Runes are a new fungible token protocol soon to launch on the Bitcoin halving block, block number 840,000. Designed by Casey Rodarmor, Runes are similar to BRC-20 in that they use messages on Bitcoin to communicate what the tokens do, but they are very different in how the work under the hood. Most notably, the Runes protocol is compatible with Bitcoin’s UTXO model.
We’re going to explain how the work at the absolute simplest level.
Let’s set the table: Like many other Bitcoin token schemes, Runes operations are written in the OP_RETURN of a transaction. The message in OP_RETURN does 1 of 3 things: creates a Rune ticker, “mints” a Rune ticker, or sends a Rune ticker.
Creating a Runes ticker
We “Etch” a Rune to create a new Runes ticker. When you Etch a new Runes ticker, you can specify total supply, how many can be minted at a time, and various rules around how much time is available to mint that particular Rune.
Minting a Runes ticker
Minting a Rune is the simplest operation. You simply specify in the OP_RETURN of the mint transaction that you “Mint Rune X” and the first output will contain the number of minted Runes that the “Etcher” specified.
Sending Runes
There a ton of techniques you can use to send Runes, but we’re only going to show the simplest one. The example below has a transaction input which contains 100 Runes and is sending 10 Runes to Alice and the remainder (90) back to themselves. This is actually how Bitcoin transactions work as well: If you send someone .5 BTC but have a 1.5 BTC UTXO in your wallet, you’ll send them 1.5 BTC and get 1 BTC back.
Congratulations, you understand Runes! There are a ton of bells and whistles, additional mechanics to play with for Runes, but we will cover those in a future article.