Crypto
How to Buy Bitcoin
Investing shouldn’t be a light-hearted decision, but it sounds more complicated than it is. In traditional finance, some brokers guide investors through the process, making it a more straightforward experience.
With Bitcoin, there can be no intermediaries, and there should not be in the true spirit of the cryptocurrency. However, the Bitcoin offering is varied, and users can decide to invest in BTC individually with no third parties involved or by engaging a broker like an exchange or a fintech company to do the job for them.
Bitcoin Magazine is here to provide a beginner with the proper tools to make their first BTC purchase or help experienced Bitcoin users switch to more principled platforms in line with Bitcoin philosophy.
What is Bitcoin?
Bitcoin is the first decentralized and peer-to-peer cryptocurrency created by anonymous Satoshi Nakamoto in 2008.
It is decentralized and peer-to-peer because it relies on an open global network of nodes that communicate with each other to validate transactions without the need for a central authority like a bank or a financial institution.
Over the years, it has grown exponentially to become the most secure network, virtually impossible to break, and suited to allow its users to take complete control and responsibility for their own money. If you take good care of your Bitcoin, nobody can take it away from you, censor you, or manipulate your holdings. You can learn more about it in our in-depth guide about Bitcoin and how it works.
Frequently Asked Questions
Can I buy 1 Bitcoin?
You can buy any amount of Bitcoin, even as little as $1. Bitcoin is divisible, and satoshis are the smallest denomination of bitcoin. One satoshi is equivalent to 100 millionth of a bitcoin.
What’s the minimum amount I should Invest?
From an investment point of view, it is advisable to start allocating at least $10 to optimize the payment of transaction fees. If you’re planning to grow your capital gradually, you can look into ‘dollar cost averaging,’ allocating small amounts every day, week, or month.
What’s the safest way to buy Bitcoin?
The most popular exchanges like Coinbase are usually considered safe to buy Bitcoin. However, no matter where you buy it, remember to secure it immediately after purchase and take it into your own custody by removing it from exchanges subject to hacking, censoring transactions, or preventing withdrawals.
Where is the best place to buy Bitcoin?
This article will help you understand what the best-suited service for you is. It can be an app, an exchange, or a broker; however, the best place may depend on the amount you want to buy, your location, and how much you value privacy over convenience.
Key Considerations Before You Buy
Holding Bitcoin vs. an IOU
There’s a famous Bitcoin community mantra saying, “not your keys, not your coins.” What does that mean?
Bitcoin is a type of money different from traditional coins; when you own it, you actually hold a private key that gives you access to the asset. It allows you to store it securely and use it, send or receive it. By controlling the private key, you’re the only owner of Bitcoin, and nobody else can access it.
If you transact Bitcoin through an exchange or lending service, they more often hold the private key and act like a bank that keeps your money relatively safe. They can prevent you from withdrawing your own money or inducting censorship on your private key access. If your service provider is hacked, you can lose your Bitcoin.
Whether you’re looking to buy Bitcoin to make a profit or hodl it for a long time, you should consider protecting it so that it cannot be confiscated or stolen away from you.
Keeping your asset on online platforms effectively equals having an “I owe you” (IOU), not the Bitcoin itself. This is why IOU is a good idea if you plan to trade Bitcoin, but as soon as your asset becomes substantial, you should remove it from the third-party service and place it in a non-custodial wallet that only you can access.
Volatility
Bitcoin is still a relatively young asset with just over a decade. Like every new asset, it is subject to volatility, which is considered a feature, not a bug, among the Bitcoin community. Many bitcoiners take advantage of the volatility to sell the asset when it climbs in value and buy back when it crashes to grow their stack. Bitcoin traders use volatility to make money during price swings.
Ardent bitcoiners would say you should hodl Bitcoin for over two cycles (typically over eight years) because volatility still points to the upside over the long term. You could still generate attractive returns in between cycles if you embrace it.
Privacy
Bitcoin’s transactions are anonymous, so no name, address, email, or sign-in forms are necessary to use BTC; however, they are linked to specific public addresses that are indeed shared and open for everyone to watch.
Those addresses will forever display the transactions executed through them; therefore, it’s easy for everyone to know how much Bitcoin has been sold, bought, moved, and used through one specific address.
This inconvenience is avoidable by changing the public address every time you want to use Bitcoin. Most wallets do this automatically, making your money more difficult to trace.
You can take further measures to enhance security and anonymity and explore them in our article on How to buy Bitcoin anonymously.
Personal responsibility
We are used to delegating responsibility for our money to third parties like a bank or a financial institution so that we don’t have to worry about where to keep it safe. However, we mentioned earlier that this comes with trade-offs, as your money is under the control of another entity, and you may lose it.
One of Bitcoin’s main features is personal responsibility, which is challenging but rewarding. It’s challenging because you must use strict practical precautions to keep it safe at all times. If you don’t, you may lose your money, and nobody can give it back to you.
Being decentralized and entirely independent from the control of a third party, Bitcoin has no typical structure of an organization. Therefore, there is no contact center to call if you lose your money or have an issue with your transfer.
You must learn how to manage it yourself. However, a lot of help is available through social media channels, books, websites, and Bitcoin Magazine, so you won’t find it hard to get your way around it quickly and efficiently, even if you’re not a techie user.
It becomes very rewarding because you attain the feeling of owning the asset entirely, and nobody can take it away from you.
Taxes
Bitcoin is not exempt from taxation. Generally, if you hodl Bitcoin long-term, no income or capital gains tax is involved. You might incur a tax event when you sell or use it to purchase goods.
Before you go ahead and buy it, you should consider checking the tax implication in your country, which may differ from another jurisdiction.
How to Buy Bitcoin
The days you could buy Bitcoin only on Mt Gox (the first exchange) have long gone. Today, the offering is so abundant that you are spoiled for choice. From fintech companies to simple exchanges, you can choose to buy Bitcoin anonymously or not at any time.
Exchanges are the most common method of buying Bitcoin, so we have itemized the basic steps required to start making your first Bitcoin purchase. They may differ in terms of offerings and services, but the registration and purchasing processes are very similar across the board.
A list of exchanges and other purchasing methods will follow.
How to buy Bitcoin on an exchange:
1. Registration. You will be required to register and open an account with the service provider. Name, surname, email address, and date of birth will usually be enough to gain access to the exchange. You will undergo a different verification process depending on the services you want to use.
For example, stricter KYC is demanded in case of higher tiers intended for more significant purchases. In that case, a selfie with your credit card or passport displayed next to you will likely be requested by the exchange. A lot also depends on the exchange’s jurisdiction you are joining, as some countries require very little to no KYC at all.
2. Pre-purchase money transfer. Once you’re verified, you’re ready to go and buy Bitcoin. You can transfer money to the exchange using your credit/debit card for fast execution; however, this option will cost you very high fees.
If you are not in a rush to buy Bitcoin, you will incur lower fees to transfer money via a bank transfer, though the operation might take a few days to complete. Buy Bitcoin. Every exchange will offer you different options to buy bitcoin. You can set up any of the following types of orders:
3. Buy Bitcoin. Every exchange will offer you different options to buy bitcoin. You can set up any of the following types of orders:
- Instant order: an instant order to buy or sell at the requested price; if unavailable, a requote will occur.
- Market order: an immediate order to ‘buy’ or ‘sell’ at the current price in the market.
- Limit order: an order to buy or sell at a specific price or higher at any time in the future. It is an order visible to the market through the order book.
- Stop Order: an order to buy or sell when a stop price is met. Unlike the limit order is not visible to the market until the price is matched; then, it becomes a visible market order. like , or . Hardware wallets operate offline and are recognized as cold storage, assuring you that online hacks are virtually impossible.
4. Secure your bitcoin. Once your Bitcoin holding becomes substantial, it is recommended that you secure it in a hardware wallet like Trezor, Ledger or Opendime. Hardware wallets operate offline and are recognized as cold storage, assuring you that online hacks are virtually impossible.
There are plenty of ways to buy Bitcoin other than exchanges. In the early days, it was common to buy Bitcoin in person. However, the cryptocurrency’s value was negligible then, and such a method would not be recommended today. Keep reading to explore the multiple options available if you want to buy on exchanges or other services.
Where to Buy Bitcoin
Exchanges
Starting with exchanges, here are a few marketplaces where you can begin building your Bitcoin portfolio. The main difference between exchanges and other fintech services is that these offer investment vehicles that are not available in exchanges, mainly used for buying and selling digital assets only.
Bitcoin only exchanges
Listed below is a list of a mix of centralized and decentralized exchanges that are recommended to buy or sell Bitcoin only. They should be the preferred method to buy Bitcoin as they better support and safeguard the Bitcoin network.
1. River is a US-based Bitcoin-only custodial exchange that claims to be very easy and secure to use while offering plenty of good educational material to understand Bitcoin.
River charges fees based on how much Bitcoin you buy, starting from 1.20% but offers no fees for recurring buys. River stores all bitcoins offline and in secure cold storage. River also offers customers to buy Bitcoin miners.
2. Swan is River’s main competitor in the USA and claims to be the most secure platform to buy Bitcoin. Swan provides similar services to River, with the main difference being in the fees: Swan’s are 0.99% while River’s start at 1.2%. They offer recurring daily, weekly, or monthly purchases, which they made enticing due to a very competitive USD/BTC conversion rate.
3. CoinCorner is a Bitcoin exchange based in the Isle of Man, Great Britain. They have over 2 million users across over 45 countries they serve. Deposits and withdrawals are only available in GBP and Euro. They have fixed transaction fees based on the amount processed.
Deposits are free in the UK and Europe however, they have a fixed fee of £25 for every other region. Withdrawals cost 1GBP and 1EUR, depending on the currency used. There’s no fee for depositing or withdrawing Bitcoin.
4. Bull Bitcoin is a longstanding Bitcoin-only exchange established in 2013 and appears to be a very simple service to use from the start. There are no frills on the opening page, and every essential information you need to know about the service is displayed right away. You can also use Bull Bitcoin to pay your bills online with Bitcoin.
They are widely appreciated for their efficient customer support and have tiered-based transaction fees starting from 0.5% for $100CAD to $1000CAD, up to 1.25% for amounts transacted over $10,000CAD.
5. Robosats is a peer-to-peer Bitcoin exchange ideal for onboarding new users as it’s easy and quick to use. It requires no KYC since it’s based on pseudonymous avatars that allow customers to trade Bitcoin over the Lightning Network using the TOR browser only.
Users can also easily swap on-chain Bitcoin for Lightning liquidity. Established in early 2022, the non-custodial exchange has a lot of room for improvement, but it is set to provide the prototype of a Bitcoin-only exchange based on privacy and security.
6. Hodl Hodl is another peer-to-peer Bitcoin exchange that also offers peer-to-peer lending services. It’s a non-custodial platform that requires no KYC or AML procedures. The exchange accepts almost all fiat currencies and many payment methods to start trading, including cash in person and bank transfers.
It works simply: a contract is generated, and Hodl Hodl creates a unique multi-sig escrow. The seller deposits Bitcoin directly from his wallet and agrees on a payment method with the buyer. The seller releases Bitcoin from multisig escrow directly to the buyer’s wallet.
7. Paxful is a Bitcoin exchange and digital wallet where customers can also use various digital currencies like Tether, Ethereum, and Monero to buy Bitcoin. Other than the typical bank transfers, Paxful offers a wide range of payment methods, including gift cards and airline tickets.
8. Relai is based in Switzerland and is Europe’s most accessible bitcoin-only investment app. It enables instant Bitcoin purchases through SEPA payment integration, and customers can set up a weekly or monthly savings plan for as little as 10 EUR. Bitcoiners appreciate it because it requires no deposit, registration, or strict KYC procedure. It’s the perfect app for beginners who want to buy and hodl Bitcoin because it’s easy to use and provides a hassle-free experience.
9. Bisq is a decentralized peer-to-peer bitcoin exchange that allows anyone to buy and sell bitcoin in exchange for fiat currencies and other cryptocurrencies. It is not a company but free software that requires no centrally-controlled servers and has no single points of failure.
Bisq does not require personal information or a linked bank account to use the platform, making it the perfect choice for those who want to preserve their privacy.
Cryptocurrency exchanges
Mainstream crypto exchanges provide trading and other services for the myriad of altcoins available in the market. They are not recommended for users who want to have a Bitcoin-only experience and do not want to be distracted by the ‘altcoin casino’ that can allure customers to fall prey to projects of dubious nature.
1. Binance is the largest cryptocurrency exchange in the world in terms of the daily trading volume. Its license to operate in cryptocurrency differs according to the jurisdiction; for example, in the US, it has a more limited operational activity than in other countries.
It allows customers to trade over 350 cryptocurrencies, but customer satisfaction is not very high due to poor customer service and difficulty sometimes in withdrawing funds. It offers 0 trading fees on selected BTC spot trading pairs and better fees when using its native BNB in a trading pair.
2. Coinbase is an easy-to-use cryptocurrency trading and investing platform with over 98 million users and $256 billion in assets. It offers its customers the ability to buy, sell, and exchange Bitcoin and over 100 other cryptocurrencies.
It provides other services like earning crypto through educational programs; however, its fees are pretty high on average compared to other exchanges. It’s often been criticized for its poor customer service and downtime during high usage traffic.
3. Kraken is one of the prominent cryptocurrency exchanges. It offers a versatile platform for individual investors and large trading firms.
Its advanced trading system and tools, including several types of stop-losses, leverage, and margin-based trading, place Kraken among the leaders in cryptocurrency exchanges.
The US-based exchange offers relatively low BTC withdrawal fees and a wide range of educational content.
4. Bitstamp is one of the oldest cryptocurrency exchange platforms, established in 2011 in Luxembourg. It allows trading and exchange between major cryptocurrencies and fiat currencies, and it targets more experienced traders in contrast with Coinbase, which is more geared toward beginners. It offers competitive fees ranging from 0.00% to 0.40% and is especially appreciated for its dedicated in-app customer support.
5. Gemini is a web- and mobile-based cryptocurrency exchange founded in 2014 by brothers Cameron and Tyler Winklevoss. It allows its customers to buy, sell, trade, and securely store Bitcoin and other cryptocurrencies. Its native stablecoin, the Gemini dollar, is tied to the US dollar.
Gemini has an easy-to-use tiered service with different interfaces and fee structures dedicated to beginner retail investors and more experienced traders.
Brokers
Brokers are intermediaries between the crypto markets and investors and facilitate buying and selling of cryptocurrencies like Bitcoin. Many brokers specializing in traditional investments like stocks, bonds, and mutual funds now also offer cryptocurrency trading through their platforms.
These can be desktop-based, app-based, or both. They offer services like copy-trading and a wide range of derivatives like futures, options, and swaps. Investors should always consider factors like broker location, withdrawal and deposit limits, trading fees, and security before choosing a suitable service.
Some cryptocurrency exchanges act as brokers too, by offering services like derivatives and leveraged trading. Here are some of the most popular Bitcoin brokers:
1. FTX is a centralized cryptocurrency exchange (CEX) specializing in derivatives and leveraged products. It is based in the Bahamas and supports the most commonly traded cryptocurrencies. US residents have to use FTX US to buy and sell Bitcoin.
While FTX and FTX US share the same management teams, they have separate capital structures, and the US division has fewer coin and token offerings.
2. eToro offers commission-free cryptocurrency trading; however, it charges a spread markup based on the cryptocurrency being traded.
One of the most popular features offered by eToro is its social trading platform with its CopyTrader service, which allows you to copy the trades of the platform’s top traders.
eToro allows users to also trade traditional investments like stocks and ETFs making it a versatile platform.
3. TradeStation is a US stockbroker founded in 1982 that started offering cryptocurrency services in May 2019 with the launch of the TradeStation Crypto platform. It provides commission-based pricing based on the trader’s account balance and whether the order is marketable. Pricing ranges between 0.05 and 0.03 percent of the trader’s order. Traders can also buy and sell Bitcoin futures through the crypto platform.
4. Webull is a commission-free trading app that includes trading cryptocurrencies other than stocks and ETFs. It requires no deposits, but, like many other brokers, it will charge a spread markup on either side of a trade. The platform provides a great all-around option to diversify a trader’s portfolio easily.
Payment Apps
1. Robinhood is a web- and mobile-based fintech platform that offers no-fee trading.
It is another versatile company that allows users to invest in and trade stocks, ETFs, options, and American depositary receipts (ADRs) other than specific cryptocurrencies based on users’ geographic location. It is very user-friendly; however, it doesn’t allow to transfer crypto assets off the platform, which means investors don’t own their Bitcoin private keys.
2. CashApp is a peer-to-peer payment system that allows users to purchase and sell Bitcoin and stocks. Unlike Robinhood, the platform enables investors to transfer their Bitcoin to their wallet, although withdrawals are limited to $2,000 daily or $5,000 within any seven days. Cash App sets a fee depending on price volatility and market trading volume, which is disclosed at the time of purchase.
3. Paypal launched its crypto service in late 2020, offering customers the ability to buy, hold, and sell Bitcoin and other cryptocurrencies. As of July 2022, the company started allowing users to move their cryptocurrencies to other wallets, as the feature was the most demanded since they began offering crypto services. Users can buy up to $20,000 weekly but no more than $50,000 during any one-year period.
Fees include an estimated 0.5% trading fee that varies depending on market conditions and a tiered transaction fee depending on the amount of Bitcoin purchased, ranging from 0.5% for purchases below $25 and 2.3% for amounts between $25 and $100.
4. Peach is a peer-to-peer mobile app that allows customers to buy and sell Bitcoin. The service is still in beta mode, and there’s a waiting list to join it; however, it is one of the few Bitcoin p2p marketplaces on a mobile application for the European market.
5. Revolut was one of the first European fintech apps to offer cryptocurrency trading, although with a temporary license. In 2022 it won full authorization to provide its cryptocurrency services across Europe and the UK. The app is straightforward to use and supports the trading of cryptocurrencies at competitive exchange rates, having access to the largest liquidity pool in Europe. Its premium customers can also transfer their Bitcoin to their wallets.
6. Venmo is an American peer-to-peer mobile payment service owned by Paypal since 2012. The platform allowed the buying and selling of Bitcoin and other few cryptocurrencies in April 2021 and has a similar fee structure to Paypal, with an estimated 0.5% trading price and a tiered transaction fee ranging from 0.5% for purchases below $25 to 2.3% for trades between $25 and $100.
ATMs
There are currently over 39,000 Bitcoin automated teller machines (ATMs) worldwide, and their number has increased fast since 2017, when only 1,000 were recorded globally.
The largest ATM producer is San Diego (CA) based Genesis Coin, with 15,364 machines installed globally.
ATMs have become an easy, fast and efficient way of buying Bitcoin with a credit/debit card and cash. Most ATMs don’t store users’ KYC information, bank details, or private keys, making it a good choice for those who want to preserve their privacy.
Their major drawback is the high transaction fees which can be as high as 20% (or more), depending on the ATM and the type of transaction being processed. The pricey transactions are mainly due to the high cost of running and maintaining the physical machine.
Read our comprehensive guide to understand how to use a Bitcoin ATM
Source: Coinatmradar.com
Summary
With increasing popularity, Bitcoin is expected to grow its user base and technological potential in the next few years. You might want to be part of this innovative monetary system, and acquiring some of it would be the first step to encouraging and expanding its network.
The key takeaways to getting involved and having a smooth buying experience are the following:
- Plan how much you want to purchase Bitcoin and how regularly you want to buy it;
- Pick a service that is suitable for your geographical location, level of technological skills, transaction fees, security, and privacy;
- Register and place your order with a credit/debit card or a bank transfer;
- Secure your asset in a non-custodial wallet that only gives you access to the private key.
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.
