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₿ ~ c: Why We Need A Monetary Constant

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₿ ~ c: Why We Need A Monetary Constant

This is an opinion editorial by Aleks Svetski, author of “The UnCommunist Manifesto,” founder of The Bitcoin Times and Host of the “Wake Up Podcast with Svetski.”

If life could be described as some form of anti-entropic force, then humans could be regarded as the most advanced, complex structure that has emerged from it (at least that we’re certain of).

This force of “life” seems to transform chaos into order. It manifests as the very edge line of this universal substance we call energy and like “energetic fingertips,” it reaches for greater order. In this sense, we are the very fingertips of life.

It’s an extraordinary thing to think about.

I know I risk getting a little “woo-woo” here with all the energy talk, but I do mean it seriously and in the physics-like sense of the word.

We are composed of matter, which exists in a particular order. Throughout our lifetimes, we consume and transform energy, move in temporal and spatial directions of all kinds and do our best to locally defy entropy before passing the torch onto the next incarnation of life to do the same.

Why? Unfortunately, this I cannot answer for you. It’s my belief that we must answer that question for ourselves individually.

My closest approximation is that we’re part of a cosmic balance between entropy and life. You could call it light and dark, Yin and Yang, positive and negative, or heaven and hell; but do note that both will co-exist. Forever.

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As humans, we represent, on net, the life side of the equation. So whether we like it or not, we all possess some internal, intelligent volition to build, order, create, produce and, in some way, defy entropy.

Whether you’d like to call this volition to order “God,” “life,” “consciousness,” “randomness” or “intelligence,” it matters not. You cannot deny its existence and if you stop for a moment, you cannot help but marvel at its defiance.

So why am I talking about this?

Art And Science

In The UnCommunist Manifesto, Mark Moss and I argued that capitalism is not a “political modality” but an organic process that all complex living species undertake.

In this sense, economics is the study of capitalism. It’s an attempt to try and understand this process, measure it and use the data to make better value judgements and decisions in the future.

John Carvalho calls it “a game.” I call it life.

The goal of the game is to economize. To economize is to literally maximize the efficient and effective use of scarce resources to a particular end; survive or thrive.

Humans happen to be the most adept at this game, hence why we are the apex species.

Engineering As A “Pursuit Of The Divine”

We engineer to economize.

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Michael Saylor argues that humans are engineers by nature. I wholeheartedly agree. It’s in our DNA. Being the highest incarnations of life, we operate as vehicles for this same progressive, transformational force.

We’re like that nexus point between chaos and order, consistently using a combination of analysis and imagination to produce something new.

We’re a blend of art and science. Incredibly designed, emergent, biological and spiritual machinery that is simultaneously unique (there is nobody like you) and similar (we are all alike).

As engineers and artists, we’ve managed to architect the world around us using a blend of math and intuition. We use games to sharpen our skills and value-judgment processes in order to play better at the grander game of life.

Each accurate intuitive leap has taken us to a new threshold of understanding, which in turn enables the conversion of our environment into a new static, higher-order pattern that is reproducible.

This upward-ratcheting standardization — so long as it is not based on fairy tales, but rooted in reality — becomes a foundation upon which to build greater and greater social and physical monuments.

Functional standards come in two forms:

  1. Those which have lasted the longest time. They are known as lindy-compatible, because the longer they’ve lasted, the longer they tend to last.
  2. Those which are empirically, energetically or mathematically sound.

Number one and number two are often the same, but not in every case. Some standards are a little more arbitrary, for example: the QWERTY keyboard, the width of a railway gauge or 21 million bitcoin. So long as its arbitrary nature is not incongruent with some physical law, then it’s fine.

In other words, the width of the chariot axle could’ve been a little more or a little less than 4 foot and 8.5 inches and it wouldn’t have made a difference. That alternative measurement would then have been the standard we used for railway gauges and so forth. What matters is that a consensus forms over time and becomes the standard.

The same goes for Bitcoin. I’m not sure we’ll ever know why 21 was the number. Maybe there is some hidden meaning (half of the answer to the ultimate question?), maybe not. Either way, the importance lies in the fact that it is a fixed and verifiable standard.

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The genesis of this standard occurred in 2009 and 13 years later, it’s not just still there, but is exponentially more sound socially, economically and thermodynamically.

This is an extraordinary feat and a foundation we can build upon.

It is engineering at its finest.

Playing Pretend Leads To Poverty

Problems arise when functional standards are ignored or when arbitrary standards are simply decreed, with no regard to the conservation of energy or the natural order of things.

“You cannot pretend your way into prosperity”

Politicians spend their entire lives playing the worst kind of pretend; they do so with everyone else’s resources.

Therefore instead of impoverishing themselves, which would be the case in a free market, they impoverish all of us. Worse yet, by virtue of the political apparatus, they actually enrich themselves in the process!

There’s something deeply wrong with this.

But I ask you. Is it entirely their fault? Of course each individual is responsible for their actions and in time shall be held accountable, but in a world where power, economic force and macro decision making is so concentrated, does it not make sense that such actors believe that they can will their way into fixing everything?

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They’ve surely drunk their own Kool-Aid and, sitting atop their perch in Davos, Brussels or D.C., they see the problems of the world as a lack of their supervision and involvement.

“If only they could direct us all better.” If only they, like The Almighty, decreed it so, then all the problems shall be gone.

Unfortunately, reality doesn’t work like this and every time we go down that path, every time we play along and pretend our way toward empty promises of prosperity, every time we build atop a lie or a false premise, our structures have come crashing down.

The time has come to change this. The point of maximum leverage in the modern age is the money.

Engineered Energy Money

The one area where we’ve never had a perfect standard — and it’s about time that we do — is the money. Humans, being social, and money, being the most important social invention of all, makes it critical for us to engineer a standard that is closely representative of that which it measures.

In order for us to advance as a species, this is a necessity.

Vaclav Smil calls energy the “Universal Currency.”

I would argue, as would Saylor and many others who intuitively and viscerally understand it, that bitcoin is “Energy Money,” and thus a perfect Universal Currency for use on Earth.

We’ve had the zero-to-one moment for this invention. All that came before was a necessary experiment. All that will come after shall be structures built atop this bedrock discovery/invention.

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I call it that because it is both. As a species, we had to discover energy money. It is a crucial part of a sentient species’ pathway through the Great Filter.

Bitcoin is humanity’s version and, although we invented it, it was something we had to discover, like electricity, the internet or the speed of light. It lives in those realms. It is the first “information-element,” as Knut Svanholm would call it.

The convex nature of what comes next is unlike anything we have seen before.

“The money” is the sacred ledger-in-the-sky that accounts for all energy, action, time and resources. It’s the ultimate scorecard and is not just important for a society to function, but is the keystone. If that is compromised, the entire structure fails.

Achieving practical perfection of such a deep (if not the deepest) layer of the societal stack, has far reaching consequences, farther than any eye can see or mind could imagine. It shifts the very course of humanity — something I do not say lightly.

The speed of light changed everything for physics and engineering alike.

As the “engineers of life,” working within the overlapping realms of the physical, economic and social, we’ve not had a tool like bitcoin, ever. The alchemists were in search of it for hundreds of years, long before it was a technical possibility.

They laid the philosophical groundwork for what it would be and what it would represent.

“There abides in nature a certain pure matter which, being discovered and brought by art to perfection, converts to itself all imperfect bodies that it touches.” — Aron Villanova, alchemist from the 13th century

John Vallis discusses this in much greater detail in his magnificent piece, “Money Messiah.”

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Now that we have this substance, everything changes.

Physics is how we discover universal scientific truths that we can apply to engineering.

Economics is how we examine action, incentives and what matters in order to make value judgments and decisions.

With bitcoin we have something that bridges the gap between the metaphysical nature of money and its physical, energetically-conservative reality.

Bitcoin is economics meets physics.

As such, we can apply a physics-like approach to engineering civilization locally, within a framework of value that has true consequences and delivers accurate feedback.

For the first time in human history, we have real money.

I know I sound like a raving lunatic, but this is absolutely monumental in the grand scheme of things.

I refer to a chart from the “Fire, Bitcoin, Teleportation” piece I wrote for The Bitcoin Times last year:

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Before all the pessimistic keyboard warriors come out in force to denounce my utopianism, what I am saying does not presuppose some unicorn-laden utopia where we’re all just “happy and peaceful” all the time.

We’ll have just as many problems, but they will be better, higher quality problems.

And this may in fact be where the true definition of evolution exists, at least in a social, “intelligent” or “consciousness” sense. What we are striving for is not the elimination of problems (that’s a load of Marxist garbage), but the enhancement of the quality of our problems.

Akin to the force of life I described earlier, we seek to reach further or, perhaps better stated: life seeks to reach further through us. As I said, we are but a vehicle, the very fingertips of life.

Monetary (B) And Physical (c) Constants

So back to the speed of light, and its relationship to bitcoin.

We have a universal standard that we can now use as the basis of functional civilization-level engineering. I hesitate to use the term “social engineering” because it comes with so many bad connotations, but the truth is, we are always going through a process of engineering our societies. The questions simply are:

  • What are we engineering towards?
  • What are the tools we’re using?
  • How are we approaching the problem?
  • Who is involved and who is impacted?

In the absence of good tools and an agile, decentralized market approach, we succumb to the entropy of centralization. Over time, this tendency to centralize across greater scales has and always will form an empire of lies in order to give the illusion of it being held together.

We are living in it today, just as we have in the past. Only this time the lies are more pernicious and their transmission more subtle.

With bitcoin, we finally have a financial constant that we can build an accurate set of financial, cyber and physical infrastructure from.

Not only does it solve the sound money problem but, as a known constant or baseline, it allows all the economists, financial engineers, bankers and anyone else who chooses to do so, to build models that aren’t derived from the ever changing “animal spirits” theorem.

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Furthermore, because cost and consequence is made real in cyberspace, it raises the bar for engineering in bits and bytes. This has two follow on benefits:

  1. It makes software more lifelike, consequential and meaningful. We don’t need another gambling platform or stupid social media app full of bots and censorship. We need real products.
  2. It pushes innovation back to the world of atoms, because the ease with which one can whip up mindless software to sell to VCs diminishes and talented engineers begin to look elsewhere for problems that need solving.

This application of costs to the world of bits is a fascinating rabbit hole and one I will explore in a future essay. But suffice it to say that the world has fallen far behind in the realm of innovation in atoms. It’s about time we fixed this, not by decree, but via opportunity and localized economic calculus.

The discovery of the speed of light as a constant revolutionized physics and engineering. It impacted measurements and enhanced our view of the universe. For example, we can be very precise with measurements now that the meter is the length of the path traveled by light in a vacuum during a time interval of 1/299792458th of a second.

We all now know that matter (or mass) is related to energy via the “c” constant in the famous E = mc2.

These physical and mathematical constants allow us to build models that can more accurately represent reality, in stark contrast to the modern financial and political sophistry built on numbers people neither understand nor believe are true.

Bitcoin fixes this.

Want to create crazy financial models? Go for it. But remember, there are consequences for being wrong and the system will not bail you out. You will not rupture or compromise anything for the rest of us.

Want to defraud people via some complex financial abstraction? Sure, by all means do so. But don’t be surprised when those with the time and skill to do so call bullshit. When the underlying assumptions are guaranteed, as they are with bitcoin, unfettered Ponzi schemes have a much harder time surviving.

Sunlight, like transparency in the money, is the antidote to mold.

Today, nobody can check or call bullshit on anything unless you’re Kyle Bass with billions to research with, and even then be on the wrong side because some politician decided to change the rules or conjure up some numbers.

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You can’t build any form of sophisticated functional system like that. Abstraction atop false assumptions is doomed to fail.

I’ve said it before, one cannot build monuments on poor foundations.

In Closing

Much has been created, built and produced in the past 3500 years of human civilization. The last 500 years have brought with it massive technological progress that has further been accelerated with the advent and use of things like steel, oil, electricity and, more recently, the internet.

Matter, energy and information.

The last big thing that awaits — that can and should be: fixed, robust and constant — is the money. And it may well be the most important one of all.

We must transcend the current state.

Imagine trying to do physics, let alone any sort of useful modern engineering without constants like “c,” or the laws of thermodynamics. Nothing would work. In fact, imagine using 200 different measurement units for length! That’s the global economy in a nutshell.

The biggest problem we have in the world today is The Money. Nobody actually knows what it is, how much of it there is or what’s actually going on, but we go on building complex models on top of this quicksand, using assumptions and approximations conjured up on a whim.

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Central planners try to treat economics like a science, but the key variables are unknown and constantly manipulated with total disregard to the ramifications that tampering has on a complex, dynamic system.

This is where Bitcoin really shines.

A set of very clear rules and constants that are nigh on impossible to change (need very broad agreement), that anybody can verify instantly and voluntarily choose to adopt or not.

It’s a better, more robust foundation upon which to play the economic game.

Same as the internet. It’s a better foundation upon which to build communication and collaboration based technologies. That’s why it won.

Bitcoin has all the key attributes for a more functional, efficient, open and performant economic network. Clear, precise, robust, conservative, Lindy, antifragile, voluntary.

And because of its recursive nature, it’s a runaway train.

Nobody is catching this one.

Last Thing…

It’s ok that you didn’t discover Bitcoin. You didn’t discover the wheel either and I’m sure you’ve used and benefited from it.

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There seems to be this hesitance to trust or adopt Bitcoin because Apple, A16Z, Google or the government didn’t create it.

“It was some anonymous guy.”

But that’s the point. Bitcoin is not a company, a government, a security or an app.

Neither Apple, A16Z, Google or the government created oil, gold, water or the internet for that matter. And thankfully not.

These commodities are used by groups of people, companies and/or governments and the internet is an emergent communications network that is made up by all of us.

Bitcoin is like both of these things, rolled into one. Bitcoin is all the nodes; it’s a network not run by anyone, made up of everyone, that functions like something you would find in the ground.

Bitcoin is digital energy.

Bitcoin is digital matter.

Bitcoin is the monetary constant.

Bitcoin is all of these things and more.

This is a guest post by Aleks Svetski, author of “The UnCommunist Manifesto,”, founder of The Bitcoin Times and Host of The Wake Up Podcast. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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El Salvador Takes First Step To Issue Bitcoin Volcano Bonds

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El Salvador Takes First Step To Issue Bitcoin Volcano Bonds

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.

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How I’ll Talk To Family Members About Bitcoin This Thanksgiving

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How I’ll Talk To Family Members About Bitcoin This Thanksgiving

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:

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  • 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.

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RGB Magic: Client-Side Contracts On Bitcoin

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RGB Magic: Client-Side Contracts On Bitcoin

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.

Title deed of unregistered real estate propriety

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:

  1. You have to buy a lot of newspapers for the verification process. Not very practical.
  2. Each contract needs its own space in the newspaper. Not very scalable.
  3. 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.

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transfer of ownership of utxo

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.


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.

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