Crypto
Bitcoin What-If: The State Was Demonetized By Sound Money?
This is an opinion editorial by Ulric Pattillo, contributor at Bitcoin Magazine and co-author of the Declaration of Monetary Independence.
Author Disclaimer: The following work is a combination of real world commentary and fan fiction, similar to your favorite sci-fi world. I do not intend to infringe or misappropriate any real world ideas or work. Any similarity to concepts or work in the fan fiction portion is purely coincidental. This is Part 2 of a series I call “Bitcoin: What-If?”. Marvel can’t own that, right?
What If … The State
The State as an institution has failed the individual. This is not to place the blame on one party nor “the current administration.” This issue is not rectified by “voting for the right people” or “educating our leaders.” Additionally, the services and agencies employed by elected and unelected officials cannot persist in a future with Bitcoin.
Analogous to the arguments in finance, hyperbitcoinization is not simply adding Bitcoin to the current fiat networks; rather it must be a completely alternate system with the sound money being the dominant unit of account in the world. Bitcoin as a completely trustless and voluntary monetary network conflicts in principle with a system that intermediates and coerces against the incentives of the individual participants in the world at large.
The State, contrarily, exists not by voluntarism or the will of the participants, but the act or threat of violence. Without this feature, The State has no way to generate revenue. The State does not create value, but takes it away in one of three ways: taxation, monetary expansion and confiscation.
Taxation, while portrayed as the upstanding duty of the citizen, is a nothing more than a veiled form of fractional slavery. If one were to be taxed 100%, you would own none of your work and would have no way to acquire property yourself, no different than a slave of times past. If a statist counters that taxes are the fee to live in the domain, then it is then true that there is no such thing as “public property.” If I am a part of the public, why am I paying someone else for what I already own a share in? If taxes are a fee, at what point have I paid that fee in full or may decline the services provided from said fee?
“Taxation is a proclamation of one’s slavery to the kings of this earth. It is a celebration of one’s ownership by a master other than God.” — Anonymous Bitcoiner
Monetary expansion is when someone exercises their unique right to decree more units of money to be created. As government power has grown to the point where it is now too big to exist, this strategy for sustaining must occur. While Keynesians will mock and dismiss this fear from their ivory tower of privilege, their ideal 3% inflation just means 3% of your buying power is stolen annually and given to the group of the thief’s choosing. Maybe it’s cronyism where those benefits are funneled to wealthy corporations. Maybe it’s a welfare state and reallocates wealth to people who are incentivized to refuse work. Maybe it’s a communist state, where the new money is divided amongst the coffers of inefficient government agencies. Whatever combination of those cases, the victims are the value creators in society. The laborer’s rightful fruits are stolen by manipulating their expected share of the value in the economy without their consent.
A third way of theft is direct confiscation. When the need arises, governments will use their monopoly on violence to lay claim to the rightful property of their citizens. It is hard for privileged Americans to imagine consequences of incarceration or death to resist such an encroachment of natural rights. Is the concept of property now a facade due to complacent citizens that sold all their freedoms to the government for the state-sponsored drug of security? It continuously happens around the world, yet news media conveniently do their best to minimize their criticality.
Netherlands farmers are besieged by their own government in a strategic attempt to seize farm land from the rightful property owners. “Nitrogen emission” guidelines designed by the World Economic Forum (WEF) are the rationale for these efforts that can be seen as a malicious attack on food supply where hunger could be used as a tool for control.
While you may see your bank account as unassailable, the Bank of China, the fourth largest bank in the world, declared their customers’ checking accounts to be “investment products,” disabling the ability to withdraw. The government, of course, supported this move with a show of armored force at branches that required protection as banks lay claim to value that is simply not theirs.
Before an American could read these stories and assume immunity, the 5th Amendment to the Constitution (aka the Bill of Rights) clearly states “[not] be deprived of life, liberty or property, without due process of law; nor shall private property be taken for public use, without just compensation.”
The ambiguity of both clauses only needs the “right kind of wrong” political leaders to make the “you will own nothing” dystopia a reality in the U.S.A., a country with a growing dismissiveness of the criticality of individual liberties. Maybe America has avoided such abuses due to citizens’ right to personal armament, but there are obvious campaigns to counter that as well on a regular basis.
If expropriation was the only infringement on societal abundance, it would be enough to abolish. The failure of the taxation to actually fund the State’s existence causes rational minds to count the costs of the status quo. Would The State exist if it simply did not have a monopoly on violence? It is likely for more leadership turnover, but the root cause is still present: The current ruler will exercise all of their power to survive a hostile world. The monopoly over the power to define money causes an aberration like the financial death spiral shown below.
Is there any justification for the wasteful institution except “this is how it has always been?” In the present day, The State model of governance has bitten off more than it can chew. It has led to unnecessary economic losses, unfathomable theft and disconnection with value. Not until the discovery of Bitcoin, has such a clear light been shined on the criminal nature of The State.
It Is Sometime In The 2050s …
In this future, there is hope. In this future, humanity prospers. Fiat money has capitulated to Bitcoin, the decentralized monetary network, and has consumed nearly all value of the world’s fiat wealth. Through years of violent volatile trading with world governments being public buyers, bitcoin surged through bull and bear markets whose end was only marked by the 2033 Bitcoin International Treaty (B.I.T.) to dismantle central banks across the world for the sake of a new Bitcoin Monetary Standard; 100 years after Executive Order 6102 that forbade the individual ownership of gold by U.S. citizens for a period of time. Nearly all governments in North America, Europe, South America, South Asia, Middle East and Africa came to adopt Bitcoin-backed regional digital tokens (dollar, euro, peso, rupee, dinar, franc). These currencies had centralized oversight and insurance that was more palatable to a segment of the population. But because no one was forced to use it, the free market of value exchange thrived with bitcoin as the dominant unit.
Some countries in Oceania and Asia remain obstinate to a hard money supply like China and Australia. They did not participate in B.I.T. and outlawed owning any alternate currency or token, especially bitcoin. Instead they chose the path of surveilled and coercive CBDCs as they continued to slowly steal the wealth of their constituents. CBDC implementation was made easier upon outlawing emmigration decades before as citizens of some countries became essentially prisoners. People in those regions essentially became pawns of a machine and lost nearly all evidence of individualism.
Because the Bitcoin world virtually ceased currency inflation, the exchange rate of 1 BTC steadied at about $25 million. Human innovation and advancement gradually increased the purchasing power of all people in the free world as technology drove asset deflation. Just a couple decades after the age of central banks came to a close, governments also began divesting into other areas of society in which they dominated. The world quickly discovered the limitations of government reach when sound money is the root of all human action.
Post Office Privatized By Hard Money
Since the turn of the century, the USPS only saw three profitable years (2003-2006). After decades of bleeding value, even years after incorporating bitcoin as the international standard, it was clear that the system just did not work. The Constitution reads “to establish post offices and post roads” in Article 1, Section 8, Clause 7. Historically, it had been interpreted to additionally “carry, deliver and regulate the mail.” In 2051, the Supreme Court declared the statement to be “of necessity for the establishment of an infant nation, not intended to be in perpetuity,” as it had degraded to a liability to the nation rather than a benefit. Just as the postal roads became obsolete due to infrastructure advancement, so the decision was made to divest the post offices to the free market in auctions to national, regional and even local enterprises desiring to find profitability in postal services. Local private postal services popularized P.O. boxes as they provided increased privacy and security services to theft and minimized exposure to the larger harvesting of personal information.
The postmaster general, rather than being completely abolished, is still able to maintain a small agency that can do no more than preserve and protect the integrity of the free market postal industry. The federal government no longer has the funds or means to maintain unprofitable control over the industry. The invasive and costly “legal monopoly” of the USPS is no more.
Welfare Made Obsolete By Hard Money
Ever since welfare spending doubled year over year in 2020, there was a steady annual increase. With all the government intervention in the 2020s, it became clear the poverty problem was not going to be solved by The State. The existence of an option to burden others with one’s livelihood became an increasingly favorable choice to the population. Shortly after the B.I.T. of 2033, the trust in money returned. WIth that trust came a desire to acquire it. Many socialist and communists that advocated for UBI and welfare were fearful that bitcoin would cause a deflationary depression. To the contrary, workers were found to be more industrious and there were a record number of job applications across many industries. Businesses were operating at efficiencies they never had before because of the influx of willing workers. This effect alongside the deflationary money caused prices for goods to drop steadily. By 2043 the welfare state, at least for those that adopted a Bitcoin standard, became virtually a thing of the past. The money was finally worth the effort. Private organizations funded on voluntary donations assisted risk groups like orphans and widows to find homes and employment, respectively. These organizations were more efficient and effective than government welfare because the goal was to minimize time in the program rather than enable perpetual benefit takers.
Police Defunded By Hard Money
Almost 35 years after the salacious political movement to defund the police, it has made a resurgence in the 2050s; but, probably not in the way expected. States and major metro areas were institutions that became too large to operate efficiently. Police were slow to react, gave preferential treatment to secure affluent areas and sacrificed lower income areas to crime and decay. The citizens receiving this service in certain neighborhoods did not feel the police properly defended their interests because their police did not reflect their values nor were incentivized to do so. They were paid by the government, therefore their incentives reflected that government. With the growth of Bitcoin came the reduction of the belief in debt-based IOUs. Police departments were unable to operate as they were in the fiat past.
However, what self-custody taught humanity was the importance of self-defense. This led to the arming of private individuals more than ever before. Additionally, they formed coalitions in towns and neighborhoods to help protect each other. These security coalitions reacted to crime more swiftly than any government police department because of the incentive to preserve their small domains. For some communities, it behooved them to adopt the services of a growing number of private security companies that were growing in a time of weakening state-owned police forces. These groups did not feel at odds with the communities they served because they were directly employed by the communities rather than The State. Any sort of critical misalignment of vision, and either the security party or customer would not seek renewal at the end of the contract period. Some security firms even taught arms training to their customers. Rather than fear for their relevance, this practice reduced crime against weak targets while establishing companies as trusted members of communities thus elongating the business relationship. Never since colonial times in history was “a well-regulated militia” so commonly practiced.
Politicians Disincentivized By Hard Money
As much incentive as there was to acquire hard, unconfiscatable money, so too was there a reduced valuation in lawmaking positions in government. This is not to say congressmen or senators no longer existed, but the laws that they could impact did not have the same gravity as they did under the fiat standard. There was no government funding of one industry over another, for The State only had enough money to maintain a much simpler existence. There was little to no cost-benefit for corporations to buy politicians’ loyalty because every business and person was already paying much lower taxes compared to the fiat past. That bribe money was better put to research and development or marketing.
Elected presidents found a similar fate to that of royalty after the democracy revolution of the early 20th century. As monarchs are figureheads based on a bloodline, presidents and prime ministers became elected figureheads primarily for diplomatic and ambassadorial engagement. A presidential executive order can only go so far as the budget to enforce it. The most celebrated presidents of this age were the ones that protected the property rights of the people and helped generate ideas to get more industries to operate without a hand from large corporations and The State.
Politicians began to come from all walks of life. They would take a brief break from their industry to help actors in their domain as an impartial entity seeking to provide guidance to entire domains and industries. This was a far cry from the past where careers were made in using the law as a weapon for personal gain. The discipline of “public policy” became ostracized as a tool for grifting and manipulation — this became a relic of the fiat standard. The state could no longer take irrational latitude to operate beyond their capacity because the best money in the world was auditable on the blockchain. Because of this, the life of a politician for the first time in modern history became truly a “civil servant.”
But … We Need The State
It is a crystal clear future, if Bitcoin is a part of it, that governments shrink significantly in a variety of ways. For that to happen, we also as people must change. In the past, humanity often chose its own fate with the inherent desire to have a deity-king within arms reach.
Around 1030 B.C., the Hebrews desired to choose a king like their pagan neighbors apart from the “God who took them out of Egypt.” The Old Testament is full of stories about weak and twisted kings of Israel and how they could never measure up to what the people had in their faith in God:
“5 And said to him, ‘Behold, you are old and your sons do not walk in your ways. Now appoint for us a king to judge us like all the nations.’ 6 But the thing displeased Samuel when they said, ‘Give us a king to judge us.’ And Samuel prayed to the LORD. 7 And the LORD said to Samuel, ‘Obey the voice of the people in all that they say to you, for they have not rejected you, but they have rejected me from being king over them.’” (1 Samuel 8:5-7, ESV)
Colonel Lewis Nicola suggested George Washington take on kingship of the colonies after years of revolution bloodshed from separating from the king they already had in London. Washington vehemently refused:
“… If all other things were once adjusted I believe strong argument might be produced for admitting the title of king, Which I conceive would be attended with some material advantages.”
The human desire for the existence of a strong state or sovereign entity, whether to operate or to be subject, may have some part to do with the urge to make others behave or think as you would have them.
This is antithetical to Bitcoin, also known as “the money for your enemies.” Freedom advocates lose their legitimacy without Bitcoin as that centerpiece by leaning on a centralized monetary network. These false witnesses imply we must trust a third party to preserve that freedom. Bitcoin is trustless, so why rely on someone else to allow you to make an economic decision when that may contradict their own incentives? This is a real problem all over the world, and if human nature is true, without Bitcoin, it will come to America too.
This trustless dynamic is infinitely more important than funding an institution that does not create value. Who will maintain roads? Adopt-A-Highway is literally a small-scale version of a voluntarism-world of the future. Only a veiled sense of government relevancy stands in the way of privatized roads. Payment for usage of roads are already using transponders in the fiat world. Seems like a no brainer for the Lightning Network. What about the fire department? Voluntary firefighters are and will always be a thing. 722,800 (67% of total, USA) firefighters were volunteer firefighters in 2019. They could be paid for their commitment by communities as easily as the police described in the Bitcoin future above. What about the millions of government workers? In a true free market, if a task is necessary, it will be filled. Perhaps that will expose millions of unnecessary jobs (details below) and relocate them where the free market actually dictates. In a Bitcoin world, we do not have jobs for the sake of having jobs like the communist MMT lie that so many economic elite champion and the unlearned buy into.
Death And Taxes
“Only two things are certain in life: death and taxes.” Bitcoin fixes this. An institution with a monopoly on violence and money creation can levy taxation and monetary debasement on the people. The only options are acceptance or rejection. To reject is to refuse to use or marginally participate in the fiat economy. This was not a realistic possibility until Bitcoin came about, acting as the first significant external economic force since gold’s legitimacy was abolished in 1971.
The state institutions around the world must now count the costs of digital and decentralized hard money adoption or maintain the status quo of limitless currency. Some would say, “bitcoin benefits everyone.” To those I would ask, “Does it benefit the giant when Jack stole away his gold egg laying fowl?” Governments have a remarkable technology that essentially is a goose that lays golden eggs, but the eggs are also stuck on an inescapable track whose speed can be shifted, entirely shut off or even block participants. Who in their right mind would give up that power? Fiat can be weaponized, manipulated and bent to the will of its issuer. For any ruler, Bitcoin is a clear loss in net power. To adopt a hard money with no intrinsic controls means a nation intends to act in its best interests mathematically. Their actions must elicit a net positive value.
What is given up in authority is made up in efficiency and stability. For The State, one of the most glaring signals of its inefficiency is the obscene size of the bureaucracy. Nearly 20% of all Americans in the 2020-21 were employed by the government and funded via monetary expansion and did not participate in free market competition. These agencies cannot hope to maintain employment numbers if the government cannot create money to pay them.
Bitcoin, as the next evolution of cash, creates a burden of identifying pseudonymous commerce on a shrinking government. Under a hard money standard, it would be very hard to convince another 87,000 agents to work for IOUs from the IRS. Compounding that shrinking reach with pinpointing tax responsibility within a complex, pseudonymous Bitcoin network, causes theft via taxation to be multiple times more difficult. Hyperbitcoinization suffocates The State, disabling the parasitic action of stealing from value-creating transactions. Bitcoin is more akin to cash than checking or credit, so the ability to audit the network for such obligations would be a bigger cost-burden than the potential returns. Any revenue in taxes to the cumbersome state would turn into a voluntary donation. Donations cannot keep a bad actor alive. The State cannot forcibly take bitcoin. Every time a state actor would attempt to freeze or confiscate from third-party custodians, they would drive thousands of more people to self-custody. Every bitcoin spent by The State puts money back in the hands of value creators who will remember when The State tried to attack their ability to trade.
There Is No Second ₿est
Bitcoin is designed to take the place of not only the fiat monetary unit, but the institutions that drive it. The dollar as we know it battles for the same place on the food chain as Bitcoin. If Bitcoin were to succeed as a monetary network for the people, this would disable the dollar and other fiats from all the things we have accepted as normal: illicit sanctions on commoners, monetary debasement and bordered payments.
“There is no second best.” Every other option gives away your ability to exist if you disagree with the owners of your domain. Do not fall for the facade of public property or voting rights. The powers in this world have not acquired such status by giving normies options. Bitcoin denies elites the ability to co-opt its network. The only option is to participate honestly or destroy the internet entirely. Bitcoin is literally essential for true freedom going forward. To opt out of Bitcoin is to opt into a slave economy. Which is it going to be for you?
This is a guest post by Ulric Pattillo. 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.
