The underrated RGB is the foundation of BTC's complex ecosystem

Author: DaPangDun, Source: Mirror

1, nagging preface

In the recent outbreak of the BTC ecosystem, although most of the protocols in all directions are in the early stage, and the infra is still very imperfect, it still can’t resist everyone’s enthusiasm for chasing these innovations.

From a long-term perspective, most of the current projects, tokens or NFTs will eventually die, but it will not affect the good wealth effect in the early stage of construction.

I have always been concerned about the BTC ecosystem, and the reasons for this are mainly based on the following judgments:

1. The price of BTC cannot rise forever, so with the halving, the miners’ income is not guaranteed enough, although there is a dynamic equilibrium, but based on the cognition that “computing power is the basis for ensuring security”, there must be a new narrative to solve this problem. **

2. One solution is to build a BTC ecosystem, create more transactions, and provide miners with enough packaged transaction fees; The other is additional issuance (although many people say that this is absolutely impossible, but I don’t think it is completely impossible). Relatively speaking, the second option is likely to break the consensus of BTC, so the first is definitely a better solution, while the first will bring a new narrative. **

However, due to the problems of the underlying structure of BTC, the progress of various developments is relatively slow, and it is easy to miss the focus in the rapidly changing and complex information of crypto, which also makes me miss the early opportunities in the track where the BTC ecosystem is developing rapidly.

I personally believe that the NFT on the BTC chain will be limited by the size of the block space, and the inscription is a concept that I personally prefer to recognize as “jewelry” (of course, my perception may be incorrect). **Although they play a very important role in the explosion of the BTC ecosystem (easy to understand, easy to fomo), they are still not the foundation that can build a complex ecology in my mind. **

I’m more focused on the innovations that I think can change the entire BTC ecosystem, so today I’m going to talk about a protocol that I’m more optimistic about:

2, talk about RGB protocol

What is the 2.1 RGB protocol

In layman’s terms, you can understand that this protocol is used to create smart contracts for the Bitcoin network. **An important reason for ETH’s take-off is the introduction of smart contracts, and then gradually build a large and diverse ecosystem, all kinds of assets, financial models, etc. are introduced through contracts (I personally understand it is funtion), and can even be pegged to the real world (current RWA).

So if we introduce smart contracts into the BTC system, can we also generate a lot of interesting things?

Of course! (I don’t agree with the idea that BTC only has stored value)

However, because the code architecture of BTC is very different from that of ETH, it is very difficult to build contracts on it, so it requires very crypto native innovation.

2.2 UTXO Model

Before talking about this, let’s take a look at the Bitcoin account model (because if you don’t talk about this, there will inevitably be something you can’t understand later)

The traditional model we are familiar with has an account and a balance, and when trading, it is how many tokens are from A to B, so that it is OK.

But the UTXO model is different, he has no account, no balance, only information about transactions.

When it comes to trading, that’s two ends: input and output. But it’s not the same as the one we think of, see the following diagram:

You are Bob, you have 1 BTC, then he is embodied in a UTXO, and now you transfer 0.5 BTC to Alice (here we ignore the gas fee), then in the end two UTXOs will be generated, one is the new UTXO of 0.5 BTC that you are responsible for (bottom right), and the other is the new UTXO that Alice is responsible for (top right), and the original UTXO is not available. Of course, if your input (on the left) is a combination of several UTXOs (e.g. 1 BTC is actually a combination of 0.8 BTC + 0.2 BTC of UTXOs), then the situation is more complicated.

However, as you can see, it’s a process that keeps creating new UTXOs based on old ones to pass the entire transaction information. This is completely different from an ETH account (ETH account information is more like a traditional database, with a name, a balance, and the balance will change if it is spent…)**

2.3 RGB Principle

According to its official explanation, the RGB protocol works as follows:

1. The asset issuer creates a new asset on the client side, generating a one-time seal and commitment, at which point the asset belongs to a Bitcoin UTXO (whether it already exists or is temporarily created).

2. The issuer anchors the new asset to the Bitcoin network by embedding the commitment into the Bitcoin Transaction Output (UTXO).

3. The asset receiver verifies the validity of the asset by accepting the commitment and verifying the one-time seal.

4. During the asset transfer process, the old one-time seals are destroyed, and the new one-time seals, commitments, and transaction data are anchored to the Bitcoin network.

Twitter user @trustmachinesco explains the process in a more visual way:

1. Matt issues 100 $MATT tokens for himself on the RGB network.

2. On the Bitcoin network, Matt’s token issuance corresponds to his current Bitcoin holdings of UTXO (Unspent Transaction Output) A.

3. Matt transfers 50 $MATT tokens to PAM.

4. On the Bitcoin network, Matt’s token transfer corresponds to a new UTXO B, while step 2’s UTXO A is burned.

5. On the Bitcoin network, the Pam receiving token corresponds to a new UTXO C, which represents Pam’s current Bitcoin UTXO.

6. Similarly, when Pam transfers, her original UTXO C is destroyed, resulting in a new UTXO D.

**As $MATT tokens continue to change hands, each transfer will be represented by the corresponding UTXO on the Bitcoin mainnet. **

But we can’t create contracts directly on-chain, so how do off-chain contracts correspond to UTXOs?**This involves another innovation of RGB: client-side verification. **

In the RGB protocol, transaction verification and data storage is done on the client (such as wallet software) rather than on the blockchain. This allows transaction data to be not exposed on-chain, improving privacy. Client-side verification can also reduce the need for on-chain data storage and improve the scalability of the network, which is also a big difference between RGB and BRC20, because the transaction data is on the client rather than the chain, which can theoretically greatly reduce the current network congestion and high fees. **

Overall:

The RGB protocol leverages the security of the Bitcoin Mainnet UTXO to endorse the security of its off-chain asset issuance or contract logic. **

2.4 RGB Pros

1. Security: Relies on the high security of the BTC network;

2. Confidentiality: The transaction information is not disclosed on the chain, so it is private, but this privacy is also relative, when you have the corresponding UTXO, you can look back at the previous data;

3. Scalability: It can be perfectly combined with the Lightning Network, etc., which is a point that I value very much, the Lightning Network allows the Bitcoin network to get rid of the existing rate, and RGB can introduce smart contracts, so isn’t it a high-speed smart contract system that reproduces ETH?!

One might say, what’s the point of replicating? Of course it makes sense!

1. BTC can provide higher security, so smart contracts and so on will also have relatively higher security

2. It can revitalize the funds currently deposited on BTC or introduce funds that only believe in the Bitcoin network, so that these funds can be used in more scenarios

3. MAKE DEFI POSSIBLE, WHICH WILL GO A LONG WAY IN SOLVING THE PROBLEM OF MINER EARNINGS MENTIONED AT THE BEGINNING

4. No congestion: because the transaction only retains the homomorphic commitment that requires additional storage

5. Upgradeable in the future without hard forks: Operates off-chain without impacting on-chain

6. Higher censorship resistance than Bitcoin: Because no transaction information is reflected, miners cannot see the flow of assets in the transaction

3, RGB Ecology

Although the RGB protocol has been out for a long time and has strong legitimacy, it has been in a tepid state (I believe that more and more people will mention it), and there are roughly the following in the current ecosystem:

3.1 Infinite

Official Website:

Infinitas is a Bitcoin application ecosystem that combines the RGB protocol and the Lightning Network to achieve higher privacy, superior throughput, and superior low-latency transaction processing.

It is said that Infinitas will have its native economy incentive scheme, and will use mining to produce in the market in the early stage to promote the long-term development of the ecosystem.

3.2 COSMINMART

Official Website:

COSMINMART IS A NEW BITCOIN APPLICATION ECOSYSTEM BASED ON THE LIGHTNING NETWORK, COMPATIBLE WITH RGB AND OTHER PROTOCOLS, AND SUPPORTING SMART CONTRACTS. Its products:

COSM Wallet

COSM Market

COSM Lanuchpad

3.3 Pandora Prime Inc

Official Website:

Pandora Prime is dedicated to using a combination of RGB smart contracts and the Lightning Network to pioneer Bitcoin Finance. They started with programmable assets on Bitcoin (RGBTC and CHFN) that can be scaled to the VISA/MasterCard level in terms of transaction throughput via the Lightning Network, and also provide a convenient facility to exchange these assets for transactions under CHF 1,000 without the need for cumbersome KYC procedures (in compliance with Swiss law). Currently, their products include MyCitadel (wallet), RGB Explorer (browser), and Pandora Network, among others.

3.4 DIBA(DIGIT ALBITCOIN ART)

Official Website:

Contains products DIBA and Bitmask

DIBA

is the first marketplace to use the RGB smart contract protocol and the Lightning Network to trade Bitcoin NFTs (as DIBA calls it).

Bitmask

Created by DIBA, the wallet is the first NFT wallet in the RGB ecosystem that runs in a web browser and interacts with RGB contracts like MetaMask on Ethereum.

3.5 Bitswap-BiFi

github：

At present, the RGB ecosystem is actively exploring DEX solutions to solve the liquidity problem of RGB assets. Bitswap’s demo and proof of concept showed how to bring “SWAPS” to the DEX, but there are no AMMs or LPs for the time being. It’s still in the validation phase, very early, and it’s also worth paying attention to.

4, what are the opportunities to participate

I looked at the projects and found that Infra was still very imperfect, and the experience with wallet and so on was not very good, but it was this early stage that gave us more opportunities to get involved at a very early stage.

**Personal suggestion 1: To use the wallet, if there is a testnet, you must do it and experience it, not only to understand the process, but also to give some suggestions to the project party. **

**Personal suggestion 2: Some projects of the same type can also be followed, I am following “Taproot (Taro)” at the same time, its entire design is very similar to RGB, but behind it is the “Lightning Labs team”, which has raised 70 million US dollars, which belongs to the state of rich people, and the RGB team is relatively embarrassing, but its code is open source and has a first-mover advantage in the technical circle. **

**Personal suggestion 3: Some projects such as meme and NFT in RGB can also be focused on, and there may be surprises. **

References

1. RGB Blackpaper
2. Explain the RGB protocol: find a new way to create a new layer 2 for Bitcoin asset issuance
3. How can the RGB protocol be a game-changer for Bitcoin’s Layer 2 solution?