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Homogeneous tokens play a crucial economic role in any decentralized network. The homogeneity of an asset refers to its interchangeability with another unit of the same type. For example, fiat currency is interchangeable, meaning people can exchange one dollar bill for another of the same denomination. Blockchain and applications built on it utilize homogeneous tokens/cryptocurrencies to achieve various purposes, including facilitating trade, securing networks, and decentralizing networks/applications. For blockchains, they use their native tokens, such as Bitcoin using BTC and Ethereum using ETH. For applications, each blockchain has multiple homogeneous token standards. Common homogeneous token standards include ERC-20 on Ethereum and SPL on Solana. These types of tokens are used for various use cases, including meme coins and governance tokens.
MakerDAO is a good example of a DeFi lending platform on Ethereum that supports the ERC-20 standard. MakerDAO uses its native homogeneous governance token MKR to manage the issuance of MakerDAO and DAI stablecoins (another ERC-20 token).
Compared to homogeneous tokens, non-fungible tokens (NFTs) represent data units stored on the blockchain and represent unique digital items such as artwork. NFTs initially gained popularity on Ethereum using the ERC-721 NFT standard. However, on Bitcoin, there has been a lack of widely adopted NFT standards for years until Bitcoin developer Casey Rodamor introduced Ordinals theory. Ordinals include raw data recorded on the blockchain, with each sat (ordinal) assigned a unique identifier. This differs from NFTs on other blockchains (e.g., Ethereum, Solana), which typically store some off-chain data on centralized servers.
Since Casey released the Ordinals theory in December 2022, the value of the Bitcoin runestone market has grown significantly to around $2 billion as of April 2024.
This growth has prompted many developers to reconsider the potential of the Bitcoin blockchain. Among the many developments underway, perhaps the most significant is Casey's Runes, an eagerly awaited homogeneous token standard designed to coincide with the Bitcoin halving.
Runes introduce a new token standard on the Bitcoin layer 1, which improves upon Bitcoin's current homogeneous token standard (BRC-20). By leveraging a UTXO-based design (unspent transaction outputs), Runes are designed to be more efficient. UTXOs represent specific amounts of Bitcoin that users have received but not spent. The main difference between BRC-20 and Runes is that while BRC-20 aims to meet the demand for homogeneous tokens on Bitcoin using existing protocols, Runes is specifically designed from scratch for homogeneous tokens on Bitcoin.
Unlike Runes, BRC-20 allows for the creation of homogeneous tokens on Bitcoin but its design is account-based, similar to Ethereum's ERC-20. The issue with BRC-20 is that it generates a large amount of unused UTXO through the destruction and minting process of homogeneous tokens, leading to blockchain bloat and increased costs. This is akin to the concept of a factory generating a large amount of useless waste or garbage during operation.
The Runes homogeneous token protocol has several key improvements:
Avoids creating "garbage" UTXOs, reducing blockchain bloat and lowering transaction costs
Does not rely on off-chain data
Does not require additional native tokens
Compatible with Lightning Network
Improves privacy, with data hidden within UTXOs
Opportunities:
Currently, the homogeneous token market on Bitcoin is relatively small compared to ETH and SOL; however, with the introduction of a more efficient token standard (Runes), Bitcoin is well-positioned to narrow the market value gap with other blockchains' homogeneous tokens. However, for DeFi on Bitcoin to see the exponential growth many predict, a widely adopted homogeneous token standard is a prerequisite. |
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Post time 24-4-2024 12:31:54