Connect with us

Crypto

Bitcoin Songsheet: How Altcoiners Use Bitcoin To Rent Seek

Avatar photo

Published

on

Bitcoin Songsheet: How Altcoiners Use Bitcoin To Rent Seek

This is an opinion editorial by Jimmy Song, a Bitcoin developer, educator and entrepreneur and programmer with over 20 years of experience.

“We are all in this together.” So say the altcoiners when regulators are bearing down on them. Also altcoiners: “Bitcoin is wasteful, outdated and toxic.”

The weird frenemy status that Bitcoin enjoys among altcoiners is as arbitrary as it is confusing. On the one hand, they try to present a united front because clearly, Bitcoin adoption is greater than that of any altcoin, or even the entire space of altcoins combined. On the other hand, they criticize Bitcoin whenever they get a chance to build interest in their own coin. Altcoiners practice self-interested mental gymnastics worthy of the most partisan politician.

The reason for their flip-flopping inconsistency is due to monetary incentives and in that light it’s fairly easy to understand. They will argue for whatever will pump their coin. There is no sin so grave, no security exploit so big, no rent-seeking so obvious that altcoiners won’t excuse it for the sake of the pump.

Some Bitcoiners find their behavior annoying, some find it irrelevant. This is understandable because in many ways altcoins really have nothing to do with Bitcoin. Yet to ignore them would be a mistake, because they are causing tremendous amounts of harm.

And that harm is what I’m writing about today. You may think the damage of altcoins is limited, or think of those that lose out as suckers getting their due. And indeed, there’s some amount of distance that’s healthy to keep from their antics. Still, there’s a lot of collateral damage from their actions and it is for that reason we must make the argument against altcoins.

There have been many arguments against altcoins. They don’t provide anything from a technical perspective. They’re terrible assets from an investment perspective. They’re piss-poor from a security perspective.

We look frequently at their shenanigans dispassionately and even make fun of their many obvious failures, but to really convince people of the futility of altcoins, we have to argue at another level.

Advertisement
Submit your 2022 Austin Neighborhood Feedback

We must make the moral case against altcoins. In this article, I will explain how altcoins impede Bitcoin adoption, destroy value and create terrible habits. In short, I will explain how altcoins are unequivocally immoral.

Altcoiners Are Rent Seekers

The confusion that most people have when they learn about Bitcoin is based on this idea that altcoins are “similar” to Bitcoin or that they’re even in the same category. This confusion is understandable. Media organizations lump Bitcoin and altcoins into the same category of “crypto,” but more importantly, venture capitalists (VCs) and altcoin founders benefit enormously from altcoins’ association with Bitcoin. The price rise of Bitcoin and its long history of security give legitimacy to the entire category.

As a result, VCs and altcoin founders have a strong incentive to associate altcoins with Bitcoin. Of course, it’s well near impossible to copy the main property that makes Bitcoin interesting, which is decentralization. And also, it’s very difficult to value-capture and get rich without being a trusted third party in the middle, so they make up this fiction that they’re “working toward decentralization.”

Of course, even if they could add decentralization, which they don’t know how to do, they don’t want to do it because that would mean they no longer would be able to profit from the project. Still, they keep up this fiction about decentralization being a spectrum and that somehow, they’re not in the middle, stealing value. The fiction of decentralization, or being decentralized in name only (DINO) serves two functions which reveal their rent seeking.

First, it associates them with Bitcoin, which legitimizes their project in the eyes of the public, or at least to the extent that Bitcoin is legitimate. The halo effect of Bitcoin is used for marketing. The halo effect gives their coin a completely undeserved frenzy. They are making superficial copies and selling them as the real thing.

Second, it absolves them of any responsibility should anything go wrong. Altcoins are the perfect rent-seeking job. They are all salary without any of the responsibility. Their token sale terms are pretty explicit about this fact but few people read what these obscure legal documents say. It’s specifically not defined as a security in these documents and it’s specifically not a share in anything, just a donation to the development team/centralized party that created the token.

These antics are highly immoral on its face, as it’s really committing fraud by using Bitcoin’s good name. They’re like the knock-off brands from China which try to confuse the buyer into thinking they’re the genuine product. As you might expect, this has consequences for Bitcoin.

Impeding Bitcoin Adoption

Explaining Bitcoin to normies has become 100x harder because of the muddying of the waters by altcoiners. Altcoins create all sorts of confusion by saying things like “Decentralization is a spectrum,” and “Blockchain technology has many use cases.” Books like Dan Tapscott’s “Blockchain Revolution” and Chris Burniske’s “Cryptoassets” give just enough details to make blockchain seem like the secret sauce that made Bitcoin successful.

Anyone technical that’s studied what a blockchain is knows that it’s a very restricted database and not like anything they describe. As a result, as with decentralization, there’s a huge confusion about the word blockchain. People now are being sold on blockchains with magical powers like being able to solve supply chain problems, HIPAA compliance or click fraud.

Advertisement
Submit your 2022 Austin Neighborhood Feedback

Despite the “verify, don’t trust,” ethic that defines Bitcoin, altcoiners make it very difficult for people to verify. They rely instead on gaining peoples’ trust and abusing that trust for their own gain. That trust gets continually violated with all manner of broken promises about adoption, development and even price. We get giant disasters like LUNA and Bitcoin gets lumped together with the incompetence and dishonesty of altcoiners.

Sins Of Fiat Money

The fact that there are promises at all should give people pause. Who’s giving a promise in a supposedly decentralized system? And what are those promises worth?

The whole problem with fiat money is that promises to pay later are conflated with the money that’s available now. By issuing lots of promises, fiat can expand infinitely through theft. It’s only when there’s a loss of confidence in those promises that the whole scheme collapses in hyperinflation. Altcoins work the same way. They are fiat money complete with a central bank, monetary machinations and control.

Altcoins thus inherit all the moral problems of fiat money. They steal through monetary expansion, they change the rules without the consent of everyone and create all manner of rent seeking. The monetary expansion they practice is slightly different from traditional central banks in the sense that there’s a giant premine that’s released a bit at a time, but in practice it’s very similar to fiat money printing.

The muddying of the waters has had devastating effects. There are so many people that could benefit tremendously by having the ability to save without debasement or theft. Instead, many people get caught in the bear trap of altcoins, which is essentially degenerate gambling. The constant speculation on different altcoins adds no value, whereas saving allows for capital accumulation. Civilization is built using capital accumulation, which is stalled because so many resources are directed toward these useless value-destroying projects.

Destruction Of Value

The contrast between Bitcoin and altcoins couldn’t be more stark. On one side, there’s a tool to let people keep more of the value they create over time. On the other is a trap that extracts whatever value they have in indirect and obscure ways. Bitcoin is based on verification and is thus a truly decentralized money. Altcoins are based on trust that is easily abused for the benefit of the VCs.

These VCs get altcoins at massive discounts and pump the heck out of these things through marketing. They trade on the trust that the public implicitly gives them to exploit them. They make tons of money because of the discount by dumping on retail. And these retail investors aren’t just in Western countries. The investors are often the poorest and most vulnerable people in the world. Ripple, for example, is one of the most frequently traded coins in Iran. Iranians would benefit tremendously with Bitcoin, which lets them save and not be subject to the theft of their central bank. Instead, many of them are gambling.

Much like central-bank backed fiat money, the clear Cantillon winners are the rich people in the West while the poorest see their hard-earned savings stolen away from them.

So much capital, not just money, but developer time, marketing, not to mention all the effort put into altcoin trading are completely wasted instead of being put into productive use. VCs already have a poor track record of investment, given that the vast majority of their investments fail completely. With altcoins, even their failures end up profitable for the VCs.

Advertisement
Submit your 2022 Austin Neighborhood Feedback

Sadly, most VCs have no qualms about playing the role of altcoin central bankers and don’t mind deceiving the public or exploiting the poor people as long as they make their profits. Altcoin pumpers are not much different, even if they don’t go so far as participating in pay for play.

The tradeoff that’s being made here is trust in exchange for money. Multi-level marketing schemes make the same tradeoff, in which personal relationships are leveraged to sell stuff that the buyer would not normally buy. Still, at least with multi-level marketing, there’s some product that people get, whether it be some food or vitamins or clothing. With altcoins, there’s nothing provided and it’s as pure an exploitation of trust as can be.

Destruction Of Virtue

Altcoins take advantage of the most basic instincts of people, which are to get something for nothing. People naturally want to do the least amount of work for the most amount of money. In the current system, the positions that people want are exactly that. Investment banker, fund manager, venture capitalist, etc. These are what we would call rent-seeking positions because these people tax transactions without providing any value. They are leeches on society and unfortunately most jobs today have some rent-seeking component in them.

A system that lets people rent seek is a morally deficient system. Rent seeking is a form of stealing. Altcoins give people the opportunity to rent seek, provided you can get people to trust you. Cynically, you can call altcoins a way to monetize trust.

Sadly, too many people go after rent-seeking positions and don’t realize they’re destroying value. Think about all the time, labor and effort put into altcoins versus the comparative value that it’s provided to people. This is a massive waste that ultimately reduces accumulated capital, including trust.

Altcoins inflame the high-time-preference behavior that started with fiat money. You cannot plan with fiat money because the rules change all the time. Altcoins have the same problem. The rules can and do change constantly. This is why trading is such a big part of the altcoin ecosystem. You need to get in and out before the rules change.

Attacking Bitcoin

Altcoiners are not only sowing confusion and co-opting Bitcoin’s legitimacy, but they actively attack Bitcoin. For example, they assert that proof-of-work is bad because it uses too much energy. This is an ignorant technical statement and a baseless moral assertion as I’ve explained before, but has an effect on people that don’t understand energy production.

They also assert mining is centralized. They confuse mining operators with mining pools and omit the fact that users can ultimately act to deny a bad-faith block. Much like a politician caught accepting a bribe blaming the journalist for having bad moral standards, this assertion is a way to deflect from the fact that altcoins are utterly centralized.

There are many more such assertions, such as that wealth distribution is “unfair” in some way or that Bitcoiners are toxic. These are all ways to add fear, uncertainty and doubt to Bitcoin and to make the altcoin look better in comparison. Altcoiners use FUD as a way to get people interested in their altcoin from which they can rent seek. They’re trying to get people to drink mercury instead of water by pointing out the negatives of water.

Advertisement
Submit your 2022 Austin Neighborhood Feedback

Destroying Altcoins

Altcoins are a cesspool of theft, cronyism and rent-seeking. Altcoins build themselves up on the reputation that Bitcoin has worked hard to attain. They enrich the VCs and altcoin pumpers at the expense of the poor and vulnerable and inflame the high-time-preference behavior of the fiat system. They prevent the adoption of Bitcoin by their very existence and exploit the very people that Bitcoin could help. In short, altcoins are evil.

Sadly, the attitude of altcoiners is that saying good things about Bitcoin is enough to make up for their altcoin vice. They think that owning Bitcoin means they can pump altcoins to their heart’s content. That’s not how morals work. Doing the right and good thing is expected. Doing even one wrong or bad thing is something you have to answer for.

Altcoins delenda est.


Top Ten Rationalizations By Altcoiners

  1. A premine for altcoin founders is totally consistent with a decentralized, leader-less system.
  2. Adding a developer tax is totally not theft of value from everyone else that owns the coin.
  3. A Turing complete smart contract totally won’t have any bugs, especially if someone tells me so. Who has time to verify, anyway?
  4. My drooling chimp DB row designation is worth way more than a patent or a copyright.
  5. The influencer who’s getting paid by cryptocurrency companies is totally trustworthy.
  6. Even when the founder says two contradictory things, he’s completely correct both times and anyone that says otherwise is just a hater.
  7. We can totally vote for the money we prefer and they will not be subject to the laws of economics.
  8. The people initially selling tokens and making all the decisions are totally not the central single point of failure.
  9. The laws of economics don’t apply and the market cap of my token is totally going to be $500 trillion.
  10. Information security totally doesn’t matter since no one’s going to be doing anything bad with all the power they have.

This is a guest post by Jimmy Song. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Read More

Continue Reading
Advertisement
Click to comment

Crypto

El Salvador Takes First Step To Issue Bitcoin Volcano Bonds

Avatar photo

Published

on

El Salvador Takes First Step To Issue Bitcoin Volcano Bonds

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.

Read More

Advertisement
Submit your 2022 Austin Neighborhood Feedback

Continue Reading

Crypto

How I’ll Talk To Family Members About Bitcoin This Thanksgiving

Avatar photo

Published

on

How I’ll Talk To Family Members About Bitcoin This Thanksgiving

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:

Advertisement
Submit your 2022 Austin Neighborhood Feedback
  • 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.

Read More

Advertisement
Submit your 2022 Austin Neighborhood Feedback
Continue Reading

Crypto

RGB Magic: Client-Side Contracts On Bitcoin

Avatar photo

Published

on

RGB Magic: Client-Side Contracts On Bitcoin

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.

Title deed of unregistered real estate propriety

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:

  1. You have to buy a lot of newspapers for the verification process. Not very practical.
  2. Each contract needs its own space in the newspaper. Not very scalable.
  3. 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.

Advertisement
Submit your 2022 Austin Neighborhood Feedback
transfer of ownership of utxo

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.

Read More

Advertisement
Submit your 2022 Austin Neighborhood Feedback

Continue Reading