Crypto
Making Bitcoin Unstoppable Part One: Mesh Nets
This article originally appeared in Bitcoin Magazine’s “Censorship Resistant Issue.” To get a copy, visit our store.
In June 2020, people in Ethiopia faced an unpleasant surprise; following unrest caused by the killing of musician and activist Hachalu Hundessa, the Ethiopian government successfully ordered a shutdown of the internet. For close to a month, over 100 million people were cut off from all internet services.
In the same year, people of Algeria, Azerbaijan, Bangladesh, Belarus, Burundi, Chad, Cuba, the Democratic Republic of Congo, Ecuador, Egypt, Guinea, India, Iraq, Iran, Jordan, Kenya, Kyrgyzstan, Mali, Myanmar, Pakistan, Sudan, Syria, Togo, Turkey, Vietnam, Venezuela and Yemen faced imposed internet access outages in some or all parts of the country.
In 2021, Uganda ordered a complete internet shutdown for four days during its general elections. After elections in Niger, authorities responded to anti-government protests by shutting off access to the internet for ten days. In Jammu and Kashmir, people faced an internet blackout imposed by government decree lasting for 500 days, from the 4th of August 2019 until the 5th of February 2021. In Myanmar, internet access has been shut down for a broad part of the population since 2019, as the military junta whitelists companies and institutions while restricting access for everyone else. In the Ethiopian region of Tigray, internet access has been shut off since November 2020.
As government opposition parties held rallies in Harare, Zimbabwe, in March 2022, internet access via the government-owned internet service provider (ISP) TelOne was throttled, causing numerous outages of services across the country. During planned protests in July 2020, internet access via TelOne was throttled to an unusable degree for 19 hours. Amid fuel price protests in 2019, almost all of Zimbabwe was cut off from accessing internet services for close to two days.
In Burkina Faso, following military uprisings in January 2022, access to mobile internet was cut off for 35 hours, the third shutdown within months, and the second shutdown of the year. After the shooting of protesters in November 2021, mobile internet access, which is the primary source of internet access in Burkina Faso, was cut off for four days.
The Carnegie Endowment for International Peace has reported 196 incidents of internet shutdowns and access limitations in 2018, 213 incidents in 2019, and 155 in 2020. In a report titled “The Return of Digital Authoritarianism: Internet Shutdowns in 2021”, the non-profit digital rights organization Access Now reported 182 internet shutdowns across 34 countries in 2021.
“The Syrian regime was aware, since the beginning of the demonstrations in 2011, that one of the most important steps that its security and military forces must take to suppress any demonstration or peaceful movement is to cut off communications from the crowds, and to stop the movement of news and information flow” (source: https://www.enabbaladi.net/archives/93312# )
Shutting down access to the internet is a viable solution to control social uprisings and limit the flow of information both in and out of certain regions. When people cannot communicate, attempts to organize become close to impossible. Contrary to popular assumption, shutting down access to the internet is a fairly simple task for governments to accomplish. Though we like to think of the internet as a global, decentralized network of individual computers, the reality is that the majority of our internet access is handled via these ISPs subject to government mandates.
ISPs operate in fixed locations, centralizing the internet access of entire countries in very few places, providing a single point of failure in the face of both national and international adversaries. Due to this centralization, internet access in conflict zones can, quite literally, be bombed or threatened out of existence. After a Saudi-led airstrike in the Aden region of Yemen in January 2022, which severed connectivity to the FALCON international cable, the country faced a nation-wide internet blackout that lasted for close to four days. As Israel launched targeted bombings on telecommunications infrastructure in the Gaza strip in May 2021, internet access for much of the population was disrupted for over 10 days. In the West Bank, Israeli forces have previously shut down internet access by simply walking into ISP offices and demanding the disruption of the network.
In 2011, with the beginning of uprisings against the Syrian government, Bashar Al-Assad’s regime cut off internet access via decree, and shortly after began bombing telecommunications infrastructure to prohibit its use indefinitely. In a desperate move, Syria’s opposition led interim government quite literally imported internet access from bordering countries via optical links, such as Turkey. But, as Turkish forces began operating in the Afrin region, Turkey, too, cut off communication services for the entire Northern region of Syria.
While Bitcoin, being a low-bandwidth network, can function perfectly well without the internet, the possibilities of transacting bitcoin without an internet connection are little studied and even less documented. Most solutions to interact with the Bitcoin network depend on an internet connection, presenting no viable option for anyone living in regions affected by hostile governments prone to severing access — that is, if the internet is even available in the first place.
In Eritrea, internet penetration lies around 8% — in South Sudan, it’s 10.9%. Somalia and Burundi have internet access rates of under 15%. In North Korea, access to the internet lies at 0.1%, while the entire continent of Africa has an overall internet coverage of only 22%. The reasons for little-to-no internet penetration vary. In some cases, as in North Korea, governments are simply not interested in permitting citizens to access internet services in order to control the flow of information. In others, as in Zimbabwe, internet access is prohibitively expensive, lying at around $300 per month for non-mobile access; equating to a household’s monthly median income. Mobile internet on the other hand lies at around $60 per 30GB, but often disappears before one could possibly spend 30GB of data, hinting at corruption and meddling in data sales.
In the Western world, we like to live in the comfort of knowing that our rights are protected by relatively stable governmental structures. In the Universal Declaration of Human Rights, the right to access information falls under the right to freedom of expression; permitting individuals to have the right to hold opinions and express them freely without government interference or regulation. Many countries, such as the United States, have included such rights in their own laws, such as under the First Amendment, which declares freedom of speech. But if a government falls hostile, rights are not enough if we cannot enact them ourselves. If we are serious about utilizing Bitcoin as a tool to enforce human rights around the globe, we must concern ourselves with the consequences of accessing a decentralized monetary network via inherently centralized infrastructure.
The Internet Is Dead, Long Live The Internet
When it comes to the decentralization of internet access, there is an important lesson to be learned following Russia’s invasion of Ukraine in February 2022. While Russia targeted Ukrainian telecommunications infrastructure through shelling and cyberattacks, Ukraine found itself in a unique position with the fourth most decentralized telecommunications grid in the world. As the internet watchdog organization Netblocks recorded cyberattacks on Ukrainian ISP Ukrtelecom, dropping nation-wide connectivity down to only 13%, Kyivstar, another ISP, managed to provide internet access to over two hundred bomb shelters. Having numerous ISPs removes possible choke points in internet access; if one provider fails, another can pop up, and any attempt of severing connectivity turns into a game of whack-a-mole.
Yet, Olga Ukolova, co-founder of Zug, Switzerland based Pandora Prime and Head of Operations at the LNP/BP Standards Association delivering Bitcoin second- and third-layer technologies such as RGB and Bitfrost, saw herself cut off from communicating with her family in Mariupol – a fate suffered by thousands of expats living outside of Ukraine at the time of invasion. Even in a country with an extremely high level of decentralization in communications such as Ukraine, people could simply be cut off from communicating. But what if we could decentralize internet access even further, by having every node in a network act as a potential ISP?
Enter: mesh networks.
Many believe the internet to be one network which connects millions of computers around the world. But, in fact, the internet is a network of networks. Today, there are an estimated 40,000 different networks, closely interconnected, which make up what we know as the internet. The good news is that there is nothing that can stop us from launching our own internet network. The most commonly known alternative internet networks are Intranets. An intranet is a local network used to facilitate communication within a specific group of people, allowing for the controlled access of information. Intranets are usually reachable via Local Area Network (LAN) cables, or via the broader internet through Virtual Private Network (VPN) tunnels. The problem; without physical access to Intranet servers and no connection to the broader internet, Intranets become unreachable.
A mesh network is a form of Intranet in which every node in the network acts as a relay for information. If Alice wants to send a message to Carol, but has no direct connection due to being physically out of reach, Bob can relay the message between them. On a broader scale, when Alice wants to send a message to Zach, their message can be relayed via Bob, Carol, David, Eric and so on and so forth, until the message to be sent has reached its destined recipient.
In times of social unrest and government crackdowns, mesh networks offer a lifeline to uphold communication. During pro-democracy protests in Hong Kong in 2014 and 2019, protesters turned to mesh networking alternatives to send and receive messages with the Android and iOS apps Firechat and Bridgefy to circumvent possible internet shutdowns. Building connections via Bluetooth, messages are relayed via each participant in the network. Meshing via Bluetooth has its issues, as most apps do not encrypt traffic; a problem which the mobile app Briar is aiming to solve. Another issue is battery usage. Bluetooth is extremely power hungry, making usage unfit for regions where electricity is difficult or expensive to come by.
Some companies such as GoTenna have focused on designing dedicated devices for mesh networking. The problem here is that in the middle of a conflict, one cannot simply go on Amazon and order a dedicated mesh networking device. Dedicated devices also are often not interoperable with other mesh networking devices. To build a nation-scale mesh network with dedicated devices, every citizen would need to be in possession of a dedicated device — a scenario that is highly unlikely. Other projects, such as LoraWan’s Meshtastic, can be built via off-the-shelf hardware, but again are subject to the pain point of needing to have access to such metaphorical shelves in a situation of urgent need.
The good news is that there is absolutely no need to operate mesh networks on dedicated devices. With the Linux distribution OpenWRT, a software allowing the easy customization of the basic firmwares of computers, most regular internet routers can simply be turned into fully functioning mesh networking devices. Open WiFi communities around the world build software to function on top of OpenWRT, such as Berlin Freifunk’s Falter software. This allows regular internet routers to act as relay nodes for information and internet access in the network; the benefit here being that anyone can begin operating a mesh network based on the tools they already have at home.
Running Bitcoin Through Tomato Cans
In a mesh network, participants can choose to share their access to the broader internet with other nodes in the network. If Alice still has a connection to the broader internet via her ISP, she can share her internet access with Bob, Carol, David and so on, as long as they all operate on the same mesh network together. Sharing internet access via mesh networks is a viable solution if internet access is restricted or disturbed in certain parts of the country. For this, the mesh network needs a functioning backbone.
A backbone in a mesh network is built via directional antennas. While regular internet routers only have a signal range of about 50 m, this signal can be extended up to 80 km with an antenna which beams the signal across a distance. The easiest way to build the backbone of a mesh network is via off-the-shelf hardware. For this, Alice sets up a directional antenna on the top of a high building, and tells Bob, to whom she wants to beam her signal, to do the same. But as we’ve learned, off-the-shelf hardware is not always an option. In this case, with a little know-how, directional antennas can also be built with regular cans — such as tomato cans. The can is then connected to a mesh networking router via an antenna cable, and “ta-da”, we have built ourselves a functioning directional cantenna.
Alice and Bob can now also choose to provide access to the internet in their communities. Anyone in close enough range of the mesh networking node can then access the internet with any WiFi-enabled device, just as if they were connecting to any other WiFi network. As long as an uplink to the broader internet exists within the mesh network, anyone connected to the mesh network can send and receive bitcoin transactions on-chain as well as over the Lightning Network. But what if all uplinks to the broader internet are destroyed or disturbed? To continue to send bitcoin transactions on-chain, Alice can set up a Blockstream satellite, which receives information from the Bitcoin blockchain. Alice can then feed the Blockchain data received via the Blockstream satellite into the mesh network, so that anyone connected to the mesh network can continue to receive on-chain bitcoin transactions, even without an uplink to the broader internet.
But what if no Blockstream satellite exists within a mesh network, or satellite transmission is disrupted due to cyberattacks, bombings or bad weather? Without access to the Bitcoin blockchain, on-chain bitcoin transactions cannot be received. The only options are to fork the Bitcoin network, which comes at obvious consequences, or to rely solely on sending and receiving bitcoin via the Lightning Network. In fact, the modi operandi of mesh networks is similar to how transactions are conducted via the Lightning Network, as nodes relay information between participants. If Alice and Bob have opened a Lightning Network channel between them while still having access to an uplink to the broader internet, it’s possible for them to continue transacting bitcoin freely within those channels even when the uplink goes down, as no need exists for transactions to be settled on-chain.
If we want to utilize mesh networks to send and receive bitcoin transactions via the Lightning Network, it’s best to have opened channels ahead of internet access outages – But Lightning channels could even be opened (and closed) by broadcasting transactions via radio. In a 2017 proposal, Nick Szabo and Eliane Ou detailed the sending and receiving of bitcoin via shortwave radio links, allowing offline bitcoin transactions to be sent over vast distances by bouncing signals off of the ionosphere. In 2021, Brazilian activist group Satoshi.Radio even took it a step further, bouncing a bitcoin transaction containing the message “Elon, we did it first!” off the moon. With this, Satoshi.Radio sent their transaction over 600km before it was broadcast to the blockchain, attempting to “show that you don’t have to be some eccentric billionaire to push the boundaries of earth in search of freedom”, though it has to be noted that sending bitcoin over radio is currently deemed a commercial transaction and therefore restricted under international HAM radio law. (source: https://www.benzinga.com/markets/cryptocurrency/21/06/21425915/elon-we-did-it-first-bitcoin-sent-to-the-actual-moon-by-developer-group )
With a mesh network, we completely decentralize our communication infrastructure, as anyone can become an ISP in the network. Individuals may choose to offer mumble or matrix servers for communication or provide local access to Wikipedia, while open channels in the Lightning Network can be used to facilitate bitcoin transactions without an uplink to the broader internet. Mesh networks are also cost-efficient to deploy as already available hardware can be used to facilitate communication and provide unprecedented benefits for people who live under circumstances susceptible to disruptions of internet access.
As grassroots movements, mesh networks are free from government control. Just as in Bitcoin, there is no single administrative body. There is no service provider whose door could be stormed by adversarial troops, demanding disconnection. There is no central access point that could be targeted by force. If one node in the network goes down, others can bridge the gap that resulted. All of these factors make mesh networks the single most useful communication infrastructure to explore when wanting to transact a decentralized money. In combination with the Lightning Network, there is no one that can disrupt the transfer of bitcoin — but without mesh networks, we stand at the whim of governments to permit us access to the broader internet and facilitate transactions, whether we are aware of this fact or not. If we want Bitcoin to succeed, we must begin to further research, prototype and build our own decentralized communication infrastructure. So please, do try this at home and report your experiences for the rest of the world to see. Because one day we may all depend on sending bitcoin without the internet.
It’s time we stop asking for permission. Build a mesh net. Make Bitcoin unstoppable.
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.
