In-Depth Analysis of the Runes Protocol: Design Mechanisms and Limitations

1. Runes( Overview

In the past year, the most remarkable development in the Web3 space has been the explosion of the inscription ecosystem, which can be traced back to the Ordinals protocol. Ordinals is a technology that assigns a unique serial number to each satoshi on Bitcoin.

The core founder of the Runes protocol, Casey, submitted the basic version of the code as early as September last year, but the mainnet version has not been officially released. This has prompted some projects to fork the code early and release protocols such as Runes Alpha. Despite the controversy, these projects have achieved a total market capitalization growth of hundreds of millions of dollars in just a few months, demonstrating the enormous potential of the Runes protocol.

The official version of the Runes protocol is scheduled to launch on the Bitcoin mainnet around April 20, 2024. This means that project teams, wallet service providers, and trading platforms will face the challenge of developing and testing directly in the mainnet environment.

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) 2. Bitcoin blockchain data recording method

There are two main off-chain data attachment methods on Bitcoin: engraving and etching.

2.1 Basic Principles of Etching

Runes uses etching technology to write information directly into the OP_RETURN field of Bitcoin UTXO. This method has been available since the 2014 Bitcoin Core 0.9 version, creating a verifiable but non-consumable output that allows data to be stored on the blockchain.

In the blockchain explorer, the OP_RETURN information attached to the transaction can be clearly seen. This information is usually in hexadecimal encoding, and after decoding, it can be presented as a JSON formatted string, containing information about the deployment, minting, and issuance of Runes assets.

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)# 2.2 Engraving Basic Principles

Ordinals/BRC20 and other protocols achieve on-chain storage by writing metadata into the witness data of transactions. This process utilizes segregated witness and the "paying to Taproot" method, divided into two stages: submission and disclosure, typically requiring two transactions to complete.

P2TR is a type of transaction output introduced by the Bitcoin Taproot upgrade in 2021, which enhances the privacy of transaction conditions. The engraving process includes the transaction ###commit( that generates the P2TR address and the transaction )reveal( that reveals the script content.

The Ordinals protocol stipulates that inscriptions are bound to the first sat of the first input, thereby completing the inscription process.

)# 2.3 Comparison of Two Solutions

Etching advantages:

• The logic is simple and intuitive
• Low transaction costs
• Does not occupy the full node memory pool

Etching drawbacks:

• Limited to a length of 80 bytes
• Requires highly compressed data encoding

Advantages of engraving:

• Almost no restrictions on data size
• Has certain privacy protection capabilities
• Supports various advanced features such as time locks, proof of work ###.

Drawbacks:

• Requires two transactions to be on-chain, resulting in higher total costs.
• Commit transaction duration is long, putting a lot of pressure on the full node memory pool.

( 3. Runes protocol design analysis

)# 3.1 Runes version 0.11

The initial version of the Runes protocol includes three main components:

• edicts### asset transfer information ###
• etching( asset deployment information)
• burn(销毁)

This version is relatively complete, supporting operations such as asset composition and splitting. Compared to Ethereum smart contracts, protocols like Runes unify the methods of asset issuance and participation, emphasizing the concept of fair launches.

(# 3.2 Runes version 0.18

The latest version of the Runes protocol introduces several important updates:

1. The edicts field adds a pointer parameter to optimize the encoding efficiency when transferring multiple assets simultaneously.

2. Add a Mint field to limit each transaction to mint only one asset, balancing the participation opportunities for technical users and regular users.

3. etching) asset deployment### field significantly improved:

   • Optimize the asset ID generation method to reduce the coding amount.
   • Introduce the terms field, allowing the issuer to specify the minting start and end time.
   • Set the cap parameter to limit the total minting times
   • Implementing name length release rules to control scarce resources
   • Use a two-step process similar to engraving ( commit and reveal ), enhancing privacy protection.

4. Add a turbo field to reserve space for future protocol upgrades.

( 4. Runes New Protocol Assessment

Advantages:

• Aligned with market demand, addressing some pain points in the inscription ecosystem.
• Embed the Ordinals protocol to quickly acquire a user base.
• Use OP_RETURN to record data, improving security and decentralization.
• As a supplement to the FT protocol, it adds functionality beyond Ordinals in NFTs.

Disadvantages:

• The timing of the launch is tight, which may affect the early development of the ecosystem.
• The rules are complex, increasing the difficulty for users.
• Name design may increase phishing risks
• Advanced features such as Layer 2 or virtual machines are not yet involved, leading to a gap compared to competitors.

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