What are Bitcoin Runes ?

The description of runes

Runes, the next generation of BRC-20 standard was introduced by Casey Rodarmor - the author of inscriptions in Bitcoin. In the context of the described fungible token protocol for Bitcoin, are essentially digital tokens that are managed within Bitcoin's blockchain using a specific protocol. Here's a concise breakdown:

  1. Basic Concept: Runes are digital tokens held by Bitcoin's Unspent Transaction Outputs (UTXOs). A UTXO can contain any quantity of any number of runes, enabling multiple token types and amounts to coexist within a single UTXO.

  2. Transaction Identification: A transaction is identified as part of the rune protocol if it includes an OP_RETURN output followed by specific data that identifies it as a rune transaction.

  3. Transfer Mechanism: Rune transfers are defined within a transaction. The protocol interprets specific data sequences as instructions to transfer certain amounts of specific runes to designated outputs.

  4. Burn Mechanism: Invalid rune transactions or actively setting the burn flag result in the burning (permanent removal) of involved runes, which helps manage the token supply and allows for protocol upgrades.

  5. Issuance of New Runes: New runes can be created through issuance transactions called "Etch", which are also defined by specific data sequences within a transaction. These sequences specify the rune's symbol, the number of decimals for display purposes, and the amount created.

  6. Simplicity and Compatibility: The protocol is designed to be simple, fitting naturally into Bitcoin's UTXO model and promoting efficient UTXO management instead of current BRC-20 standard which rather complex.

  7. Open Symbol Assignment: There's no mechanism to prevent symbol squatting (taking of popular or desirable symbols), keeping the protocol simple but potentially allowing early users to claim short, desirable symbols.

In essence, runes are a straightforward, UTXO-based way to manage multiple types of fungible tokens within the Bitcoin blockchain, designed to integrate smoothly with Bitcoin's existing structure and transaction processing rules.

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