Crypto
Bitcoin Adoption Happens Fastest In Circular Economies
This is an opinion editorial by Kudzai Kutukwa, a passionate financial inclusion advocate who was recognized by Fast Company magazine as one of South Africa’s top-20 young entrepreneurs under 30.
There is a battle going on in the world today that is largely hidden from the general public’s view. This is not a battle between nation-states, ethnic groups or religious fanatics fighting over resources and territories. Two monetary systems are on a collision course, each with its own distinct ideology and values. One system is a tool for financial enslavement, and the other, for financial freedom. It’s a battle that not only requires our attention, but our active participation. It’s the battle for the future of money: bitcoin versus fiat.
Over the last two years, we witnessed the biggest encroachment on our freedoms by The State on a global scale. Medical martial law was unleashed on the world which crushed businesses and destroyed livelihoods; the keyboard thought police in the form of “fact-checkers” were deployed to enforce the state’s sole narrative of events with alternative perspectives being labeled “dangerous misinformation” and censored. Millions more were coerced into taking the COVID-19 vaccine because their livelihoods were on the line, while completely disregarding their individual risk profile, religious beliefs and personal preferences.
The media cheered on these gross human rights violations and gaslit everyone while chanting popular slogans like “we’re all in this together” and “it’s just 15 days to slow the spread.” In other words, take one for the team. Those that dared to protest against these draconian measures like the Canadian truckers did, had their bank accounts frozen at the drop of a hat and became victims of financial censorship.
The state overreach I outlined above was enabled by the power of the money printer. The effects of which have now come to haunt the global economy. The U.S. government, for example, spent a total of $5.2 trillion on COVID-19 relief by mid-2021. To put this in perspective, the U.S. government coughed up the equivalent of $4.7 trillion in today’s dollars to fund the most expensive war in history, World War II. Soaring inflation, broken supply chains, ever-increasing interest rates, increases in unemployment, looming sovereign debt crises, the European energy crisis, accelerated currency devaluation and an economic recession are just a few of the consequences brought about by the monetary response to the pandemic, with more to come. The global economy is in such a mess that the U.N. had to plead with central bankers not to hike interest rates! Not only do these events give us greater insight into the destructive nature of the fiat system, but they are a harbinger of things to come should this system remain intact without an alternative.
The world’s central banks are currently engaged in a “global arms race” to roll out central bank digital currencies (CBDCs), with at least 105 countries actively exploring launching a CBDC. CBDCs are the central planners’ way of trying to maintain relevance in the global economy due to the threat posed to fiat currencies by bitcoin and stablecoins. They don’t solve the biggest flaw of fiat currencies; the absolute necessity of governments to engineer growth via monetary inflation. In fact they are actually fiat on steroids. The threat of CBDCs being merged with a Chinese-style social credit system continues to grow and they are an Orwellian form of money because they offer zero privacy, are easier for The State to confiscate and they still get debased — but at a much faster rate due to their programmable nature. CBDCs are surveillance technology masquerading as money, designed to expand The State’s control over our financial lives.
According to a recent paper by the Bitcoin Policy Institute titled, “Why the U.S. Should Reject Central Bank Digital Currencies”:
“Central banks took on unprecedented levels of debt during the COVID-19 pandemic–a crisis that only accelerated the general trend of rising sovereign debt that has been ongoing since the mid-20th century. Global debt-to-GDP ratio had risen to an extraordinary 356% by the end of 2021, with 30% of the increase occurring since 2016. As of mid-2021, rapid increases in sovereign debt had already driven several countries into sovereign default and placed dozens of others on the brink. Even countries that are structurally more solvent because their debt is denominated in their own currencies, like the United States, the United Kingdom, Japan, and China, are concerned about the negative economic effects of ballooning debt…In short, governments need money, fast. As we will see, CBDCs represent an opportunity to extract it from private cash holdings.”
In other words CBDCs would make it possible for The State to conduct financial repression of the highest form at the push of a button by indirectly taxing people’s savings through the setting of negative interest rates on all CBDC balances. This tactic is not new and has also been previously recommended by the IMF in a 2015 paper titled “The Liquidation of Government Debt.” Traditionally, this was done by creating artificial demand for government bonds in order to reduce their yields; the reduced yields paired with a high inflation rate would result in negative real interest rates. The paper clearly outlines this strategy of financial repression in great detail and explicitly recommends it as a good thing despite its damage to people’s savings. Whoever controls your money, controls you, and it’s clear that CBDCs are not just useful for surveillance — they are tools for monetary repression and social engineering.
As currencies weaken and become more unstable, the powers that be usually try to prevent their citizens from dumping the weaker local currency for a stronger one, which ultimately leads to people’s savings being severely devalued. The difference now is the stronger currency is bitcoin; a fact that was recently pointed out in a tweet by Microstrategy Chairman, Michael Saylor where he showed the devaluation of every major world currency against the dollar in the last year, and the dollar’s loss in value against bitcoin. In addition to the CBDC pilot projects, we can already see media campaigns warning about the environmental impact of bitcoin and the gradual roll out of government regulations that are crafted with the intention of dissuading bitcoin ownership and self-custody. Slowly but surely they are trying to block the exits out of the fiat system.
Link to embedded tweet.
As noted in the opening paragraph, the battle for the future of money is on and the central planners, the gerontocracy, as well as their cantillionaire buddies are going to throw everything at bitcoin to try and stop it. With CBDCs fast approaching, and aggressive attacks being thrown out against Bitcoin, how do we ensure that hyperbitcoinization becomes a reality? While there is no single correct answer to this question, one thing’s for sure: Merely sounding the alarm against the dangers of CBDCs and exposing the fraudulent fiat system is great, but it’s not enough. Informing people of what not to do, doesn’t automatically result in them doing what they should.
My preferred solution to unleashing Bitcoin’s full potential and fostering mass adoption is the building of a parallel economy (AKA a Bitcoin circular economy) that has a bitcoin standard as its foundation, with goods and services being priced in bitcoin. Grass-roots bitcoin communities such as Bitcoin Beach in El Salvador, Bitcoin Ekasi in South Africa, Harlem Bitcoin in New York, Bitcoin Lisboa in Portugal, BTC Beach Camp in Thailand and Bitcoin Lake in Guatemala serve as examples of bottom-up initiatives that can lead to hyperbitcoinization, as was the case with Bitcoin Beach which became one of the catalysts that led to the adoption of bitcoin as legal tender in El Salvador. These communities also serve as the best foundations for building a bitcoin-based parallel economy that will eventually decouple from the U.S. dollar. At its core Bitcoin was designed to be a peer-to-peer monetary system, where “one bitcoin = one bitcoin,” not as a fiat-denominated speculative asset.
In order to accelerate bottom-up grassroots adoption, new user-friendly tools like wallets ought to be built that will make it possible to onboard as many people as possible, particularly in areas where financial exclusion is the norm. An example of such a tool is Machankura, which is an unstructured supplementary service data (USSD)-based custodial wallet that runs on-top of the Lightning Network and doesn’t require an internet connection. While being a custodial service has its disadvantages, the team at Machankura are currently exploring the idea of a non-custodial service that uses SIM cards as a signing device for signing and broadcasting transactions to the rest of the network. Should they manage to pull it off, it would be a significant breakthrough of monumental proportions.
Despite USSD being old technology, 90% of all mobile transactions in Africa today are powered by USSD. This is mainly due to the dominance of feature phones, which constitute 58.3% of Africa’s cellphone market. Given these dynamics, Machankura’s solution of developing a USSD-powered bitcoin wallet is a perfect fit. Presently, Machankura has a footprint in nine African countries, namely South Africa, Zambia, Namibia, Kenya, Tanzania, Uganda, Nigeria, Ghana and Malawi.
The main goal behind the project is to drive financial inclusion through the Bitcoin ecosystem in places with underdeveloped internet infrastructure and/or low smartphone penetration, as is the case in a lot of African countries as well as in most of the Global South. However, despite the low smartphone penetration in Africa, 70% of the $1 trillion worth of mobile money transactions globally were conducted by users in Africa. While research has shown the positive impact of mobile money on developing a savings culture in low income households, the users of these services aren’t shielded from the effects of monetary inflation as their savings will still be denominated in a fiat currency that gradually loses value. Furthemore, mobile money services could potentially be obsoleted once a CBDC is rolled out, or the service providers could be co-opted into being CBDC distributors. As a bitcoin-focused service, Machankura is immune to all of the above.
According to the International Labour Organization’s (ILO) estimates, at least two billion people globally are informally employed. In Africa, where at least 57% of adults are unbanked, the informal sector accounts for over 85% of all employment and contributes at least 55% to the continent’s $1.95 trillion GDP according to studies conducted by the UN and the African Development Bank. With the majority of these informal workers being unbanked, cash becomes the default option for transacting, thus making them easy targets for CBDCs, which will be marketed to them as a path to financial inclusion. Even the Bank of International Settlements (BIS) identified financial inclusion as a key driver of CBDC adoption in emerging markets. As a low-tech solution that is already operational, Machankura is a vital tool that is useful in not only banking the unbanked but in facilitating free trade and thus driving Bitcoin adoption before the majority of CBDCs have been formally rolled out. With the informal economy already existing outside of The State’s permissioned “formal economy,” embedding sound money into it via Machankura is a no-brainer.
In the words of Heritage Falodun, a Nigerian-based software engineer and Bitcoin analyst:
“Bitcoin adoption in Africa will not be spurred on by legislation alone, but by developing less complex payment rails that lower the barriers to entry into the Bitcoin ecosystem, and Machankura is a great example of this.”
I couldn’t agree more. For example, Paco de la India, a Bitcoin educator traveling the world solely on Bitcoin on a tour dubbed “Run With Bitcoin,” was greatly impressed by Machankura’s ease of use when he used the service in Nigeria. While the service is relatively new in Nigeria, de la India and a local Nigerian Bitcoiner, Apata Johnson, were not only able to talk about the power of bitcoin but to demonstrate it by sending sats to some of the locals via Machankura. Bitcoin Ekasi in South Africa have also incorporated Machankura into their orange pilling toolkit and are using it for sending sats on a weekly basis to their beneficiaries.
Link to embedded tweet.
During an interview I had with Kgothatso Ngako, the founder of Machankura, stablecoins came up and I asked him if they had any intention of incorporating stablecoin payments into Machankura, to which he responded, “No we are just focused only on bitcoin.” An impressive response, given that many of bitcoin’s critics are quick to point to bitcoin’s price volatility as one of the reasons why it’s unsuitable as a means of exchange. Stablecoins are then presented as the answer to the medium of exchange function. While stablecoins do offer “price stability” in the short term, making them an important intermediate step towards hyperbitcoinization, being tokenized fiat currencies they are not immune to debasement over the long term. In short, inflation is the price for fiat “stability” that a stablecoin offers. Bitcoin on the other hand is a deflationary currency with a stable monetary policy that increases in value over time. This is a point that Austrian economist, Hans-Hermann Hoppe, brilliantly laid out in “How Is Fiat Money Possible?” when he wrote:
“Moreover, what is so great about ‘stable’ purchasing power anyway (however that term may be arbitrarily defined)? To be sure, it is obviously preferable to have a ‘stable’ money rather than an ‘inflationary’ one. Yet surely a money whose purchasing power per unit increased — ’deflationary’ money — would be preferable to a ‘stable’ one.”
Machankura’s bitcoin focus cements its position as a vital part of the global hyperbitcoinization infrastructure for hundreds of millions of people in Africa and around the world who do not have access to reliable internet, but still need sound money. The fiat monetary system was never designed to work for everybody as the developing world has for decades had inflation exported to it by the developed world. In addition to that, the fiat system’s misaligned incentives ensure that the unproductive are rewarded at the expense of the productive. The advent of Bitcoin changed all of this by redesigning a better form of money from the ground up. Tools like Machankura are essential for driving adoption and making Bitcoin accessible to everyone, everywhere. Furthermore Machankura is an extension of Satoshi Nakamoto’s vision of a peer-to-peer monetary system, one that reduces reliance on fiat intermediaries while powering Bitcoin circular economies.
This is a guest post by Kudzai Kutukwa. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
El Salvador’s Minister of the Economy Maria Luisa Hayem Brevé submitted a digital assets issuance bill to the country’s legislative assembly, paving the way for the launch of its bitcoin-backed “volcano” bonds.
First announced one year ago today, the pioneering initiative seeks to attract capital and investors to El Salvador. It was revealed at the time the plans to issue $1 billion in bonds on the Liquid Network, a federated Bitcoin sidechain, with the proceedings of the bonds being split between a $500 million direct allocation to bitcoin and an investment of the same amount in building out energy and bitcoin mining infrastructure in the region.
A sidechain is an independent blockchain that runs parallel to another blockchain, allowing for tokens from that blockchain to be used securely in the sidechain while abiding by a different set of rules, performance requirements, and security mechanisms. Liquid is a sidechain of Bitcoin that allows bitcoin to flow between the Liquid and Bitcoin networks with a two-way peg. A representation of bitcoin used in the Liquid network is referred to as L-BTC. Its verifiably equivalent amount of BTC is managed and secured by the network’s members, called functionaries.
“Digital securities law will enable El Salvador to be the financial center of central and south America,” wrote Paolo Ardoino, CTO of cryptocurrency exchange Bitfinex, on Twitter.
Bitfinex is set to be granted a license in order to be able to process and list the bond issuance in El Salvador.
The bonds will pay a 6.5% yield and enable fast-tracked citizenship for investors. The government will share half the additional gains with investors as a Bitcoin Dividend once the original $500 million has been monetized. These dividends will be dispersed annually using Blockstream’s asset management platform.
The act of submitting the bill, which was hinted at earlier this year, kickstarts the first major milestone before the bonds can see the light of day. The next is getting it approved, which is expected to happen before Christmas, a source close to President Nayib Bukele told Bitcoin Magazine. The bill was submitted on November 17 and presented to the country’s Congress today. It is embedded in full below.
This is an opinion editorial by Joakim Book, a Research Fellow at the American Institute for Economic Research, contributor and copy editor for Bitcoin Magazine and a writer on all things money and financial history.
I don’t.
That’s it. That’s the article.
In all sincerity, that is the full message: Just don’t do it. It’s not worth it.
You’re not an excited teenager anymore, in desperate need of bragging credits or trying out your newfound wisdom. You’re not a preaching priestess with lost souls to save right before some imminent arrival of the day of reckoning. We have time.
Instead: just leave people alone. Seriously. They came to Thanksgiving dinner to relax and rejoice with family, laugh, tell stories and zone out for a day — not to be ambushed with what to them will sound like a deranged rant in some obscure topic they couldn’t care less about. Even if it’s the monetary system, which nobody understands anyway.
Get real.
If you’re not convinced of this Dale Carnegie-esque social approach, and you still naively think that your meager words in between bites can change anybody’s view on anything, here are some more serious reasons for why you don’t talk to friends and family about Bitcoin the protocol — but most certainly not bitcoin, the asset:
- Your family and friends don’t want to hear it. Move on.
- For op-sec reasons, you don’t want to draw unnecessary attention to the fact that you probably have a decent bitcoin stack. Hopefully, family and close friends should be safe enough to confide in, but people talk and that gossip can only hurt you.
- People find bitcoin interesting only when they’re ready to; everyone gets the price they deserve. Like Gigi says in “21 Lessons:”
“Bitcoin will be understood by you as soon as you are ready, and I also believe that the first fractions of a bitcoin will find you as soon as you are ready to receive them. In essence, everyone will get ₿itcoin at exactly the right time.”
It’s highly unlikely that your uncle or mother-in-law just happens to be at that stage, just when you’re about to sit down for dinner.
- Unless you can claim youth, old age or extreme poverty, there are very few people who genuinely haven’t heard of bitcoin. That means your evangelizing wouldn’t be preaching to lost, ignorant souls ready to be saved but the tired, huddled and jaded masses who could care less about the discovery that will change their societies more than the internal combustion engine, internet and Big Government combined. Big deal.
- What is the case, however, is that everyone in your prospective audience has already had a couple of touchpoints and rejected bitcoin for this or that standard FUD. It’s a scam; seems weird; it’s dead; let’s trust the central bankers, who have our best interest at heart.
No amount of FUD busting changes that impression, because nobody holds uninformed and fringe convictions for rational reasons, reasons that can be flipped by your enthusiastic arguments in-between wiping off cranberry sauce and grabbing another turkey slice. - It really is bad form to talk about money — and bitcoin is the best money there is. Be classy.
Now, I’m not saying to never ever talk about Bitcoin. We love to talk Bitcoin — that’s why we go to meetups, join Twitter Spaces, write, code, run nodes, listen to podcasts, attend conferences. People there get something about this monetary rebellion and have opted in to be part of it. Your unsuspecting family members have not; ambushing them with the wonders of multisig, the magically fast Lightning transactions or how they too really need to get on this hype train, like, yesterday, is unlikely to go down well.
However, if in the post-dinner lull on the porch someone comes to you one-on-one, whisky in hand and of an inquisitive mind, that’s a very different story. That’s personal rather than public, and it’s without the time constraints that so usually trouble us. It involves clarifying questions or doubts for somebody who is both expressively curious about the topic and available for the talk. That’s rare — cherish it, and nurture it.
Last year I wrote something about the proper role of political conversations in social settings. Since November was also election month, it’s appropriate to cite here:
“Politics, I’m starting to believe, best belongs in the closet — rebranded and brought out for the specific occasion. Or perhaps the bedroom, with those you most trust, love, and respect. Not in public, not with strangers, not with friends, and most certainly not with other people in your community. Purge it from your being as much as you possibly could, and refuse to let political issues invade the areas of our lives that we cherish; politics and political disagreements don’t belong there, and our lives are too important to let them be ruled by (mostly contrived) political disagreements.”
If anything, those words seem more true today than they even did then. And I posit to you that the same applies for bitcoin.
Everyone has some sort of impression or opinion of bitcoin — and most of them are plain wrong. But there’s nothing people love more than a savior in white armor, riding in to dispel their errors about some thing they are freshly out of fucks for. Just like politics, nobody really cares.
Leave them alone. They will find bitcoin in their own time, just like all of us did.
This is a guest post by Joakim Book. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
This is an opinion editorial by Federico Tenga, a long time contributor to Bitcoin projects with experience as start-up founder, consultant and educator.
The term “smart contracts” predates the invention of the blockchain and Bitcoin itself. Its first mention is in a 1994 article by Nick Szabo, who defined smart contracts as a “computerized transaction protocol that executes the terms of a contract.” While by this definition Bitcoin, thanks to its scripting language, supported smart contracts from the very first block, the term was popularized only later by Ethereum promoters, who twisted the original definition as “code that is redundantly executed by all nodes in a global consensus network”
While delegating code execution to a global consensus network has advantages (e.g. it is easy to deploy unowed contracts, such as the popularly automated market makers), this design has one major flaw: lack of scalability (and privacy). If every node in a network must redundantly run the same code, the amount of code that can actually be executed without excessively increasing the cost of running a node (and thus preserving decentralization) remains scarce, meaning that only a small number of contracts can be executed.
But what if we could design a system where the terms of the contract are executed and validated only by the parties involved, rather than by all members of the network? Let us imagine the example of a company that wants to issue shares. Instead of publishing the issuance contract publicly on a global ledger and using that ledger to track all future transfers of ownership, it could simply issue the shares privately and pass to the buyers the right to further transfer them. Then, the right to transfer ownership can be passed on to each new owner as if it were an amendment to the original issuance contract. In this way, each owner can independently verify that the shares he or she received are genuine by reading the original contract and validating that all the history of amendments that moved the shares conform to the rules set forth in the original contract.
This is actually nothing new, it is indeed the same mechanism that was used to transfer property before public registers became popular. In the U.K., for example, it was not compulsory to register a property when its ownership was transferred until the ‘90s. This means that still today over 15% of land in England and Wales is unregistered. If you are buying an unregistered property, instead of checking on a registry if the seller is the true owner, you would have to verify an unbroken chain of ownership going back at least 15 years (a period considered long enough to assume that the seller has sufficient title to the property). In doing so, you must ensure that any transfer of ownership has been carried out correctly and that any mortgages used for previous transactions have been paid off in full. This model has the advantage of improved privacy over ownership, and you do not have to rely on the maintainer of the public land register. On the other hand, it makes the verification of the seller’s ownership much more complicated for the buyer.
Source: Title deed of unregistered real estate propriety
How can the transfer of unregistered properties be improved? First of all, by making it a digitized process. If there is code that can be run by a computer to verify that all the history of ownership transfers is in compliance with the original contract rules, buying and selling becomes much faster and cheaper.
Secondly, to avoid the risk of the seller double-spending their asset, a system of proof of publication must be implemented. For example, we could implement a rule that every transfer of ownership must be committed on a predefined spot of a well-known newspaper (e.g. put the hash of the transfer of ownership in the upper-right corner of the first page of the New York Times). Since you cannot place the hash of a transfer in the same place twice, this prevents double-spending attempts. However, using a famous newspaper for this purpose has some disadvantages:
- You have to buy a lot of newspapers for the verification process. Not very practical.
- Each contract needs its own space in the newspaper. Not very scalable.
- The newspaper editor can easily censor or, even worse, simulate double-spending by putting a random hash in your slot, making any potential buyer of your asset think it has been sold before, and discouraging them from buying it. Not very trustless.
For these reasons, a better place to post proof of ownership transfers needs to be found. And what better option than the Bitcoin blockchain, an already established trusted public ledger with strong incentives to keep it censorship-resistant and decentralized?
If we use Bitcoin, we should not specify a fixed place in the block where the commitment to transfer ownership must occur (e.g. in the first transaction) because, just like with the editor of the New York Times, the miner could mess with it. A better approach is to place the commitment in a predefined Bitcoin transaction, more specifically in a transaction that originates from an unspent transaction output (UTXO) to which the ownership of the asset to be issued is linked. The link between an asset and a bitcoin UTXO can occur either in the contract that issues the asset or in a subsequent transfer of ownership, each time making the target UTXO the controller of the transferred asset. In this way, we have clearly defined where the obligation to transfer ownership should be (i.e in the Bitcoin transaction originating from a particular UTXO). Anyone running a Bitcoin node can independently verify the commitments and neither the miners nor any other entity are able to censor or interfere with the asset transfer in any way.
Since on the Bitcoin blockchain we only publish a commitment of an ownership transfer, not the content of the transfer itself, the seller needs a dedicated communication channel to provide the buyer with all the proofs that the ownership transfer is valid. This could be done in a number of ways, potentially even by printing out the proofs and shipping them with a carrier pigeon, which, while a bit impractical, would still do the job. But the best option to avoid the censorship and privacy violations is establish a direct peer-to-peer encrypted communication, which compared to the pigeons also has the advantage of being easy to integrate with a software to verify the proofs received from the counterparty.
This model just described for client-side validated contracts and ownership transfers is exactly what has been implemented with the RGB protocol. With RGB, it is possible to create a contract that defines rights, assigns them to one or more existing bitcoin UTXO and specifies how their ownership can be transferred. The contract can be created starting from a template, called a “schema,” in which the creator of the contract only adjusts the parameters and ownership rights, as is done with traditional legal contracts. Currently, there are two types of schemas in RGB: one for issuing fungible tokens (RGB20) and a second for issuing collectibles (RGB21), but in the future, more schemas can be developed by anyone in a permissionless fashion without requiring changes at the protocol level.
To use a more practical example, an issuer of fungible assets (e.g. company shares, stablecoins, etc.) can use the RGB20 schema template and create a contract defining how many tokens it will issue, the name of the asset and some additional metadata associated with it. It can then define which bitcoin UTXO has the right to transfer ownership of the created tokens and assign other rights to other UTXOs, such as the right to make a secondary issuance or to renominate the asset. Each client receiving tokens created by this contract will be able to verify the content of the Genesis contract and validate that any transfer of ownership in the history of the token received has complied with the rules set out therein.
So what can we do with RGB in practice today? First and foremost, it enables the issuance and the transfer of tokenized assets with better scalability and privacy compared to any existing alternative. On the privacy side, RGB benefits from the fact that all transfer-related data is kept client-side, so a blockchain observer cannot extract any information about the user’s financial activities (it is not even possible to distinguish a bitcoin transaction containing an RGB commitment from a regular one), moreover, the receiver shares with the sender only blinded UTXO (i. e. the hash of the concatenation between the UTXO in which she wish to receive the assets and a random number) instead of the UTXO itself, so it is not possible for the payer to monitor future activities of the receiver. To further increase the privacy of users, RGB also adopts the bulletproof cryptographic mechanism to hide the amounts in the history of asset transfers, so that even future owners of assets have an obfuscated view of the financial behavior of previous holders.
In terms of scalability, RGB offers some advantages as well. First of all, most of the data is kept off-chain, as the blockchain is only used as a commitment layer, reducing the fees that need to be paid and meaning that each client only validates the transfers it is interested in instead of all the activity of a global network. Since an RGB transfer still requires a Bitcoin transaction, the fee saving may seem minimal, but when you start introducing transaction batching they can quickly become massive. Indeed, it is possible to transfer all the tokens (or, more generally, “rights”) associated with a UTXO towards an arbitrary amount of recipients with a single commitment in a single bitcoin transaction. Let’s assume you are a service provider making payouts to several users at once. With RGB, you can commit in a single Bitcoin transaction thousands of transfers to thousands of users requesting different types of assets, making the marginal cost of each single payout absolutely negligible.
Another fee-saving mechanism for issuers of low value assets is that in RGB the issuance of an asset does not require paying fees. This happens because the creation of an issuance contract does not need to be committed on the blockchain. A contract simply defines to which already existing UTXO the newly issued assets will be allocated to. So if you are an artist interested in creating collectible tokens, you can issue as many as you want for free and then only pay the bitcoin transaction fee when a buyer shows up and requests the token to be assigned to their UTXO.
Furthermore, because RGB is built on top of bitcoin transactions, it is also compatible with the Lightning Network. While it is not yet implemented at the time of writing, it will be possible to create asset-specific Lightning channels and route payments through them, similar to how it works with normal Lightning transactions.
Conclusion
RGB is a groundbreaking innovation that opens up to new use cases using a completely new paradigm, but which tools are available to use it? If you want to experiment with the core of the technology itself, you should directly try out the RGB node. If you want to build applications on top of RGB without having to deep dive into the complexity of the protocol, you can use the rgb-lib library, which provides a simple interface for developers. If you just want to try to issue and transfer assets, you can play with Iris Wallet for Android, whose code is also open source on GitHub. If you just want to learn more about RGB you can check out this list of resources.
This is a guest post by Federico Tenga. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
