From inscriptions to runes, the paradigm development of asset issuance standards on Bitcoin

The asset issuance standards on Bitcoin are in competition, and the standard protocol will eventually win

Bitcoin Ecology It is becoming more complicated. Halving, inscriptions, runes and various Layer 2 are in full swing. The influx of over-the-counter funds after the passage of superimposed ETFs has been in the limelight for a while. A brief list includes Ordinals, Atomics, and Stamps. and Runes, continue to break down derivative protocols and you will find how complicated the concept is.

• ARC-20

• SRC-20

• Runes

• BRC-420

• BRC-100/102

Different from the commonly heard ERC-20 and ERC-721, they have achieved the standard definition status of FT and NFT respectively in Ethereum. The entire EVM ecosystem All are modifications to it, and various protocols on Bitcoin are still competing. Next, I judge, is the battle for specific tokens.

This situation has been demonstrated once in Ethereum expansion and is generally divided into three steps:

1. Technical paradigm competition, four types: Plasma, Rollup (ZK/SNARK/STARK, OP), state channel and side chain , Rollup route wins;

2. Specific protocol competition, ZK is Rollup zkSync, Starknet, Scroll, OP Department of OP Mainnet and Arbitrum One ecological competition;

3. Complete token issuance, OP Department leader takes the lead coins, ZK series followed slowly.

After the token is issued, each project will basically lie flat, and the focus of the industry narrative will also change. These tokens will only Occasional surges or plunges during plate rotation will briefly appear in people's eyes.

In terms of promotion, this pattern will appear in all blockchain tracks such as DA competition, DEX competition, decentralized sorter, and even public chain competition. , which is why I previously thought that BTC L2 would evolve along the Ethereum expansion route.

Will this rule happen in Bitcoin?

BTC L2 is in progress and it is difficult to make a final judgment. Inscription-type protocols may be possible, and it is also true that native Ordinals are ignited by BRC-20, but the situation with Runes will be different. On the one hand, Runes founder Casey Rodarmor made it clear that Runes will not issue tokens. On the other hand, Runes complements the asset issuance function on Bitcoin, and ultimately enhances the value capture capability of BTC, just like Uniswap empowers the Ethereum ecosystem and ETH rather than UNI. (I feel sorry for UNI holders for a second)

The interesting thing is that Bitcoin may have a paradigm evolution process that is different from any other blockchain,< strong>Based on this, a potential asset issuance rule on Bitcoin can be summarized. From BTC, Ordinals to Runes, they are the native tokens of the main network, the NFT issuance protocol and the FT issuance protocol, which are ultimately directed to BTC itself.

Of course, this inference is not necessarily correct. Inscription protocols, such as BRC-20, have launched ORDI tokens (ORDI tokens and Ordinals protocol (Unrelated), in fact, the FT asset issuance function of Runes has been implemented.

Understanding Bitcoin: Halving and UTXO

Runes may be reduced in April this year Issuance begins at the half-time block height of 840,000.

Let me break this sentence down for you:

halved in April 2024. Or people often say that 4 years is the halving cycle. The algorithm comes from the design of Satoshi Nakamoto. A block is generated every 10 minutes, 210,000 are a round, there are 1440 10 minutes in a day, and there are 365 days in a year, so That works out to a halving roughly every four years.

Halving, the block reward mechanism designed by Satoshi Nakamoto, every 210,000 blocks Blocks are halved once, that is, within the first 210,000, every time a block is generated, 50 Bitcoins can be mined, then 25, and now in the third cycle, each block is rewarded 12.5, 210,000 4 = 840,000, so the next cycle will be 840,000, and the block reward generated during the period will be 6.25. Finally, based on the halving cycle, the total number of Bitcoins can be calculated to be 21 million.

The handling fee here refers to the cost of miners packaging block transactions. Generally speaking, Miners' income consists of two parts. In addition to handling fees, there are also mining rewards. Bitcoin mining is actually a pure computing power competition, rather than solving any specific problems.

In the past, transaction fees were only 1/100 of mining rewards or even lower, but this will not be the case in the future. Inscriptions and rune protocols will lead to a large number of Bitcoin mainnet transactions are active, and mining rewards will gradually be halved, and will eventually be infinitely close to zero. By then, transaction fees must cover miner costs in order to fundamentally maintain the security of Bitcoin.

Going deeper, the Bitcoin handling fee comes from the concept of UTXO. UTXO is the dependence of Ordinals and Runes, and it is also the technical source of the two that do not rely on off-chain data. The current public chain system can actually be divided into three mainstream mechanisms: UTXO, smart contracts (EVM), and Cosmos, and all common major blockchains can basically be included in them.

In fact, UTXO is very counterintuitive, and its full name is "Unspent Transaction (Tx) Output" , that is, the unspent transaction output.

Ethereum is not like this. Addresses on Ethereum (excluding smart contract addresses) can directly display balances, and can be extended to non-EVM systems such as Solana. Still The address can display balances and can perform complex operations such as smart contracts. This is why they are all classified as smart contract type blockchains.

But Bitcoin with UTXO mechanism also needs to display the balance, so you need to use your imagination at this time. If a person's address balance cannot be displayed, then display it directly All transaction records, if everyone can know the transaction records of all addresses, then they can naturally "calculate" how many Bitcoins they have.

For example, Alice, Bob and Case use BTC to trade. It is known that Alice has 10 BTC, Bob and Case both have 0 BTC, and the miners are very kind. No handling fee for sending:

• Alice sends 10 BTC to Bob. At this time, Alice's balance is 0, Bob's balance is 10, and Case's balance is 0;

• Bob sends 5 BTC to Case, and Alice's balance is 0 at this time. Bob's balance is 5, Case's balance is 5;

• Case sends 2.5 BTC to Alice. At this time, Alice's balance is 2.5, and Bob's balance is 5, and the Case balance is 2.5;

Thanks to Bitcoin’s hash linked list structure, all network nodes only need to update The last transaction information can be used to verify all transaction records, which indirectly "calculates" the balance of each address. If you are smart, you have already felt that the Bitcoin main network only records transfer information, and you can record BTC transfers. For tracking, there is no need to record address balances at all, which is the fundamental reason why it can maintain simplicity.

It should be noted that the balances of the three only indicate transfer information. In essence, Bitcoin does not have an account system, so remember this.

If it is Ethereum, then the process should run like this:

• Alice sends 10 ETH to Bob, Alice -10 ETH, the balance is 0, Bob +10 ETH, the balance is 10, it has nothing to do with the Case and does not need to be recorded;< /p>

• Bob sends 5 ETH to Case, Bob - 5 ETH, the balance is 5, Case +5 ETH, the balance is 10, and Alice Irrelevant, no need to record;

• Case sends 2.5 ETH to Alice, Alice + 2.5 ETH, the balance is 2.5, Case - 2.5 ETH , the balance is 2.5, which has nothing to do with Bob and does not need to be recorded.

The balance here is how much ETH the real Ethereum address has, rather than simply recording transaction information.

Multiple transactions can be packaged within a block. These transactions are in order, and the transaction with the highest Gas priority is prioritized for output.

In short, the order can be established, it can be recorded, and it can be used during transactions Write some "notes". If you combine these notes in a specific order, you can produce meaningful text, images and even audio and video. They can essentially be expressed as binary data. What combines these orders is called an indexer. ), combined into a meaningful text called an inscription.

If it is improved, it is stipulated that certain burning information must follow the same rules, such as the same text symbols, numbers with long precision, and a certain number. Representing the ownership of a certain address, then a simple but sufficient FT protocol is born, which is Rune.

To sum up, both inscriptions and runes are based on the UTXO transaction sequence. This is also the main reason why both are based on Bitcoin, and the index Even if there is an error in the processor or sorting, it will not affect the data generation on Bitcoin.

Can be expanded slightly, there are two special types of Bitcoins that have no input or output:

• Coinbase trading is not the exchange, but the way Bitcoin is generated is called Coinbase. After the miner successfully packages it, it will generate a BTC, which is also the source of Bitcoin. The only production method, this kind of transaction has no input, only output, because it is created out of thin air and has no previous transaction information;

• Bitcoins from Satoshi Nakamoto's address have no output because Satoshi Nakamoto has never spent it, but this is not a technical limitation, but his own choice, which is equivalent to being passive Destruction, also known as a black hole address;

UTXO is not mysterious, it is a collection of records that have not been spent. When spent It will be automatically removed. Any transaction must have input and output, that is, there are two transaction objects. This is true except that the Coinbase transaction has no input.

(UTXO technical principles and implementation methods are not overly expanded, professionals are welcome to add~)

Inscriptions evolve to runes

Understanding the halving mechanism and the working principle of UTXO, it is very close to the implementation of the Ordinal protocol. For example, the order of Chinese characters is not the same. Affects reading. Of course, computers cannot process information with errors. Only humans have the ability to decode information in their brains, so they must be sorted.

If you sort each character according to the normal word order, it is (Chinese, 0), (character, 1), (的, 2), ( Shun, 3), (Preface, 4), (No, 5), (Influence, 6), (Effect, 7), (Read, 8) (Read, 9).

At this point, we only need to let the computer remember the order of 0123456789. If we want to change the meaning, for example, show "The order of Chinese characters does not affect reading" , then the computer displays 0213457689.

However, the only flaw is that the display sorting mechanism, that is, the indexer (Indexer) cannot be deployed on Bitcoin, and information needs to be recorded and organized off-chain. , to balance costs.

1. On Bitcoin, it is recorded that "the order of Chinese characters does not affect reading" or "Chinese characters The order does not affect reading" and the number corresponding to each word, the order of these ten words does not matter;

2. On the indexer, Organize the numbers corresponding to Chinese characters and output them in the format the user wants.

In comparison with NFT, Mingwen believes that it is the only It is an on-chain storage. In terms of the way data is stored, this is indeed the case. However, the degree of decentralization is a matter of opinion. The indexer of the inscription is not always decentralized or runs on the chain. Even if it runs on the chain On the network, a single node or too few nodes can also cause centralization problems.

NFT stores images in cloud vendors such as AWS or decentralized storage solutions such as IPFS/Filecoin and Arweave, and writes storage links on the chain , and usually the NFT deployer can change the link, but the benefits are obvious, it is extremely cheap, and on the Bitcoin chain, storage is too expensive. For details, please refer to the article I wrote before: 1.5 BTC stored in garbled code, Satoshi Nakamoto Alive? Peel off the cocoon to find the truth~.

In fact, so far, the vast majority of inscriptions/runes or various The working principles of XRC-20 and the like have been described. It is nothing more than adding a little centralization to improve efficiency and doing some ordinary operations of airdrops to boost popularity.

Or in the words of Casey Rodarmor, RGB, Taproot Assets, etc. cannot meet three conditions at the same time:

• Does not use off-chain data

• No Issuing new tokens

• Based on UTXO mechanism

In order to prevent misunderstandings, let me make a supplementary explanation on the above three points. If you do not use off-chain data ≠ you cannot use an indexer. The indexer is only for sorting, and the data is still well stored on the chain; no new tokens are issued. It means that the protocol itself does not issue tokens ≠ You cannot use the protocol to issue coins. For example, you can use Runes to issue your own coins, but Runes itself does not have protocol tokens and completely uses BTC to operate; the UTXO-based mechanism is to not give Bitcoin owners The network adds extra burden and tries not to interfere with the normal transaction behavior of Bitcoin. This is also Casey's original intention of inventing the Runes protocol.

In other words, BRC-20 can issue tokens, but Casey believes that it is not a UTXO mechanism and will "distort" Ordinal's original intention, so he might as well create one himself. FT Asset Protocol on Bitcoin.

From this perspective, Runes is the orthodox sequel to Ordinal. The two will be responsible for the issuance of FT and NFT type assets on Bitcoin respectively, and are expected to completely end The battle for standards protocols.

Different from Ethereum, there is the ERC-20 standard first and then the ERC-721 Standard, the process on Bitcoin is reversed, so Runes will be more like Ordinal, which is to transform the FT issuance method on NFT.

To be specific, it is not complicated. I will only briefly explain it:

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Issuance: Referring to ERC-20 design, the issuer must design the token name and maximum accuracy;

1. Transfer: Bitcoin does not have an account system, so it is transferred by recording information and "simulating" it.

The implementation process will not be explored anymore, because it is indeed very crude. In the fan sequel Rune Alpha, through PBST (partially signed Bitcoin transaction) allows multiple parties to sign the same transaction, such as matching the signatures of sellers and buyers, and broadcasting the results to the main network after completion. This method is in line with human intuitive logic, especially Ethereum users.

Although this article is about runes, you can also feel that a lot of ink has been spent on the principles of Bitcoin, but this is the advantage of inscriptions and runes, they are The enhancement of Bitcoin's functions is not its own creation. All its actions are the application and transformation of Bitcoin's existing functions.

Rune Alpha, RSIC and Runestone that followed Runes are all popular masterpieces. It is still unclear whether BRC-20 can continue its dominance over Ordinal. .

Conclusion

From protocol evolution to token issuance, this law is in the blockchain It has been tried and tested repeatedly, and even Ordinal, which does not issue coins, has been robbed of the limelight by BRC-20. However, Runes itself does not need tokens to support its operation. BTC is qualified from every angle. Casey himself is ideologically sympathetic to the "Bitcoin extreme". "Majorist", but more importantly, he realizes the heavy gravity of reality and cannot shout slogans in vain, so he does not agree with blocking inscriptions, but he also acknowledges the congestion caused to UTXO, so he proposed the Runes protocol. Behind the seeming contradiction, or he It is more appropriate to "practice the reality of ideology and get rid of the name of ideology".

Since last year, the trends of Inscription, ETF, BTC L2 and Rune have hit one after another, but the disregard for the principles of Bitcoin has led to various XRC-20 chaos Fei, Bitcoin is the god in charge of miners’ income, and Satoshi Nakamoto is a master of painting with mathematics and programming. In order to maintain the monitoring of Bitcoin in an era when mining rewards are increasingly decreasing, the sooner the protocol dispute ends, the better.