source: X
How to understand the innovative value of Runes and its potential subsequent market impact? In my opinion, Runes is a set of FT token issuance standards based on the Ordinals protocol, which will become the asset issuance basis for the subsequent construction of a huge ecosystem on the BTC network. If the stage before the halving when standards such as BRC20, ARC20, and SRC20 were flying around was regarded as a "chaotic era", will the Runes standard promote the birth of a "stable era" for the development of the BTC ecosystem? Next, let me talk about my understanding:
1) Ordinals is a protocol for issuing and transferring various encrypted assets based on the BTC network through off-chain indexing. Ordinals was initially more suitable for NFT-type assets. The emergence of the Rune standard made up for its shortcomings in the issuance and management of FT homogeneous token assets, and truly helped it become a BTC-derived crypto asset issuance and management protocol; 2) After Ordinals, a series of derivative innovative standards such as BRC20, ARC20, and SRC20 were born, all of which revolve around the Script space in UTXO, with the goal of issuing FT homogeneous assets in BTC. As the first token standard, BRC20 realizes asset issuance by placing data in the Witness segregated witness, and realizes asset management through the subsequent joint management between Ordinals and other multi-indexers; ARC20 is a derivative and improved token standard, which realizes the transfer management of derivative inscription assets based on the transfer characteristics of the chain UTXO itself, reducing the dependence on multiple indexers; SRC20 directly embeds the original data in the form of stamp code into the UTXO transaction, and can realize asset issuance and management without relying on the third-party indexer. The above three types of token issuance standards each have their own advantages and disadvantages: Although BRC20 has a strong early consensus, the market Fomo sentiment will cause the UTXO set to expand, resulting in a large amount of dust, which will harm the BTC network in the long run; ARC20 is deeply loved by the technical community for its simplicity of colored coin transfer model and Bitwork's POW mining paradigm, but its reliance on isolated witness for data storage is not perfect, and subsequent token splitting has also encountered some troubles; although SRC20 can be independent of the indexer, the problem of its own data storage creating dust for the BTC network has not been solved.
3) As you can see, this chaotic era of heroes competing for the world has lasted for a long time. Ordinals founder @rodarmorCasey proposed a new Runes standard to solve this chaos. There are two innovations:
1. The OP_RETURN Bitcoin script opcode is introduced, which can mark and store any non-payment-related data, solving the problem of UTXO dust at the source;
2. The asset transfer characteristics of the UTXO model dominated by ARC20 and others are adopted. Users can transfer and manage inscription-derived assets by transferring UTXO.
OP_RETURN is equivalent to the Blob space applied on Ethereum layer2, which can effectively record data but will not be operated by the full node. Through the OP_RETURN mark, the Ordinals protocol can manage and account according to the transfer direction of UTXO, which can well realize asset splitting and avoid asset loss. How to achieve asset splitting? For example, if Alice has 10 Rune tokens and now wants to send 2 Rune tokens to Bob:
1. Alice initiates a regular transaction transfer on the chain and specifies Bob's address as the receiving address;
2. The wallet or asset management platform will follow up and initiate an OP_RETURN transaction and mark 2 tokens to be transferred to Bob, and the remaining 8 tokens will be transferred to Alice's change address (the inscription transfer actually has 2 transactions);
(This is the reason why the assets in ARC20 are burned. If the user does not specify the change address, the default assets will "disappear" with the UTXO and transferred to the miners)
3. The Ordinals protocol index data found that OP_RETURN recorded a request to transfer 2 tokens, giving Bob's address +2 and Alice's new address +8, completing the asset splitting and transfer management.
4) It is not difficult to see that the Runes standard adopts the advantages of many and fundamentally solves the problem of UTXO inflation. The key is that the Runes standard can achieve the unification of FT and NFT asset issuance in conjunction with the Ordinals protocol, allowing the Ordinals protocol to further consolidate its foundation.
In layman's terms, the Runes standard is actually a set of FT token standards attached to the Ordinals protocol. Its combination with Ordinals will output a healthy and well-founded asset issuance and management method to the BTC market. Runes abandons the defect of BRC20's over-reliance on indexers, and makes more use of UTXO's own transfer capabilities to assist in marking, thereby realizing an asset issuance method that is close to BTC's native.
It has all the advantages of other standards, and it does not have the defects that other standards cannot solve. Unless you really want to be serious about whether the Ordinals protocol is credible, otherwise, Ordinals+Rune must be the "perfect" issuance paradigm for current BTC derivative assets.
5) In the short term, the combination of Runes and Ordinals will have an impact on token issuance standards such as BRC20, ARC20, and SRC20. After all, their comprehensive consensus + technical advantages + long-term stability have advantages, and other standards will be directly sucked away and a lot of attention and supporters.
However, this is by no means a complete replacement. If you pay attention to ARC20, it is still possible to have amazing developments in the future. In my opinion, Ordinals can be regarded as an indexer or a layer2 index chain. To some extent, it is at the same level as the CKB chain @NervosNetwork with isomorphic binding characteristics. Although the consensus of the Ordinals protocol is very strong, it is impossible to prevent the birth and development of other protocols that coexist with it. (If you are still based on Ordinals but still try to get rid of Runes to make "standard" differentiated innovation, you'd better forget it.
6) With the emergence of the Runes standard, we were surprised to find that the market has changed. The sky-high mining fees and Premine mechanism, as well as Runestone, RISC and other NFT airdrops and other gameplays have made the entire BTC derivative asset market issuance more like the early NFT market.
Some people say that it has changed the fundamentals of Fair Mint, but they are wrong. Only such a token issuance standard driven by the project party, with an open and transparent distribution mechanism, subsequent empowerment development potential, and a foundation for the continuous growth of the community is "healthy". If an asset issuance can only Fomo a wave, allowing a group of people to become rich without generating any subsequent imagination space, its significance is also very limited.
As mentioned at the beginning, I hope that the emergence of the Runes standard will usher in a "constant era" for the development of the BTC ecosystem. So far, it has started well. I also hope that as a mainstream asset issuance paradigm, it can accelerate the BTC ecosystem from the stage of speculative asset issuance paradigm to a stage of enabling layer2 development ecology.
Only when the Runes standard asset issuance creates wealth and attracts new users and the subsequent BTC layer2 chain continues to generate linkage at the ecological operation level, can the BTC ecosystem explode.
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