Crypto
Phish Lot, Rural America And The Lightning Revolution
This is an opinion editorial by Patrick McCaughey, a live music aficionado, Bitcoin advocate and pragmatist living in western Massachusetts.
Humans are innately social creatures. We enjoy meals together, we exchange ideas with one another, and when the time is right, we set our soul free and surrender to the flow of living in the moment with like-minded beings. We are, after all, just swimming in this real thing we call life. As technology progresses with exponential rapidity, the methods we use to communicate and share information are going through a dramatic shift. Our trip may be short but we have come a long way in just a few decades of technological innovations. These innovations are paving the way for a new frontier of connecting with our fellow humans: new ways of exchanging ideas, storing information and transmitting value are shattering the legacy systems that have for far too long been the status quo. If we can imagine it, we can build it — and if we can build it right we have the ability to conjure up a world that values truth, fairness and a chance at an equitable future for all. This bullish sentiment relies on a rather large assumption, however: That we will maintain constant access to wireless communication via a robust and decentralized network.
On Friday, July 23, I attended my 64th Phish concert. The venue was a first for me: Bethel Woods Center for the Arts in Bethel, NY. Bethel is most widely known for being the location of the iconic Woodstock Festival in 1969, the largest music festival in modern history which drew some estimated 400,000+ attendees (unless you ask Trey Anastasio). The area is drenched in cultural history, and the surrounding landscape is as picturesque and breathtaking as you could imagine. Despite over 50 years having passed since this legendary event, the little patch of rural America it took place in felt as though it was untouched by the passing of time. For better or worse, this largely agrarian community of the Catskills has yet to catch up with the speed of connectivity that city dwellers have become accustomed to.
While unexpected, I didn’t really think this would pose too much of an issue. After all, there were no mobile communication devices in 1969 and they seemed to do just fine. But then I began thinking about the logistics of the night ahead of us, and how our society is ever closer to being reliant on uninterrupted Internet access in order to participate. Lyft, Uber, Instagram, Twitter, SMS messages — all of these services would soon be more or less unusable. While we easily booked our Lyft from the hotel’s WiFi, once it came time to fetch a ride back, we had no hopes of booking a return trip using any of the modern apps we take for granted, let alone the ability to call a cab.
Phish Lot: The Last Remaining Unfettered Free Market
Upon exiting the show we were immediately greeted with scents and subtle sounds, like colors in the landscape, and textures of the town. Hot butter was sizzling on a grill, a crisp ‘77 “Eyes of the World” was roaring from a vendor’s speaker, and the whirring hiss of nitrous oxide seemed to envelop our every moment. “One for $10, three for $20, ice cold!” announced the vagabond gas salesman. Some attendees lined up and happily gave his asking price, while others tried to negotiate, “How about four for $20? No? Okay, five for $25?” This is a common phenomenon in the world of Phish, a scene that is more akin to the Wild West than it is to a traditional shopping experience today.
This is price discovery at its finest. On Phish Lot, there are market dynamics unfolding before our eyes that are rooted in pragmatism and first principles. Free markets may not be the be-all end-all way to approach everything, but they sure are efficient. No calls, puts or leverage about it, this was a raw unadulterated spot market, and we were here for it. After running into a few friends, saying our goodbyes, and indulging in a balloon or six, we decided to make our pilgrimage to the exit in hopes of catching a ride back to our hotel. After what felt like an eternity, the local taxi company (shoutout to Catskill Mountain Transportation!) showed up and began shuttling everyone to various hotels and campgrounds well into the night, and we eventually made it back to our hotel so we could rest up and do it all over again the following day.
The network issues I experienced that night illustrated a very important point: we will not see a hyperbitcoinized world until Internet outages are a thing of the past. If the very thing we require to utilize Bitcoin as a network (consistent Internet access) is highly centralized, it doesn’t mean that Bitcoin has failed us, it just means we need to dig deeper into how to outfit ourselves with resilient techniques for securing high-range wireless communication. The only way Bitcoin stands a chance at becoming the global reserve currency is if uninterrupted network access is as ubiquitous as life itself. Otherwise, we’re just brain dead and made of money: No future at all.
Take Back The Internet With Mesh Networks
Mesh networks are actually a pretty old school technology. They have long been used by the military to provide constant communications in locations unequipped with wired or satellite service. Even though the technology to construct such a network is rather simple, we haven’t really had the need for them due to the speed at which wireless cell towers have been constructed. In the year 2000, there were 104,288 towers operating in the United States. By 2020, that number increased to 417,215.
One of the largest of these tower operators is American Tower, proclaiming on their website, “Our global portfolio includes approximately 222,000 communications sites, including more than 43,000 properties in the United States and Canada and approximately 179,000 properties internationally.” While we are in many ways fortunate to have this infrastructure enabling modernity and a technologically proficient society, it is a far cry from the decentralized, peer-to-peer permissionless world we aspire to live in.
In the 2018 blog post entitled Understanding Mesh Networking Part 1, Ram Ramanathan, Chief Scientist at GoTenna describes mesh networks as follows:
“A wireless mesh network is a network of devices (often called nodes) that communicate with each other using peer-to-peer wireless links typically over multiple hops — that is, by bouncing a message from one device, through another and landing at a third (or fourth, etc.). This kind of network also operates in an infrastructure-less and decentralized manner, meaning it doesn’t require great resources at the back end to be usable, and no one node is prioritized over another.”
Sound familiar? If so, it’s because mesh networks function using the same basic principles as the Lightning Network. While I like Ramanathan’s succinct definition of a mesh network and believe GoTenna has made a lot of progress in this field, being beholden to a counterparty who can/will leak your private data is antithetical to the entire point of this technology. It cannot be overstated that companies like GoTenna are not our friends. Regardless of whether the rumors are true that In-Q-Tel (the CIA’s venture capital division) played a role in funding GoTenna, it is a closed platform that discourages innovation, development, and interoperability. Furthermore, they are clearly more focused on maintaining government contracts than helping the average citizen.
Rather than rehashing what has already been written about numerous times in this space, I will refer you to one of my favorite articles on the topic which came out earlier this summer: “Making Bitcoin Unstoppable Part One: Mesh Networks” by L0la L33tz. L33tz offers a broad overview of the historical relevance of mesh networks being used for Bitcoin transactions (both using Lightning and transacting on-chain via the Blockstream Satellite), as well as technical processes to set these up using readily available, non-dedicated, off-the-shelf hardware. Personally, I wouldn’t be surprised to see mesh networks begin to proliferate over the coming decade due to numerous factors such as a reduction in hardware costs (lead by AI and robotics), citizens becoming increasingly wary of their governments’ ability to act on the behalf of the people, and the drive to bring last-mile internet connectivity to everyone on the planet.
Lighting On Lot
Phish has long been associated with the counterculture movement. On tour there is a burgeoning microeconomy that has been growing alongside the band since the early days of their history. Food, beverages, art, clothing, pins, hoola hoops and intoxicants of all shapes and colors are available for purchase before and after the shows from a multitude of unofficial vendors. For decades, cash was the only accepted method of payment by these nomadic sellers, but as the world has shifted towards digital transactions, it is becoming more and more common for folks to accept Venmo and Cash App for their goods. While this is definitely convenient for both parties in any given transaction, it does not come without its drawbacks.
Aside from the obvious KYC component of these applications, chargebacks can still occur. If a buyer pays a Venmo/Cash App request using a credit card linked to their accounts, a chargeback can revoke funds a seller has received well after the sale has taken place. For merchandisers that rely on funds coming in to purchase supplies for the next show, this can lead to problems when getting ready for their next event. If grilled cheese and hot dog peddlers do not have liquid funds to stock their coolers with ingredients or refill their tanks with propane, these vibrant gray markets may not be able to sustain themselves as we propel ourselves into a future where the digital and physical worlds seamlessly merge.
As CBDCs loom closer to becoming a reality, it is up to us as a collective to prioritize a censorship resistant, immutable and open monetary network that is accessible to everyone. Otherwise, we risk not being able to opt out of a dystopian nightmare where authorities have the ability to surveil and halt our transactions at will. To be clear, I am in no way, shape or form condoning illicit activity, money laundering or anything of the like. I am simply proposing that as we move away from a cash economy, we maintain the properties of cash as we know it which allow for private, fungible and unsurveiled transactions.
The adoption rate of the Lightning Network is currently growing at an astonishing speed. On July 1 2022, the Lightning Network capacity broke 4,000 BTC, equating to over $77 million worth of value across all channels. Two years prior, that number was under 1000 coins, representing less than $10 million in value. As the saying goes; slowly, then suddenly, then all at once. While the technology is still very much nascent, there are clear benefits to transacting over the Lightning Network. Even bankers are keen on this fact. Earlier this summer, researchers at the Federal Reserve Bank of Cleveland wrote a paper titled, “The Lightning Network: Turning Bitcoin Into Money.” The piece highlights these benefits, citing instant settlement, low fees and reduction of congestion on the Bitcoin timechain, all of which are a boon for Lightning adoption.
Today, many people need Bitcoin. It is an economic lifeboat for people that are under the oppression of authoritarian regimes living with double-digit inflation. There are countless stories of humans utilizing Bitcoin as a freedom tool in countries like Nigeria, Sudan and Ethiopia. People that are following a jam band around selling beers and grilled cheese sandwiches in the country that holds the global reserve currency status don’t need Bitcoin in the same way people do in say, Turkey, where the local currency has been melting away. The Phish scene definitely doesn’t need Bitcoin and the Lightning Network to thrive. Arguably — today anyway — it doesn’t need Bitcoin at all. However, there are few communities that have the tenacity, willingness and know-how to adopt this burgeoning technology in an effective and meaningful way that will permeate our culture.
From Digital Music To Digital Money
Phish fans are long known for being early adopters of budding tech. As the tape trading community pioneered by the Grateful Dead spilled over into the Phish scene, the quirky ‘90s geeks who obsessed over the band’s live recordings were arguably a major catalyst for the digital transformation of music that we take for granted today. As the audio industry made leaps and bounds in media formats, tapes led to CDs and eventually affordable CD-Rs/CD-RWs and these tapers were on the forefront of this audio revolution. Initially these live music aficionados simply used the internet as a means to find and connect with one another, but the actual media itself was still physical until the late ‘90s. In 1997, if you had interest in obtaining a copy of a particular recording but had no shows to trade in return, you would need to find someone who was advertising the show in their collection via a forum, send a message, and engage in what was known as “B&P” (blanks and postage). A taper or collector would simply provide the show free of charge as long as the inquirer sent blank CDs and return postage.
While this worked well enough, there was a drive within this community of tenacious tapers and traders to bring their recordings to the digital space. While this was discussed as early as 1996, the combination of slow internet speeds and large file sizes made this process nothing more than a pipe dream at the time. However, the exponential growth of internet adoption was a key element in cracking this metaphorical nut. According to Statisa, the percentage of Americans who used the Internet increased from 14% in 1995 to a whopping 46% just 5 years later as we approached the year 2000. As illustrated by the chart above, this was the largest increase of internet users in a five year time span in the history of its existence. As internet access grew and File Transfer Protocol (FTP) servers spread like wildfire, tapers were eventually able to take full advantage of their passion and craft in 1998 with the birth of etree, a decentralized digital file sharing community that allowed users to share lossless audio files over the internet for the first time in history. While this process was a bit clunky at first, it led to the infamous but short-lived Napster, with the modern day equivalent being Spotify and Apple Music, which many of us have at our fingertips. Now, a quarter of a century later, it is estimated that physical albums account for less than 10% of all music consumption in the United States.
Just like with the digital audio revolution, a new monetary paradigm is not something that will occur overnight. New technology is funny; One day a device shows up and a few people start using it, then all of a sudden it becomes ingrained in everyday life. Being an early adopter of tech myself, I remember the exact day the first iPhone came out: June 29 2007. I was at a backyard party in Oakland and someone had just gotten back from the Apple store with one of these shiny new 21st century marvels, eager to show off their fancy new gadget. All the guests stood in awe as we gazed upon a new age of information access. Over the next couple of years it seemed rare to meet someone with one of these new miniature supercomputers, with many still favoring the Blackberry or even flip phones. Then, in what felt like an all of a sudden transformation, the smartphone became ingrained in daily life. In 2022, the number of smartphone users in the world is 6.648 Billion, which is over 83% of the earth’s population. This number is quite staggering when considering that the first iPhone hit the stage in Cupertino just 15 years ago.
Whether it comes to spending or saving, Bitcoin is objectively superior to government issued dollars. For audiophiles, Bitcoin is the FLAC to the .mp3 that is fiat currency. Just like lossless audio cannot be degraded, Bitcoin cannot be debased, and its discovery has allowed us as humans to contain, express and transfer value in such a way that is truly remarkable for our species. If we care about the time and energy we expend as individuals and as a group, we should all demand the ability to transact using a currency that is not subject to corruption, one that plays no favorites, and treats every participant in the network as an equal. Blockware estimates that by 2030, we will see 10% of the global population using Bitcoin. Whether or not this prediction comes true is obviously yet to be seen, but if it does, it might not be a bad idea to get ready for the transition before it happens. The dollar is dying and the oligarchy is doing everything they can to maintain their power to control the money. But this doesn’t mean we are destined for a de facto doom and gloom dystopian future.
There are things we can do right now to better prepare ourselves for the world we want to live in. Are you interested in how Bitcoin Core works? Run a full node. Do you have some sats and want to provide liquidity on Lightning? Open Lightning Channels. Do you care about our ability to wirelessly communicate in a decentralized and immutable manner? Operate a mesh network. Do you value discrete transactions? Learn how to use Bitcoin privately. Are you a developer? Develop on Lightning. Do you run a small business? Accept Bitcoin. By taking these small but powerful actions we can shape our reality in such a way that decreases economic friction, ensures self-sovereignty and sends a powerful message to future generations: Keep what’s important and know who’s your friend.
This is a guest post by Patrick McCaughey. 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.
