Crypto
New Mnemonics For Memorizing Bitcoin Seed Phrases
This is an opinion editorial by Thorbjørn König, a principal product designer with a sole focus on creating great user experiences for bitcoin products and services.
One of the more curious features of bitcoin is that if you are able to memorize 12 or 24 words, known as a recovery phrase or seed phrase, you can essentially hold your bitcoin in your head.
The motivation behind creating a mnemonic phrase, complementing the existing and not so human-friendly, binary and hexadecimal representation of the seed, was to create a group of easy to remember words, which could easily be written on paper or spoken over the phone.
The introduction of the mnemonic phrase has given rise to a wealth of self-custody products and services — the reasoning being that you should never be relying on your memory alone to access your wealth.
These self-custody products and services come with a set of security and user experience challenges themselves.
We have been developing for a specific challenge — secure encoding, storing and retrieval of a string of words, providing solutions for people that are mostly logical-mathematical oriented.
People are different though, and for a subset of people it is easier to memorize musical tones, shapes, objects or motion, than it is to memorize words. For these people, new mnemonics, such as musical or spatial mnemonics — would present a more meaningful user experience.
New mnemonics would require novel self-custody solutions for secure encoding, storing and retrieval of information — presenting a new opportunity for software and hardware developers and designers.
Brains
Having an understanding of our strengths and weaknesses, preferences and aversions, can help us single out individual tools for learning and memorizing.
Our brain, consciousness and understanding of self, is one of the most contended spaces of contemporary science — and pop-culture alike.
Following this is some of the thinking behind personality types, learning and memory — which can assist us in building new mnemonics and the accompanying self-custody solutions.
Although not entirely conclusive or unanimously accepted by the scientific community, there is something here worth our attention.
Left-Brained Versus Right-Brained
Psychobiologist Roger Sperry discovered that our brain has specialized functions on both hemispheres, and that the two sides can operate practically independently — for example he discovered that language was controlled by the left-side of the brain. He shared the Nobel Prize in Physiology or Medicine for his split-brain research.
Over the years this has been over-generalized by popular psychology, stating that people are either left-brained or right-brained.
More recent research suggests that while the brain’s hemispheres have distinct processing styles, mental processes are shared among both sides — they do not function exclusively, but complementarity.
For example, math abilities are strongest when both brain hemispheres work together.
Still, the left brain hemispheres tend to manage many aspects of language and logic, while the right brain hemispheres tend to manage spatial information and visual comprehension. And most people have, if not a dominant brain hemisphere, then at least a distinct individual preference for activities related to one of the two brain hemispheres.
Multiple Intelligences
Developmental psychologist Howard Gardner challenged the notion that there is a single type of intelligence with his theory of multiple intelligences.
He argued that we each have several types of intelligences, at varying levels of proficiency, such as; linguistic intelligence; logical-mathematical intelligence; spatial-visual intelligence; bodily-kinesthetic intelligence; and musical intelligence.
Note that the linguistic and logical-mathematical intelligences are the most valued in school and society.
In summary:
Linguistic Intelligence: Is sensitive to the spoken and written language, easily learns languages and uses language to achieve goals.
Logical-mathematical: Analyzes problems logically, performs mathematical operations and investigate issues scientifically.
Spatial-visual intelligence: Recognizes and manipulates the patterns of wide space, as well as patterns of more confined areas.
Bodily-kinesthetic: Uses the whole body or parts of the body to solve problems.
Musical intelligence: Is skillful in the performance, composition and appreciation of musical patterns.
Now we can explore the alternative expressions of the classic mnemonic phrase — with the personality types and various intelligences mentioned above in mind.
Expressions
Mnemonic Phrase/Words
The mnemonic we know and love — 12 or 24 words. Introduced with BIP39.
Often managed by the user alone, preferably secured on stainless steel, but in many ill-considered cases simply written down on paper.
Also, several self-custody services stand ready to assist you — should you find yourself losing sleep over being your own bank.
All the above with the add-on possibility of memorizing the string of words yourself.
An example of a mnemonic phrase, 12 words:
Mnemonic Phrase/Braille
There are ~8 million individuals with visual impairment in the U.S. alone — and over 253 million globally.
More inclusive bitcoin self-custody products and services are needed.
Braille is a tactile system of touch reading and writing for the visually impaired, in which raised dots represent the letters of the alphabet.
Braille is read by moving the hand or hands from left to right along each line.
Numbers are generated by placing the Braille number sign # before the Braille letters “A” (#A = 1) through “J” (#J = 0).
This mnemonic phrase:
alpha — day — december — valid — abstract — stone — panda — industry — robust — culture — kidney — youth
Would be this in Braille:
alpha
day
december
.. and so forth.
Some Braille Resources:
- Braille-Tools — this library offers some CSS and Javascript to display Braille in web pages (for sighted people).
- The Bitcoin white paper, transcribed in Braille, including tactile diagrams.
For years, the South Korean company Dot Inc. has been innovating with tactile communication — a few real world examples:
Dot Cell/An Electromagnetic Tactile Actuator — the world’s smallest and most cost-efficient Braille cell. Due to its compact and modular nature, the use cases for the Dot Cell are endless.
Dot Watch/6x Braille Cell — The Dot Watch lets you experience time in a completely new way: without sound, just by yourself. Truly, a new sense of time.
Dot Pad/300x Braille Cell — Access visual content from any source. For the first time, you can feel your handwriting, sketches and signature.
Dot Pad Developer Center/SDK Guide/Sample Code/Dev Tools — Develop a whole new category of accessible applications for the first real-time tactile graphics display.
Mnemonic Phrase/ELIA Frames™
Of the 8.4 million people who have a visual impairment in the US — only about 60,000 of them can read braille. Meaning, 99.1% of people who have a visual impairment can’t read Braille, the reason mainly being that they lost their vision as adults. For many, the learning curve is too steep.
ELIA Frames™ is a new tactile reading system — an intuitive and easy to learn alternative to braille — particularly for people who learned how to read regular text before losing their vision.
Hello World — set in ELIA Frames™:
Easy to read, also for people with 20/20 vision. Albeit a bit harder to write.
Here’s a mnemonic phrase:
alpha — day — december — valid — abstract — stone — panda — industry — robust — culture — kidney — youth
Now set in ELIA Frames™:
alpha
day
december
.. and so forth.
Mnemonic Design/Logograms
When director Denis Villeneuve began working on the science fiction movie Arrival, he and his team turned to real-life computer scientists Stephen and Christopher Wolfram to assist with authentic science.
Christopher specifically was tasked with analyzing and writing code for a fictional nonlinear visual language.
Aaron Morrison
Early on, the Wolframs cut the logograms into sections of — 12.
Wolfram’s software can identify and track complex shapes, creating a bank of known words or thoughts.
Only a handful of the logograms have translations, but it would be possible to build out a larger vocabulary. The designs and tools are in place. All that’s missing is the will — and a lot of patience.
Mnemonic Design/Shapes
As grammar is a rule-based system for phrases and sentences — shape grammars are rule-based systems for describing and generating designs.
Shape grammars generate designs by computing directly with shapes in two or three dimensions, rather than with symbols, words, numbers or other abstract structures that represent visual shapes indirectly.
Shape grammar development begins with a vocabulary of shapes — and the definition of spatial relations between these shapes, constraining the ways that vocabulary elements may be combined with one another.
Andrew I-kang Li, an associate professor in design and architecture at the Kyoto Institute of Technology (KIT), Japan, has developed a shape grammar software tool for designers.
Mnemonic Design/Origami
Origami (折り紙) is the art of paper folding, which is often associated with Japanese culture.
Origami is interesting in that it encompasses both the visual and the tactile, often accompanied with an emotional facet — strong features when it comes to memorization.
Also — it holds endless combinations of shapes, easily 2048.
Paul Jackson has written over 40 books on paper arts and crafts. He has taught the techniques of folding on more than 150 university-level design courses in the U.K., Germany, Belgium, the U.S., Canada and Israel.
He has also been a “folding consultant” for companies such as Nike and Siemens. He is the founder and director of the Israeli Origami Center.
“Folding Techniques For Designers” / Paul Jackson
Origami holds great object characteristics and could potentially be captured, identified and managed by an object capture API — of sorts.
Mnemonic Design/Bricks
LEGO is an abbreviation of the two Danish words “Leg godt,” meaning “Play well.”
Playing with LEGO is a spatial, problem-solving and joyful experience.
Walking barefoot on a LEGO brick is also an experience, and strangely enough also one we are looking for — more about adrenaline spikes and long-term memory in the section on neurochemicals.
There are 46 possible combinations with two two-by-four LEGO bricks — of which two are unique. All the other combinations have doubles, which can be achieved by rotating the lower brick 180 degrees, so the number of different combinations is 2+(46–2)/2=24.
On the entropy of LEGO® / Bergfinnur Durhuus and Søren Eilers
We need a lot more than 46 combinations, and adding just one extra two-by-four brick (462) will get us there. 2,116 in total — above 2,048 — given we do not rotate them — which will give us 1024-bit encryption.
Reducing the number of bricks from 24 to 12 with no rotation also gives us 1024-bit encryption.
Mnemonic designs add, through their tactility, an additional (albeit wafer-thin) encryption layer. You need the physicality of the objects present — in this case three two-by-four LEGO bricks.
Oh — and braille bricks.
Mnemonic Palette/Colors
There are more than 3,000 Pantone® colors that cover the full spectrum — with each swatch assigned a unique number and name.
So, if you struggle with the color itself, you might remember its number or name — Ashes of Roses, Desert Flower, Mother of Pearl ..
An option could also be to simply add a Pantone® color and name to the existing BIP39 word list — to assist your memory.
Mnemonic Choreography/Moves
Director and performance artist Ryan Heffington’s ability to create a connectedness between viewer and performer earned Sia over 2 billion views for Chandelier — making it one of the most watched music videos in history.
Heffington’s choreography was embodied by the then 11-year-old dancer, Maddie Ziegler.
Heffington created a bitesize monologue which break down the routine in words and choreographic phrases:
Morse code, morse code
You’re getting higher
Hunger pains
Eyes with mouths
Wounded dog in one of those wheelchairs
A familiar tear, a repetitive tear
Ice skater
Don’t attempt this at home
Gluttonous and lonely
Wax on, wax off
Blow powder
Fork, fork, stab it in the wall, throw it out
Pass out
Come to look
Charlie Chaplin, Charlie Chaplin
Cockroach up the wall
Clear your mustache
Pass
And you have eaten too much again
Cats cradle
Gangster, gangster
Somebody put baby in the mother fucking corner
Pump, pump
Fear
Robot bird
Bounce, bounce
IV, IV
Imaginary friend
Handlebars
Jesus
Hug
Clockwork
Mascara
Sip you up
Loose your breath
Farewell song
Intimate relations
Reprimand yourself
Same problem, different angle
The veil is lifted
We’re letting you in on our joke
“My favorite phrase of his is — A wounded dog in one of those wheelchairs — at that moment I realized how visceral and specific those moves are and why audiences respond so strongly to his choreography. It’s absurd, but it’s real life.” — Andrea Sisson, director
Ryan Heffington also choreographed the dance movements in the deeply strange Netflix series The OA — here the movements functioned as a phrase to open a portal to another dimension.
This is done by capturing the movements of a person in real time with a mobile device, potentially identifying and managing these movements and poses as input to an object capture API of sorts.
Mnemonic Composition/Tones
Sound is defined as a vibration which propagates as an acoustic wave, through a transmission medium like a gas, liquid or solid.
There are five basic characteristics of sound waves: wavelength, amplitude, frequency, duration and velocity.
Note and tone are two terms which are related to the frequency of sound waves. The note is the absolute pitch of a sound, and corresponds to a particular frequency. The tone is defined as the sound that is recognized by its regularity of vibrations.
A major or a minor scale, derived from universal acoustic principles, has seven notes, accompanied with seven basic syllables: do, re, mi, fa, sol, la and ti.
In “Close Encounters Of The Third Kind,” Composer John Williams wanted to use seven notes, but Spielberg considered it to be too long for a simple greeting, so it became five tones instead; re, mi, do, do, so — the second “do” is an octave below the first.
The musical phrase transforms over the conversation, going through a number of variations, such as changing the register, octave and tone color — exploring a basic tonal vocabulary.
The five tones were chosen by Williams after trying a few hundred of over 100,000 possible five-note combinations available in the 12-tone chromatic scale.
Rarely all 12 tones are used, most music uses the 7-tone or diatonic scale to divide octaves, and much of folk music uses five tones.
A mnemonic composition consisting of 24 variations, with five tones each, would give us well above 2,048. 1024-bit encryption also works.
Mnemonic Composition/Frequencies
“If you want to find the secrets of the universe, think in terms of energy, frequency and vibration.” — Nikola Tesla
Hertz (Hz) is the unit of frequency and is defined as one cycle per second. Humans normally hear sound frequencies between ~20 Hz and ~20,000 Hz. Low bass to high treble.
The 12-tone chromatic scale contains frequencies from around 16.35 Hz to 31,608 Hz, although frequencies above 8,000 Hz are not considered fundamental frequencies.
Cymatics is the study of visualizing audio frequencies — by vibrating the surface of a plate, diaphragm or membrane, holding a thin coating of particles, paste or liquid, different patterns emerge on the medium, depending on the applied frequency. The higher the frequency, the more intricate the pattern. It’s an interesting mix of sound and form.
Mnemonic Composition/Vectors
When an audio signal is fed directly into the oscilloscope, vector graphics are drawn with sound.
It is an exact representation of the same waves that reach your ear as sound waves — the closest possible correlation between sound and image.
Hansi Raber has developed a software program called OsciStudio, which converts 3D objects from blender (open source 3D software) into sound to display them again on an oscilloscope. The software can be played easily as a MIDI instrument and runs on Windows or Mac.
Artist Jerobeam Fenderson has been building an oscilloscope vocabulary using OsciStudio, that both sounds and looks amazing. Smarter Everyday interviewed them both.
Output is in 2D on the oscilloscope but could potentially be displayed or printed in 3D as well. Again, it is an interesting mix of sound and form.
Of the mnemonic compositions, the cymatics and the oscilloscope are probably the most challenging, in respect to developing a working self-custody product — nonetheless, they’re interesting building blocks.
Chunks
Mnemonic Technique/Chunking
Chunking allows people to take smaller bits of information and combine them into something more meaningful and memorable — in a sense hacking the limits of their working memory. Like, a phone number sequence of 4–1–5–5–4–3–8–9–7–7 chunked into 415–543–8977.
Chunks are often highly subjective, since they are based on individual perceptions of, and experiences with, the set of information. Chunks generally range from 2–6 items.
People typically struggle with holding more than 5–9 items in their short-term memory, let alone long-term memory.
Memorizing 24 words, shapes or musical tone variations is close to impossible for most people — memorizing half of that is possible but still a serious challenge.
Can we use chunking to make them easier to remember?
Say we have a 1:1 connection between two different kinds of mnemonics, for example a mnemonic design and a mnemonic phrase, so the first LEGO brick combination is equal to the word “alpha,” the second LEGO brick combination equal to the word “day,” and so forth.
And then mix them:
So that the above are experienced as the below — 6x LEGO with names:
In the order:
design — word — design — word — design — word — design — word — design — word — design — word.
Select a mix that reflect your personal learning preferences:
word — tones — word — tones — word — tones — word — tones — word — tones — word — tones.
Mix it up even further, with an additional mnemonic:
design — word — tones — design — word — tones — design — word — tones — design — word — tones.
Resulting in 4 objects, each holding a name and a set of tones.
Neurochemicals
As humans we have the ability to store and retrieve information we have learned or experienced — we refer to this as our memory.
Our memory can broadly be divided into three different types of memory — short-term memory, medium-term memory and long-term memory.
If we want to be able to retrieve our private keys from our memory, potentially over a timespan of years, we need to investigate how we can improve our long-term memory.
This video includes some interesting points from Dr. Andrew D. Huberman, an American neuroscientist and associate professor in the Department of Neurobiology at the Stanford University School of Medicine.
In Summary:
Repeat And Review
One of the best ways to learn something is to simply repeat it over and over — this goes for everything from the physical exercise of juggling a soccer ball to the mental exercise of remembering a string of words.
This is also where the concept of the learning curve comes from, learning something often starts out being slow and seemingly impossible, then over time accelerates and turns into something that you master with relative ease. Practice makes perfect.
When learning something new, you need to continuously review what you learned to strengthen the encoding, or you will struggle with memory retention. The gaps between your reviews can be longer as time goes on. Some refer to this as the forgetting curve.
Adrenalin Spike
Emotional resonance enhances memory — both positive or negative emotions such as love, fear, joy or pain. Anything that gives your body and mind a boost of adrenaline, reduces the need for extensive repetition.
Exercise is great for both your body and your mental health, but it can also help your memorization. Up your pulse with a hard run.
This is the same reason that any kind of deliberate cold exposure, like a cold shower or an ice bath, will strengthen your memorization.
Caffeine intake falls into this category as well, giving a measurable spike in adrenaline.
Emotion should be connected to the learning experience itself, adding focus and intensity. Exercise, cold exposure and caffeine should be applied a short while after the learning experience for optimal effect. Preferably 10–15 min. later.
Note that it would be counter productive to add a boost both before and after the learning experience — it is not the amount of adrenaline in the body over time that speeds the learning process up, but the difference in adrenaline, before and after the learning experience.
Meditation
Everything from taking a short 20 min. nap, up to 2–4 hours after a learning experience, to a more focused meditation or non-sleep deep rest (NSDR), can enhance learning.
Where a quick nap is something most people can see themselves doing, the high-focus state of meditation and the low-focus state of NSDR takes a bit more, well, learning. Also, expect that it can take up to 8 weeks before the effects of steady practice of meditation and NSDR manifest.
Words
Anyone who designs for humans should consider all aspects of this — from the limitations of short-term memory to the interactions between humans, technology and the surrounding society.
Our brains differ when it comes to memorization and preferences for how we interact with technology. And, as builders of self-custody products, we should embrace this aspect of reality, so that we can give every one of our users a both joyful and meaningful experience.
Design for all humans, with all our individual differences in mind.
This is a guest post by Thorbjørn König. 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.
