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Understanding Runes: A Breakthrough for Fungible Tokens on Bitcoin
- Rune Protocol is the latest protocol to launch on the Bitcoin ecosystem, and one that has made waves across the entire crypto space. It was created to revolutionize the way fungible tokens were issued and controlled directly on the Bitcoin blockchain.
- The objective of the Rune Protocol is to facilitate more minor transaction management on the blockchain via the UTXO-based (Unspent Transaction Outputs) foundation that is consistent with Bitcoin’s original design.
- Casey Rodarmor, driven by his passion for innovation, created the Ordinals Protocol and later developed Rune to expand the DeFi ecosystem on Bitcoin. Establishing a robust fungible token protocol on Bitcoin could greatly expand its user base, attract more developers, and boost transaction fee revenue.
- The protocol utilizes the UTXO model to embed data about token creation and transfers directly within Bitcoin transactions without compromising transaction legitimacy.
- Runes are the basic units representing fungible tokens at the center of the protocol, which can be uniquely identified by its Rune ID, containing its value and current output.
- Three concepts establish the framework of the Runes protocol, namely; UTXOs, Runestones, and OP_RETURN.
- Etching describes a process of creating a fungible token using the Runes protocol. After miners have validated and processed a transaction containing an etched Runestone, a new Rune token is created and stored in the transaction’s allocated output.
- Burning Runes, or Cenotaphs, destroy Runes, incentivizing the conscious and meticulous use of Runes.
- Runes represents a major shift in the interaction possibilities of fungible tokens and the Bitcoin network, revolutionizing the way fungible tokens were issued and controlled directly on the Bitcoin blockchain.
- Compared to other token solutions that create tiny, unspendable outputs, Runes focuses on integration with Bitcoin's UTXO system, reducing blockchain bloat and keeping the blockchain leaner.
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