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The Battle For Bitcoin: The Network’s First Major Civil War

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The Battle For Bitcoin: The Network’s First Major Civil War

This is an opinion editorial by Samson Mow, CEO of JAN3 and former CSO of Blockstream.

The first major “civil war” in Bitcoin, which would decide the fate of the protocol, took place mainly between 2015 and 2017 and is referred to as the “Blocksize War” or sometimes the “Scaling Debate.” As Bitcoin became more popular and the blocks filled up, transactions became slower and more expensive. From divergent visions of Bitcoin, two camps emerged: the “Big Blockers,” mostly business types who supposedly wanted faster, cheaper transactions and Bitcoin to be established as a global payment system competing with Visa and PayPal in the short-term, and the “Small Blockers,” mostly engineer types who saw Bitcoin as a new money network that could transform our world in the long-term, if it stayed decentralized. They prioritized integrity, resilience and security, arguing that if blocks became big, it would become expensive for users to run a node and would thus incentivize hosting nodes in data centers; a one-way street towards centralization and control by a few, not much different from other systems like banks. This would mean the death of the dream of an apolitical, incorruptible, decentralized money.

The Blocksize War was likely the first attempt to co-opt Bitcoin and exert influence at the protocol level. Control the blocksize, control the protocol.

Entering The War

I found myself pulled into the war in 2015 while I was COO at BTCC, one of the world’s largest exchanges and mining pools at the time. I got a call from Mike Hearn, an early Bitcoin developer, saying, “It’s time to upgrade to Bitcoin XT.” Bitcoin XT was a “hard-fork” or incompatible upgrade to increase block size, but that information wasn’t conveyed at all. Back then, communication channels weren’t great. There was a vast divide between developers and businesses, which allowed people like Mike Hearn and Gavin Andresen to push something like this without agreement from other Bitcoin Core developers. As things progressed, they pushed harder for XT and the conversation devolved into miners versus developers. Jihan Wu, then co-CEO of Bitmain, drove a lot of the divide in China. “Fire the developers” became a rallying cry for the Big Blocker faction.

“The Blocksize War” book written by Jonathan Bier does a good job summarizing the events that transpired. There was no lack of drama, for sure. However, the book doesn’t fully capture the incredible intensity of the experience, which could sometimes be frustrating and even infuriating. Like most Bitcoiners today, those of us active during this period were very passionate about Bitcoin, and we took all of the attacks exceptionally seriously. At times, there were people on our side who doubted our ability to persevere and win. 

Roger Ver in the Bitcoin Community Slack

Another dimension to the war that doesn’t get fully captured is the disparity between the two sides. It was literally all the big, ostensibly pro-Bitcoin companies with a ton of capital at their disposal versus a ragtag handful of developers and users. My role on the Small Blocker side was perceived as a betrayal of sorts as I was an executive at a big company and should have aligned with the other business people who “knew better.” That “betrayal” and my ability to skewer the Big Blockers with intellect and wit led to a long-running campaign to get me fired from BTCC by lobbying our board of directors and investors. That should give you an idea of what kind of people we faced.

Blockstream: Augmenting Bitcoin

The prevailing narrative during the war was “Bitcoin can’t scale,” so what better way to crush that narrative than to prove it wrong through real-world implementation? After fighting the war alongside Adam Back, I decided to join Blockstream as chief strategy officer in 2017 to focus on augmenting Bitcoin, which would include building infrastructure that would help scale Bitcoin, namely: Lightning and Liquid. 

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The r/btc community made this to celebrate my addition to the Blockstream team

Blockstream has made numerous contributions to the Lightning project, particularly with Core Lightning. Lightning is a Layer 2 peer-to-peer network that operates on top of Bitcoin. It works by opening channels and aggregating smaller transactions off-chain, similar to opening a tab at a bar and paying at the end. Lightning is designed to scale micropayments, enabling anyone to transact bitcoin with near-zero fees. It has a theoretical limit of 40 million transactions per second, ultimately unleashing bitcoin as a planetary-scale decentralized medium of exchange.

The Liquid Network is a Bitcoin sidechain, a blockchain anchored one-to-one to bitcoin. It does not have a native token; it locks bitcoin on the main chain and unlocks Liquid bitcoin (L-BTC) in the sidechain, which gives it new capabilities. Liquid bitcoin is faster because there are one-minute block times and you also benefit from confidential transactions. With Liquid, you can issue digital assets on Bitcoin, such as stablecoins, security tokens and digital collectibles, so there’s no need for altcoins.

One of the first initiatives I championed after joining Blockstream was to increase the decentralization of mining. A vital lesson of the Blocksize War was that there was an overconcentration of hashrate in China, which presented a major attack vector. I secured Blockstream’s first mining site in Quebec in early 2017 and then more miners followed us to North America, leading to a mining gold rush of sorts.

Another initiative I advocated for was getting another block explorer onto the market. With Blockchain.info controlled by Blockchain.com and BTC.com owned by Bitmain, if the Big Blockers wanted, they could have made a powerful push to dictate a particular fork as being the real Bitcoin. Many people back then looked to block explorers as a source of truth. We mitigated this threat by releasing blockstream.info, which is now used in many wallets as a default explorer. Later, mempool.space made their debut and has gained a large market share.

JAN3: Mass Adoption

The best defense is a good offense. Mass adoption of bitcoin may help us to avert future wars.

After five years at Blockstream and accomplishing most of the things I set out to do, I decided to start JAN3, a Bitcoin technology company focused on mass adoption. At JAN3, we help nation-states and their citizens attain true sovereignty and prosperity through Bitcoin. This includes bitcoin bonds, mining, wallets, security, custody solutions and related infrastructure. Many developing countries, especially in Latin America, are under the heel of the International Monetary Fund and can only borrow to refinance debt; a downward spiral. Bitcoin is the way out. They just don’t all know it yet.

We must align incentives with Bitcoin to mitigate future attacks and efforts to stymie hyperbitcoinization. If nation-states are accumulating bitcoin in their strategic reserves, they’re not likely to ban it. If nation-states are mining bitcoin, they’re securing the network and not likely to attack it.

Pushing for more grassroots bitcoin adoption is critical as well. At JAN3, we aim to build the go-to bitcoin wallet for Latin America and other developing markets. We’re taking an approach we believe is different from other Bitcoin companies. Our wallet, AQUA, is primarily a bitcoin and Liquid Tether (USDt) wallet. We aim to deliver the best possible user experience for users to hold both assets and easily swap between them.

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Why is Tether important? Tether originated as a way for exchanges to operate without requiring traditional banking, but has evolved into banking for the unbanked. Much of the developing world uses USDt. Many people in countries like Argentina, Venezuela, Turkey, Ukraine and Lebanon rely on it to escape inflation and maintain purchasing power. If you want to onboard more people onto bitcoin, you need to interface with their “bank account,” and for many in the developing world, their bank accounts are increasingly denominated in USDt.

The Antagonists

So where are the characters we fought against during the Blocksize War and how are they doing today?

Bitmain

During the Blocksize War, Bitmain was the all-powerful megacorporation, with tentacles in all parts of the mining industry, from hosting to pools to ASIC manufacturing — they also boasted the largest market share and hash rate. Bitmain used its position to bully others and promote the forks, and then eventually Bitcoin Cash (aka “Bcash”).

Jihan Wu’s talking points at a mining conference in Chengdu in 2017

In recent years, they had their own internal civil war (who could have imagined?) In October 2019, a power struggle between Bitmain’s co-founders Micree Zhan and Jihan Wu erupted, and Jihan was ultimately ousted as CEO. The Blocksize War and their own civil war had a huge impact, driving their market share down to around 60% from over 75%. Bitmain’s valuation was once in the $40 billion to $50 billion range when they were seeking to IPO. Their most recent valuation was about $4 billion. They’ve repeatedly failed to launch their IPO since 2018. In 2019, I predicted they would never IPO and that has held true so far. Now that they’ve stopped pushing Bcash and Zhan runs the company as a businessman should, they may IPO someday.

Coinbase

“Fire the developers” was a rallying cry that Jihan started and Brian Armstrong amplified it at every available opportunity. In January 2016, Armstrong published a contentious blog post supporting the big blocks and Bitcoin XT, and then pushed for every single subsequent fork up to the failed SegWit2X. You have to give the guy credit for trying.

At Mountain View trying to talk some sense into Brian Armstrong in 2016

So how are they doing today? An SEC investigation determined they allowed their users to speculate on unregistered securities. Separately, the SEC charged an ex-Coinbase product manager with insider trading alongside two others. In 2022, Coinbase’s stock dropped more than 75%, resulting from these incidents, as well as their Q1 results, which were at a net loss of $430 million. They could also be $1 billion in the red in Q2. Other questionable acts include conflating its USD and USDC order books and selling spying software to the U.S. Government through its “Coinbase Tracer” program. A few days ago, Cathie Wood of ARK Invest dumped over a million shares of COIN.

Circle

Circle, the issuer of the USDC stablecoin, gave up on Bitcoin in 2016, stating that Bitcoin was over and that in five to 10 years, nobody would be using it, but still continued to support all of the attacks on the Bitcoin network.

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Circle bought the exchange Poloniex and sold it at a $146M loss a few years later. In February 2022, before the Three Arrows Capital (3AC) meltdown and the mini bear market, it announced its intention to SPAC to raise capital at a $9 billion valuation. Recently, after it raised $400 million from private equity, an investigative journalist found oddities in USDC’s registration statement, implying USDC holders are unsecured creditors in case of bankruptcy. At the same time, interest rates on USDC yields have collapsed from 10.75% to barely 0.5%, lower than a 3-year Treasury. Meanwhile, Circle CEO Jeremy Allaire declares the company is over-collateralized and in a stronger position than ever, but I’m not so sure. This doesn’t seem like an optimal time to SPAC, and if Circle can’t bring in more cash, they could be in trouble.

Digital Currency Group

Barry Silbert, the founder of DCG, created the New York Agreement (NYA) in May 2017, whereby the Big Blockers would “fire Bitcoin Core,” and allow the corporations to dictate the rules to the users.

It appears DCG and 3AC could have been colluding to extract value from Greyscale’s GBTC fund trading at a premium relative to spot bitcoin. 3AC used this leverage to fund many things like buying expensive non-fungible tokens, while Greyscale made fees through the arrangement. Terra-Luna’s collapse made 3AC go insolvent and Genesis, one of DCG’s subsidiaries, filed a $1.2 billion claim against 3AC for defaulted loans totaling $2.36 billion.

Blockchain.com

Blockchain.com (previously blockchain.info) tried hard to push for all of the Big Block forks as well. They were also the ones that blocked me from attending the NYA meeting. In July 2022, we learned that they lost $270 million and were forced to cut staff by 25%, or about 150 people, all because of bad loans to 3AC.

Roger Ver

Formerly known as “Bitcoin Jesus” and a prominent Big Blocker, Roger Ver attacked Bitcoin relentlessly during the Blocksize War. His primary weapons were using the Bitcoin.com domain and the @Bitcoin Twitter handle to spread misinformation.

In June 2022, we learned that Roger was over-leveraged on Bcash, only to see it collapse to 2019 lows. The CEO of CoinFLEX, the crypto exchange he was trading on, has outed Roger as a defaulter on a $47 million unsecured loan. The default has forced the company to stop withdrawals and try to raise the missing money through an ad-hoc token sale. They also had to make significant layoffs to cut costs. Despite being a shareholder in the exchange, Ver refused to accept responsibility, accusing CoinFLEX of owing him money.

The Big Blockers Weren’t Even Bitcoiners

Time has revealed that many of the Big Blockers were never Bitcoiners or even remotely interested in what Bitcoin could do to fix the world. Our antagonists turned out to be heavily into shitcoins, DeFi and fiat-money riches. Many did risky things with their companies, like unsecured lending, rehypothecation, etc., and they are now paying for it. 

As Bitcoin grows and becomes more prevalent, there will be more incentives to co-opt it. We need more systems and infrastructure around Bitcoin that will allow it to resist bad actors. We need more education about how Bitcoin works and why it’s essential. But most importantly, we need more adoption and alignment of incentives with Bitcoin. That is the best way to avert another Blocksize War.

We must remember what Bitcoin represents and what’s at stake: our last hope at an apolitical, decentralized, permissionless money and the prosperous future it enables. The price of freedom is eternal vigilance.

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

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El Salvador Takes First Step To Issue Bitcoin Volcano Bonds

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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.

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

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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:

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  • 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.

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RGB Magic: Client-Side Contracts On Bitcoin

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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.

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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.

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