Crypto
While Others Go Free, Ross Ulbricht Faces Excessive Prison Time
This is an opinion editorial by Peter McCormack, a podcaster and filmmaker, the host of “What Bitcoin Did” and chairman of Real Bedford FC.
Over seven years ago, Ross Ulbricht was handed a double life sentence plus 40 years, without the possibility of parole. The U.S. government wants him to die in prison. The justification for such a sentence asks big questions of both the morality of the laws he was sentenced under and the judicial framework which allows for what is essentially a death sentence.
The story of Ulbricht, Silk Road, the investigation and his resultant sentencing is subjective. To some, it was an audacious and brave test of libertarianism within a system that is openly antagonistic to such actions. To others, it was the rightful incarceration of a drug dealer who caused intolerable harm. In addition, Ulbricht’s story includes accusations of assassination attempts, questions regarding the constitutional aspects of the investigation, corruption within the police, the emergent need to protect online privacy and, of course, bitcoin.
Most of the debate around Silk Road has rightly focused on whether the net societal impacts of providing a fully unregulated marketplace are positive or negative. It is the personal story behind the headlines that resonates with me, given that I’m in the same peer group as Ulbricht, share similar outlooks and interests and was an occasional user of Silk Road in its early days. That is the prism through which my views have been molded. However, while I have strong opinions, I don’t feel as though I have a morally superior view. There are plenty of people who have very troubling personal experiences, which means they will come to different conclusions about Ulbricht than I have.
Ulbricht’s punishment was related directly to the nonviolent activities associated with running Silk Road, namely: distributing narcotics, distributing narcotics by means of the internet, conspiring to distribute narcotics, engaging in a continuing criminal enterprise, conspiring to commit computer hacking, conspiring to traffic in false identity documents and conspiring to commit money laundering. It is the consideration of these acts on which my opinions of Ulbricht’s case rest.
Ulbricht is a young, well-educated, articulate man who has outstanding entrepreneurial skills and who harnessed the capacity of various technical innovations to bring something new to the world. The consideration by Trump in 2020 to pardon Ulbricht drew particular criticism. Nick Bilton, who wrote a book about Ulbricht’s case, stated in a 2020 Vanity Fair article, “I find it reprehensible that people on social media are so adamant that Ulbricht should be freed because he performed his crimes from behind a computer.”
Bilton’s argument was that there are currently half a million U.S. citizens incarcerated for drug offenses, with numerous examples of extensive life-changing sentences for much lesser crimes than those of Ulbricht. This calls into question how unfairly the current war on drugs targets certain social groups, which is an argument I would confidently assume the majority of Ulbricht’s backers would agree with. Ulbricht’s case is emblematic of the systemic failure of the war on drugs; it is not an outlier whose publicity and narrative are questionable because of relative privilege.
More importantly, Ulbricht has not looked to be treated differently by the justice system. Yes, his legal team put up a range of defenses to support his case, as is his right. Yet, once the judgment was made, Ulbricht accepted his mistakes as well as his need to be held accountable. At his original trial in 2015, prior to sentencing, Ulbricht heard the testimony from some of the parents of six victims identified to have died after consuming drugs bought via Silk Road. After hearing this, Ulbricht stated, “I never wanted that to happen. I wish I could go back and convince myself to take a different path.” Then, prior to sentencing, Ulbricht begged the judge, “I know you must take away my middle years, but please leave me my old age. Please leave a small light at the end of the tunnel, an excuse to stay healthy, an excuse to dream of better days ahead, and a chance to redeem myself before I meet my maker.” He was 31 at the time.
While Ulbricht admitted his guilt and culpability, it is still worth considering whether sending people to jail indefinitely for providing access to drugs is a reasonable action in a civilized society. Again, there are multiple angles to this issue and both sides of the argument have merit. Drug abuse is a massive societal issue with many tragic victims. It is hard to maintain a pro-drug stance if you have witnessed the impact on places like Los Angeles’ Skid Row, San Francisco’s Tenderloin area or Downtown Eastside in Vancouver.
But there is another side to this debate that does merit discussion. Essentially, should human beings be banned from ingesting substances because of the societal harm that can be inflicted? We allow access to alcohol which, when abused, is arguably one of the most destructive drugs in the world. We also embrace drugs for an increasing range of medical conditions: Over 20,000 drugs are approved for prescription in the U.S. and are used by 66% of citizens, most of whom are seeking to reduce blood pressure, relieve pain or mitigate mental health issues. These drugs too can be abused and lead to widespread societal harm, something I’ll touch on later. To some, the banning of certain classes of drugs for recreational or medicinal purposes is an arbitrary decision based on prejudice, ignorance and attitudes rooted in political and religious dogma.
Silk Road was first and foremost a platform for those wishing to take drugs recreationally. As I have documented in previous interviews, I used Silk Road directly for personal use. Silk Road enabled me to get easier access to my drug of choice. I abused that opportunity, and there are numerous stories of lives ruined by such activity. However, I also benefited from accessing the online community within Silk Road that provided open discussion forums predicated on supporting those struggling with addiction. That’s not to say that the Silk Road was an attempt to help people get off drugs, but neither was it a community looking to ruthlessly exploit those suffering from addiction without any concern for their well-being.
I also benefited from the measures Silk Road implemented to improve quality control. It is a known problem that an underground drug trade facilitates unscrupulous behavior where dealers seek to maximize returns by adulterating the product. This results in bad experiences, illness and even death. Such practices are widespread. In 2004, an assessment of ecstasy tablets from drug seizures in the 1990s found that up to 20% of the pills contained no MDMA, but were instead comprised of caffeine, ephedrine, ketamine, paracetamol or placebo. In 2018, 150 people in Illinois presented themselves to hospitals because they were bleeding uncontrollably after using synthetic cannabis-based products that contained rat poison. In 2021, three comedians famously died in LA after taking cocaine laced with fentanyl. Fentanyl is turning up in all kinds of drugs, which is contributing to U.S. annual overdose deaths exceeding 100,000 for the first time in 2021 — a five-fold increase since 2000; that’s one person dying of an overdose in the U.S. every 5 minutes. A medical toxicologist writing for The Conversation stated, “Buying drugs on the street is a game of Russian roulette. From Xanax to cocaine, drugs or counterfeit pills purchased in nonmedical settings may contain life-threatening amounts of fentanyl.” Fentanyl is “used as an adulterant because its high potency allows dealers to traffic smaller quantities but maintain the drug effects buyers expect.”
Silk Road, through its user-review system that sought to mimic legal retail sites, gamified the supply of drugs to reward those providing better-quality products. It was by no means a guarantee of minimum quality nor, obviously, could it be described as a safety feature, but it was mitigation for an issue that is causing unknown harm. Professor C. Michael White of the University of Connecticut studied this activity and reported on it in 2021, coming to similar conclusions to other medical experts, “The research is clear: Adding impurities to, or adulterating, illicit drugs is a longstanding and widespread practice with harmful consequences … the difference between what you believe you are buying and what is actually in the product can be the difference between life and death.”
Then there is the fact the vendor and buyer are physically separated. While trying to avoid cliches, those seeking drugs are more likely to be vulnerable people, while those selling drugs are more likely to be associated with other crimes and have violent tendencies. Having drug transactions forced underground means that vendors are forced to interact with buyers. This opens up all manor of risks, directly related to the interaction and indirectly to the locations where such interactions take place. There are short-term risks associated with specific transactions and longer-term risks associated with exploitative relationships that can develop. Silk Road broke this link. The Drug Policy Alliance, a New York-based nonprofit organization, stated that Silk Road was safer than the streets for buyers and sellers. In a 2015 article, they asserted that Silk Road “gave us a new way to imagine better management of the drug trade … We need something better than what we have now, which is nothing but failure, cartels and beheadings, mass incarceration, mandatory minimums, a vibrant and throbbing illicit market, and a prison industrial complex totally out of control.”
An important (albeit potentially small) cohort of those who used Silk Road did so to gain access to drugs for medicinal purposes. While Ulbricht was not explicitly motivated to meet the specific needs of those failed by conventional health care, this is an important factor to account for, and again, something for which I used Silk Road. There are clearly valid concerns regarding the risks of people self-medicating. Nevertheless, there is also a critical need to respect the needs of those suffering from illnesses seeking treatments outside of official medicinal practices. There are those facing the worst challenges in life, desperate to relieve chronic pain, extreme mental anguish or even people facing death. If these people want to seek drugs that are not available to them through official means, is it right that society denies them this choice?
While it is true that prescribed drugs are subject to strict clinical trials, there are also valid concerns that other drugs — which have equally powerful medicinal, therapeutic and life-affirming effects — have been arbitrarily prohibited. This includes psychedelics and MDMA, which are showing promise in the treatment of depression and post-traumatic stress disorder, and cannabis, which I know from personal experience that many people are desperate to use for a range of known and powerful benefits. The British Medical Journal reported in December last year that epileptic seizure frequency fell by 86% in kids treated with whole plant medicinal cannabis. Although cannabis products in the U.K. were made legal for patients with “exceptional clinical need” in July 2018, according to a 2021 report in The Economist, parents are struggling to access prescriptions: “Just three children … have been given prescriptions by the National Health Service.” It is perverse cruelty that prevents people from obtaining widely available, but illegal drugs that have been proven to uniquely diminish suffering.
“Reasonable people may and do disagree about the social utility of harsh sentences for the distribution of controlled substances, or even of criminal prohibition of their sale and use at all. It is very possible that, at some future point, we will come to regard these policies as tragic mistakes and adopt less punitive and more effective methods of reducing the incidence and costs of drug use.” These were not the words of any libertarian activist seeking to shine a light on Ulbricht’s case; these were the words of the appellate court’s opinion in their determination of Ulbricht’s appeal in 2017. The court affirmed the original sentence given to Ulbricht in 2015, but as the opinion attests, it is clear that they were uncomfortable with having to apply U.S. drug laws. If the legal profession enforcing the laws openly questions those very laws, surely we have approached a time for some reasoned debate.
Beyond the arguments about access to drugs within society, Ulbricht’s case brings into question the validity of penalties imposed on behalf of the state. The sentence handed down to Ulbricht — imprisoning him for the rest of his life — is a punishment reserved for the most heinous criminals. Such punishment is illegal in a number of countries, including Mexico, Brazil, Uruguay, Portugal, Croatia and the Vatican City: The Pope described a life sentence as a hidden type of death sentence. The Penal Reform International stated in a 2018 report, “Life imprisonment without parole, in particular, raises issues of cruel, inhuman and degrading punishment, and undermines the right to human dignity by taking away the prospect of rehabilitation.” Even among those countries that apply full life sentences, there are large disparities in the extent to which it is applied: In France in 2014, 0.7 per 100,000 inhabitants were serving life sentences while in the U.S., it was over 50 people per 100,000 inhabitants.
Then there is the issue of comparable harm. It is a tricky area to compare different crimes in terms of harm, but in determining the sentencing of Ulbricht, as stated, the court heard testimony from the families of six people who died after consuming drugs bought from Silk Road. Therefore, this is a reasonable measure by which to compare the societal harm caused by other crimes. Between 1999 and 2020, 538,000 Americans died during the period referred to as the opioid crisis. Forbes estimated the economic toll of the opioid epidemic being over $1.3 trillion per year. The crisis was triggered by the aggressive promotion of a prescription painkiller called OxyContin launched by Purdue Pharma in 1996. By 2004, OxyContin had become the leading drug of abuse in the U.S.
Purdue Pharma was owned by the Sackler family, who had a dominant presence on the company’s board. Despite contesting their liability for years, in 2020, Purdue Pharma finally admitted to bribing doctors to needlessly prescribe OxyContin, lying to the Drug Enforcement Administration (DEA) and paying illegal kickbacks for the purposes of promoting opioid prescribing to physicians. Purdue Pharma aggressively marketed OxyContin, while critically underplaying its addictive nature, its failure to achieve marketed pain-relief claims and pushing clinicians to administer dangerously high doses. The painkiller has 10 or 20 times the narcotic content of many regular painkillers and is 50% stronger than morphine. A Los Angeles Times investigation stated, “OxyContin is a chemical cousin of heroin, and when it doesn’t last, patients can experience excruciating symptoms of withdrawal, including an intense craving for the drug.” Time and again, it turned normal Americans into addicts, who then turned to other drugs (such as heroin and synthetic fentanyl) when their pain relief was intolerable, their prescriptions stopped and/or their addictions spiraled out of control. Purdue Pharma knew this, and yet they continued to market the drug — hard.
Purdue Pharma was assisted by McKinsey, the management consulting firm. According to a lawsuit brought by the Massachusetts Attorney General, McKinsey showed Purdue Pharma how to “turbocharge” sales of OxyContin, how to counter efforts by drug enforcement agents to reduce opioid use and was part of a team that looked at how “to counter the emotional messages from mothers with teenagers that overdosed on the drug.” There have been numerous court cases over OxyContin, resulting in fines, bankruptcy and the closure of the firm. There are legal battles over whether the Sackler family should be held personally liable in civil and criminal courts. Yet, nobody from Purdue Pharma has received a prison sentence over their involvement.
In 2020, activists and journalists uncovered a 2007 Department of Justice memo that had recommended felony charges against senior Purdue Pharma executives on the basis that they started the conspiracy in 1992, knew about OxyContin’s abuse problems within months of its 1996 launch, lied to Congress and were continuing in the conspiracy. The charges could have resulted in prison sentences. However, the DoJ decided not to file such charges at the time, because, as author Gerald Posner stated in his book “Pharma,” DoJ officials were concerned that “Purdue’s large, well-funded legal team might well overwhelm [the Department of Justice’s] small group of prosecutors.”
And there’s the rub. Justice that seeks to account for comparable harm is compromised by the wealth and power of those being brought to justice. This is maybe why only one person in the U.S. was jailed — for 2 years 6 months — as a result of the Global Financial Crisis, despite the fact that it has left lasting scars across the U.S. and the world. A 2018 study by the Federal Reserve found the crisis cost every single American approximately $70,000 — and the social impacts have been more damaging. A U.K. government body stated in a 2018 report, “The implications of the crisis on poverty, employment and political stability are worrying.” This is maybe why nobody has been held to account for taking the U.S. and U.K. to war with Iraq in 2003 on the basis of a lie, despite it resulting in approximately 200,000 civilian deaths, tens of thousands of military deaths, the displacement of millions, stability issues across the Middle East, and as some have argued, maybe the Global Financial Crisis itself. This is maybe why Exxon hasn’t been called to account for hiding the fact they knew the science behind climate change was real over 40 years ago, but instead of raising the alarm, they spent millions promoting misinformation, while the issue increasingly seems like it’s getting out of control.
Justice delayed is justice denied. But with the above cases, it’s not clear that justice will ever be served. At the same time, in a prison in Tucson, Arizona, Ross Ulbricht is being held without even the faint glimmer of hope that he will even be allowed to contest his incarceration, let alone secure any type of freedom. This isn’t whataboutism, this isn’t an attempt to confuse the issue, to muddy the waters such that Ulbricht is made out to be a heroic victim. This is merely to show that a flawed young man, who sought to test the limits of government controls on personal freedoms, is being held to the highest account, while those who seek to use their power and influence to inflict uncalled-for harm on significant proportions of society are allowed to walk freely among us.
Civilizations throughout time and across geographies and cultures have established approaches to drugs that are vastly different to the ones governments impose now. The current paradigm is neither faultless nor permanent. Laws and rules are always being tested by innovation and pugnacious individuals looking to account for changing attitudes outside of the guardrails of laws. There are risks and benefits to these approaches, just as there are risks and benefits to maintaining the status quo. Nevertheless, irrespective of the merits of reappraising the legal approach to drug use, laws were broken and a judgment was made. The rule of law demands that all people are held accountable. As Theodore Roosevelt said, “No man is above the law.” It was therefore a reasonable expectation that a just punishment would be required, just as it is reasonable to demand that justice be applied equally throughout society irrespective of power and influence. It is also a widely held principle that the enforcement of laws should be fair. In this regard, it is reasonable to declare that a life sentence contravenes Article 5 of the Universal Declaration of Human Rights, “No one shall be subjected to torture or to cruel, inhuman or degrading treatment or punishment.”
Ross Ulbricht should not die in prison, especially when many powerful criminals live free.
This is a guest post by Peter McCormack. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
El Salvador’s Minister of the Economy Maria Luisa Hayem Brevé submitted a digital assets issuance bill to the country’s legislative assembly, paving the way for the launch of its bitcoin-backed “volcano” bonds.
First announced one year ago today, the pioneering initiative seeks to attract capital and investors to El Salvador. It was revealed at the time the plans to issue $1 billion in bonds on the Liquid Network, a federated Bitcoin sidechain, with the proceedings of the bonds being split between a $500 million direct allocation to bitcoin and an investment of the same amount in building out energy and bitcoin mining infrastructure in the region.
A sidechain is an independent blockchain that runs parallel to another blockchain, allowing for tokens from that blockchain to be used securely in the sidechain while abiding by a different set of rules, performance requirements, and security mechanisms. Liquid is a sidechain of Bitcoin that allows bitcoin to flow between the Liquid and Bitcoin networks with a two-way peg. A representation of bitcoin used in the Liquid network is referred to as L-BTC. Its verifiably equivalent amount of BTC is managed and secured by the network’s members, called functionaries.
“Digital securities law will enable El Salvador to be the financial center of central and south America,” wrote Paolo Ardoino, CTO of cryptocurrency exchange Bitfinex, on Twitter.
Bitfinex is set to be granted a license in order to be able to process and list the bond issuance in El Salvador.
The bonds will pay a 6.5% yield and enable fast-tracked citizenship for investors. The government will share half the additional gains with investors as a Bitcoin Dividend once the original $500 million has been monetized. These dividends will be dispersed annually using Blockstream’s asset management platform.
The act of submitting the bill, which was hinted at earlier this year, kickstarts the first major milestone before the bonds can see the light of day. The next is getting it approved, which is expected to happen before Christmas, a source close to President Nayib Bukele told Bitcoin Magazine. The bill was submitted on November 17 and presented to the country’s Congress today. It is embedded in full below.
This is an opinion editorial by Joakim Book, a Research Fellow at the American Institute for Economic Research, contributor and copy editor for Bitcoin Magazine and a writer on all things money and financial history.
I don’t.
That’s it. That’s the article.
In all sincerity, that is the full message: Just don’t do it. It’s not worth it.
You’re not an excited teenager anymore, in desperate need of bragging credits or trying out your newfound wisdom. You’re not a preaching priestess with lost souls to save right before some imminent arrival of the day of reckoning. We have time.
Instead: just leave people alone. Seriously. They came to Thanksgiving dinner to relax and rejoice with family, laugh, tell stories and zone out for a day — not to be ambushed with what to them will sound like a deranged rant in some obscure topic they couldn’t care less about. Even if it’s the monetary system, which nobody understands anyway.
Get real.
If you’re not convinced of this Dale Carnegie-esque social approach, and you still naively think that your meager words in between bites can change anybody’s view on anything, here are some more serious reasons for why you don’t talk to friends and family about Bitcoin the protocol — but most certainly not bitcoin, the asset:
- Your family and friends don’t want to hear it. Move on.
- For op-sec reasons, you don’t want to draw unnecessary attention to the fact that you probably have a decent bitcoin stack. Hopefully, family and close friends should be safe enough to confide in, but people talk and that gossip can only hurt you.
- People find bitcoin interesting only when they’re ready to; everyone gets the price they deserve. Like Gigi says in “21 Lessons:”
“Bitcoin will be understood by you as soon as you are ready, and I also believe that the first fractions of a bitcoin will find you as soon as you are ready to receive them. In essence, everyone will get ₿itcoin at exactly the right time.”
It’s highly unlikely that your uncle or mother-in-law just happens to be at that stage, just when you’re about to sit down for dinner.
- Unless you can claim youth, old age or extreme poverty, there are very few people who genuinely haven’t heard of bitcoin. That means your evangelizing wouldn’t be preaching to lost, ignorant souls ready to be saved but the tired, huddled and jaded masses who could care less about the discovery that will change their societies more than the internal combustion engine, internet and Big Government combined. Big deal.
- What is the case, however, is that everyone in your prospective audience has already had a couple of touchpoints and rejected bitcoin for this or that standard FUD. It’s a scam; seems weird; it’s dead; let’s trust the central bankers, who have our best interest at heart.
No amount of FUD busting changes that impression, because nobody holds uninformed and fringe convictions for rational reasons, reasons that can be flipped by your enthusiastic arguments in-between wiping off cranberry sauce and grabbing another turkey slice. - It really is bad form to talk about money — and bitcoin is the best money there is. Be classy.
Now, I’m not saying to never ever talk about Bitcoin. We love to talk Bitcoin — that’s why we go to meetups, join Twitter Spaces, write, code, run nodes, listen to podcasts, attend conferences. People there get something about this monetary rebellion and have opted in to be part of it. Your unsuspecting family members have not; ambushing them with the wonders of multisig, the magically fast Lightning transactions or how they too really need to get on this hype train, like, yesterday, is unlikely to go down well.
However, if in the post-dinner lull on the porch someone comes to you one-on-one, whisky in hand and of an inquisitive mind, that’s a very different story. That’s personal rather than public, and it’s without the time constraints that so usually trouble us. It involves clarifying questions or doubts for somebody who is both expressively curious about the topic and available for the talk. That’s rare — cherish it, and nurture it.
Last year I wrote something about the proper role of political conversations in social settings. Since November was also election month, it’s appropriate to cite here:
“Politics, I’m starting to believe, best belongs in the closet — rebranded and brought out for the specific occasion. Or perhaps the bedroom, with those you most trust, love, and respect. Not in public, not with strangers, not with friends, and most certainly not with other people in your community. Purge it from your being as much as you possibly could, and refuse to let political issues invade the areas of our lives that we cherish; politics and political disagreements don’t belong there, and our lives are too important to let them be ruled by (mostly contrived) political disagreements.”
If anything, those words seem more true today than they even did then. And I posit to you that the same applies for bitcoin.
Everyone has some sort of impression or opinion of bitcoin — and most of them are plain wrong. But there’s nothing people love more than a savior in white armor, riding in to dispel their errors about some thing they are freshly out of fucks for. Just like politics, nobody really cares.
Leave them alone. They will find bitcoin in their own time, just like all of us did.
This is a guest post by Joakim Book. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
This is an opinion editorial by Federico Tenga, a long time contributor to Bitcoin projects with experience as start-up founder, consultant and educator.
The term “smart contracts” predates the invention of the blockchain and Bitcoin itself. Its first mention is in a 1994 article by Nick Szabo, who defined smart contracts as a “computerized transaction protocol that executes the terms of a contract.” While by this definition Bitcoin, thanks to its scripting language, supported smart contracts from the very first block, the term was popularized only later by Ethereum promoters, who twisted the original definition as “code that is redundantly executed by all nodes in a global consensus network”
While delegating code execution to a global consensus network has advantages (e.g. it is easy to deploy unowed contracts, such as the popularly automated market makers), this design has one major flaw: lack of scalability (and privacy). If every node in a network must redundantly run the same code, the amount of code that can actually be executed without excessively increasing the cost of running a node (and thus preserving decentralization) remains scarce, meaning that only a small number of contracts can be executed.
But what if we could design a system where the terms of the contract are executed and validated only by the parties involved, rather than by all members of the network? Let us imagine the example of a company that wants to issue shares. Instead of publishing the issuance contract publicly on a global ledger and using that ledger to track all future transfers of ownership, it could simply issue the shares privately and pass to the buyers the right to further transfer them. Then, the right to transfer ownership can be passed on to each new owner as if it were an amendment to the original issuance contract. In this way, each owner can independently verify that the shares he or she received are genuine by reading the original contract and validating that all the history of amendments that moved the shares conform to the rules set forth in the original contract.
This is actually nothing new, it is indeed the same mechanism that was used to transfer property before public registers became popular. In the U.K., for example, it was not compulsory to register a property when its ownership was transferred until the ‘90s. This means that still today over 15% of land in England and Wales is unregistered. If you are buying an unregistered property, instead of checking on a registry if the seller is the true owner, you would have to verify an unbroken chain of ownership going back at least 15 years (a period considered long enough to assume that the seller has sufficient title to the property). In doing so, you must ensure that any transfer of ownership has been carried out correctly and that any mortgages used for previous transactions have been paid off in full. This model has the advantage of improved privacy over ownership, and you do not have to rely on the maintainer of the public land register. On the other hand, it makes the verification of the seller’s ownership much more complicated for the buyer.
Source: Title deed of unregistered real estate propriety
How can the transfer of unregistered properties be improved? First of all, by making it a digitized process. If there is code that can be run by a computer to verify that all the history of ownership transfers is in compliance with the original contract rules, buying and selling becomes much faster and cheaper.
Secondly, to avoid the risk of the seller double-spending their asset, a system of proof of publication must be implemented. For example, we could implement a rule that every transfer of ownership must be committed on a predefined spot of a well-known newspaper (e.g. put the hash of the transfer of ownership in the upper-right corner of the first page of the New York Times). Since you cannot place the hash of a transfer in the same place twice, this prevents double-spending attempts. However, using a famous newspaper for this purpose has some disadvantages:
- You have to buy a lot of newspapers for the verification process. Not very practical.
- Each contract needs its own space in the newspaper. Not very scalable.
- The newspaper editor can easily censor or, even worse, simulate double-spending by putting a random hash in your slot, making any potential buyer of your asset think it has been sold before, and discouraging them from buying it. Not very trustless.
For these reasons, a better place to post proof of ownership transfers needs to be found. And what better option than the Bitcoin blockchain, an already established trusted public ledger with strong incentives to keep it censorship-resistant and decentralized?
If we use Bitcoin, we should not specify a fixed place in the block where the commitment to transfer ownership must occur (e.g. in the first transaction) because, just like with the editor of the New York Times, the miner could mess with it. A better approach is to place the commitment in a predefined Bitcoin transaction, more specifically in a transaction that originates from an unspent transaction output (UTXO) to which the ownership of the asset to be issued is linked. The link between an asset and a bitcoin UTXO can occur either in the contract that issues the asset or in a subsequent transfer of ownership, each time making the target UTXO the controller of the transferred asset. In this way, we have clearly defined where the obligation to transfer ownership should be (i.e in the Bitcoin transaction originating from a particular UTXO). Anyone running a Bitcoin node can independently verify the commitments and neither the miners nor any other entity are able to censor or interfere with the asset transfer in any way.
Since on the Bitcoin blockchain we only publish a commitment of an ownership transfer, not the content of the transfer itself, the seller needs a dedicated communication channel to provide the buyer with all the proofs that the ownership transfer is valid. This could be done in a number of ways, potentially even by printing out the proofs and shipping them with a carrier pigeon, which, while a bit impractical, would still do the job. But the best option to avoid the censorship and privacy violations is establish a direct peer-to-peer encrypted communication, which compared to the pigeons also has the advantage of being easy to integrate with a software to verify the proofs received from the counterparty.
This model just described for client-side validated contracts and ownership transfers is exactly what has been implemented with the RGB protocol. With RGB, it is possible to create a contract that defines rights, assigns them to one or more existing bitcoin UTXO and specifies how their ownership can be transferred. The contract can be created starting from a template, called a “schema,” in which the creator of the contract only adjusts the parameters and ownership rights, as is done with traditional legal contracts. Currently, there are two types of schemas in RGB: one for issuing fungible tokens (RGB20) and a second for issuing collectibles (RGB21), but in the future, more schemas can be developed by anyone in a permissionless fashion without requiring changes at the protocol level.
To use a more practical example, an issuer of fungible assets (e.g. company shares, stablecoins, etc.) can use the RGB20 schema template and create a contract defining how many tokens it will issue, the name of the asset and some additional metadata associated with it. It can then define which bitcoin UTXO has the right to transfer ownership of the created tokens and assign other rights to other UTXOs, such as the right to make a secondary issuance or to renominate the asset. Each client receiving tokens created by this contract will be able to verify the content of the Genesis contract and validate that any transfer of ownership in the history of the token received has complied with the rules set out therein.
So what can we do with RGB in practice today? First and foremost, it enables the issuance and the transfer of tokenized assets with better scalability and privacy compared to any existing alternative. On the privacy side, RGB benefits from the fact that all transfer-related data is kept client-side, so a blockchain observer cannot extract any information about the user’s financial activities (it is not even possible to distinguish a bitcoin transaction containing an RGB commitment from a regular one), moreover, the receiver shares with the sender only blinded UTXO (i. e. the hash of the concatenation between the UTXO in which she wish to receive the assets and a random number) instead of the UTXO itself, so it is not possible for the payer to monitor future activities of the receiver. To further increase the privacy of users, RGB also adopts the bulletproof cryptographic mechanism to hide the amounts in the history of asset transfers, so that even future owners of assets have an obfuscated view of the financial behavior of previous holders.
In terms of scalability, RGB offers some advantages as well. First of all, most of the data is kept off-chain, as the blockchain is only used as a commitment layer, reducing the fees that need to be paid and meaning that each client only validates the transfers it is interested in instead of all the activity of a global network. Since an RGB transfer still requires a Bitcoin transaction, the fee saving may seem minimal, but when you start introducing transaction batching they can quickly become massive. Indeed, it is possible to transfer all the tokens (or, more generally, “rights”) associated with a UTXO towards an arbitrary amount of recipients with a single commitment in a single bitcoin transaction. Let’s assume you are a service provider making payouts to several users at once. With RGB, you can commit in a single Bitcoin transaction thousands of transfers to thousands of users requesting different types of assets, making the marginal cost of each single payout absolutely negligible.
Another fee-saving mechanism for issuers of low value assets is that in RGB the issuance of an asset does not require paying fees. This happens because the creation of an issuance contract does not need to be committed on the blockchain. A contract simply defines to which already existing UTXO the newly issued assets will be allocated to. So if you are an artist interested in creating collectible tokens, you can issue as many as you want for free and then only pay the bitcoin transaction fee when a buyer shows up and requests the token to be assigned to their UTXO.
Furthermore, because RGB is built on top of bitcoin transactions, it is also compatible with the Lightning Network. While it is not yet implemented at the time of writing, it will be possible to create asset-specific Lightning channels and route payments through them, similar to how it works with normal Lightning transactions.
Conclusion
RGB is a groundbreaking innovation that opens up to new use cases using a completely new paradigm, but which tools are available to use it? If you want to experiment with the core of the technology itself, you should directly try out the RGB node. If you want to build applications on top of RGB without having to deep dive into the complexity of the protocol, you can use the rgb-lib library, which provides a simple interface for developers. If you just want to try to issue and transfer assets, you can play with Iris Wallet for Android, whose code is also open source on GitHub. If you just want to learn more about RGB you can check out this list of resources.
This is a guest post by Federico Tenga. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
