This is an opinion editorial by Kudzai Kutukwa, a passionate financial inclusion advocate who was recognized by Fast Company magazine as one of South Africa’s top-20 young entrepreneurs under 30.
Our society today is plagued by a trust problem. The institutions that govern our world are built on trust while they have now proven to be untrustworthy. On February 11, 2009, Satoshi Nakamoto posted a thread stating,
“I’ve developed a new open source P2P e-cash system called Bitcoin. It’s completely decentralized, with no central server or trusted parties, because everything is based on crypto proof instead of trust. […] The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.”
By developing a decentralized monetary system that made trusted third parties (the banking system) obsolete, Nakamoto also chipped away at the source of their power: the money printer. It’s the money printer that made it possible for a small clique of central bankers to centralize and seize control of the global monetary system. Though waning, they continue to wield this power to this day.
The top-down, centralized decision-making structure is not unique to central banking, but it pervades all spectra of the political institutions that govern our society today. The World Economic Forum (WEF), the Bank of International Settlements, the International Monetary Fund (IMF), the U.S. Federal Reserve, the European Central Bank and the United Nations are but a few examples of the central planners of our day responsible for setting policy recommendations and regulatory frameworks that range from interest rates to carbon emissions. While, for the most part, these organizations are credible and trustworthy, more often than not, the policy recommendations they make create more harm than good when implemented at the community level. A recent example of this would be Sri Lanka, which is not only bankrupt, but is also experiencing hyperinflation and shortages of basic essentials such as food, fuel and medicine.
While this economic collapse was caused by numerous factors; one of the biggest factors behind Sri Lanka’s demise is its support for “the current thing,” i.e., prioritizing ESG compliance over food production. The megazord acronym “ESG” is the brainchild of the U.N. and stands for environmental, social and governance. It’s meant to be a set of investment criteria that guide corporations and governments to “further develop sustainable investments.” Sri Lanka has an exceptional ESG score of 98 that trumps that of both Sweden (96) and the US (51). In order to achieve their ESG-inspired, virtue-signaling goal of being the first “organic country,” the government abruptly banned the use of chemical fertilizers in April 2021. This led to a dramatic drop in yields across the board and by the time the government realized their blunder and tried reversing course in November 2021, the damage had already been done.
According to environmental activist Michael Shellenberger,
“[O]ne-third of Sri Lanka’s farm lands were dormant in 2021 due to the fertilizer ban. Over 90% of Sri Lanka’s farmers had used chemical fertilizers before they were banned. After they were banned, an astonishing 85% experienced crop losses. The numbers are shocking. After the fertilizer ban, rice production fell 20% and prices skyrocketed 50 percent in just six months. Sri Lanka had to import $450 million worth of rice despite having been self-sufficient in the grain just months earlier. The price of carrots and tomatoes rose five-fold. While there are just two million farmers in Sri Lanka, 15 million of the country’s 22 million people are directly or indirectly dependent on farming.”
The bigger question is, how on Earth did Sri Lanka find itself in such a self-inflicted mess? Well, the short answer is: They were ill-advised by the likes of the WEF to go down this path of protecting the environment at the expense of severely compromising their food security. ESG has officially collapsed its first country, just like the IMF structural adjustment programs did in the 1980s and 1990s.
In a 2016 article, penned in collaboration with the WEF, economist Joseph Stiglitz showered praise on Sri Lanka’s overall economic development and wrote, “Given its education levels, Sri Lanka may be able to move directly into more technologically advanced sectors, high-productivity organic farming, and higher-end tourism.”
It is this very prescription that has failed dismally and the people of Sri Lanka are now facing the dire consequences of economic destruction, not “experts” like Joseph Stiglitz. What is suggested as a solution for the devastation caused by terrible ideas? More horrendous ideas from the institutions that caused the initial problem. In April 2022, as the government was negotiating with the IMF for a bailout, the United Nations Development Programme doubled down by recommending that the Sri Lankan government should become a candidate for a “debt for nature swap” that would unlock debt relief in exchange for investing a fixed sum on nature conservation. Furthermore, in May 2022, Sri Lanka signed onto a green finance taxonomy with the International Finance Corporation that, among other things, includes a commitment to organic fertilizers. It appears that they are determined to hold the line in support of “the current thing.”
Despite the apparent failure of these policies in Sri Lanka, the Dutch government also threw their hat into the ring and is actively pursuing similar policies. The Dutch government is aiming for a 50% reduction in overall nitrogen greenhouse gas emissions by 2030. A 25 billion euro Nitrogen Fund was set up to help farmers (voluntarily) quit, relocate or downsize their business and make them more “nature friendly” (e.g. organic farming just like in Sri Lanka). The Dutch Minister for Nitrogen and Nature Policy, Ms. Christianne van der Wal, indicated that she expects about one-third of the Netherlands’ 50,000 farms to disappear by 2030 as a result of the plans and went on to point out that expropriation of farms was on the table as a measure of last resort should the farmers refuse to cooperate. Is this the part where they will own nothing and be happy?
Furthermore, in order to comply with this draconian emissions target decreed by the government, at least 30% of all cows, chickens and pigs will have to be culled. This has sparked protests by farmers who object to these green dictates. These protests are reminiscent of the Canadian Trucker protests earlier this year, and we have now seen farmers from Spain, Italy, Germany and Poland staging similar protests in a show of solidarity with their Dutch counterparts.
In addition to being the second largest exporter of food in the world after the U.S., the Netherlands is also the largest exporter of meat within the EU. Should the Dutch central planners have their way, it’s likely the Netherlands will join Sri Lanka on the list of countries destroyed by “the current thing.” Similarly, in an effort to cut emissions by half by 2030, both the U.S. and U.K. currently have different versions of “pay farmers to not farm” schemes in place. 35,000 acres of rice fields in California will remain unused, while in the U.K., dairy and meat farmers are being encouraged to retire in exchange for a one-time payment of up to 100,000 pounds. The Canadian government also intends to implement similar policies in an effort to reduce nitrogen greenhouse gasses by 30% by the year 2030. Not to be outdone, the New Zealand government unveiled plans to tax livestock for belching and flatulence, which they hope will reduce emissions. Such is the infinite wisdom of the central planners running the world today.
On the surface, ESG virtue-signaling may look like overzealous attempts by governments to do obeisance to “the current thing” in meeting their emissions targets, but these policies do seem like deliberate attempts to massively shrink the farming sector while nationalizing agricultural land in the process. According to the U.N., there is a looming food catastrophe around the corner. In a recent report, the World Food Program warned that 670 million people on average will be on the verge of starvation by the end of the decade. If this is true, why are governments around the world hindering the work of farmers?
While the WEF central planners are actively promoting “climate-smart” farming methods to make the full switch to net-zero, nature-positive food systems by 2030, the catastrophe in Sri Lanka is proof that it’s a path that likely ends in disaster. While this approach works for smaller communities, as of today, organic farming alone isn’t enough to sustain large-scale farming. A full switch to organic farming would require more land use — something the Dutch don’t have a lot of — and thus, more agricultural inputs to match current production levels required to feed large urban populations. Ironically, organic farming is unsustainable both economically and environmentally. For example, a permanent transition to organic production in Sri Lanka would reduce yields of every major crop; about 30% for coconut, 50% for tea, 50% for corn and 35% for rice. Why any sane government would embark on such a radical experiment is mind boggling.
According to Bloomberg, ESG is the fastest growing asset management class, which currently has $35 trillion assets under management and is expected to exceed $50 trillion by 2025. Despite sounding altruistic on the surface, ESG is actually a political metric that is used to indirectly control private companies by central planners through influencing the direction of capital flows to investments that they deem “sustainable.”
It’s a mechanism to further centralize capital markets in the hands of the central planners who get to pick winners and losers based on adherence to a subjective and opaque criteria, instead of on the basis of value created. ESG is analogous to feudalism, in that an elite group of central planners and their cantillionaire cronies allocate capital to causes that further enrich themselves in the name of “social good.” This state of affairs is in stark contrast to Bitcoin which upends this dynamic by guaranteeing inalienable property rights to all participants within the network, not just to an elite few. In the same way that the Chinese Communist Party’s social credit system scores an individual based on their allegiance to the state, corporate companies as well as nation-states pledge their fealty to woke institutional investors and the Davos elite with their ESG scores.
ESG is a mirror image of our fiat monetary system that distorts price signals within the economy, making it almost impossible to accurately measure which economic activities are creating the most value. Just like the fiat system, ESG adherence also encourages misallocation of capital resources and disrupts meaningful productivity. Ernst & Young also point out that ESG is not only confusing and opaque, but is also vulnerable to rampant greenwashing. With this in mind, it is astonishing that sovereign states are jostling over each other to obtain higher ESG scores by implementing policies that are self-destructive. How can an unjust monetary system produce a just society? Or as Jeff Booth puts it in “The Price Of Tomorrow,” “How is it possible to solve climate change from an economic system that requires inflation?” Any nation or company that destroys its productive capacity will collapse no matter how high their ESG score is.
In his classic essay, “The Use of Knowledge in Society,” renowned Austrian economist Friedrich Hayek wrote,
“The economic problem of society is thus not merely a problem of how to allocate ‘given’ resources—if ‘given’ is taken to mean given to a single mind which deliberately solves the problem set by these ‘data.’ It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.”
Central planners are not omniscient and therefore cannot accurately steer an entire economy that is composed of infinite complex systemic interactions that each require specialized knowledge. Knowledge which isn’t resident in any single individual or institution. Despite this obvious fact, a handful of central planners are slowly collapsing food production with their policies that do not factor in the unintended consequences of their decisions.
As a fully decentralized system, Bitcoin is the antithesis of central planning. It didn’t just become the beacon of a more just financial system but it represents a more superior governance model. Thanks to proof of work, all the nodes are able to arrive at the same truth independently without a central authority’s coordination. The true embodiment of rules without rulers.
Our current financial system is fueled by credit expansion and consumption. Such a system requires exponential growth to sustain itself. The end result is that the money supply continues to expand and money gradually loses its ability to coordinate economic activities efficiently. Price signals are mutilated in the process, thus erecting an economic Tower of Babel.
ESG is an attack vector that gains control of capital markets through this endless manipulation of money. The monetary policies that are being pursued globally by central planners are at odds with technological gains that would result in lower prices of goods over time. Instead, society is being kept on the treadmill of ever-increasing prices that require more consumption and more production ad infinitum in order to protect a credit-based system that would otherwise implode.
Political metrics like ESG do not hold sway over Bitcoin because it’s a monetary system that is anchored in objective truth. This opens up the room for capital allocation based solely on economic potential and value created — as opposed to “woke” capital allocation. De-growth strategies, top-down centralized management of resources and control of capital allocation via ESG are features (not bugs) of the current financial system. Countries like Sri Lanka are prime examples of the destruction ESG has caused.
The attacks clothed as ESG that are being meted out against farmers are strikingly similar to those that are usually directed at bitcoin miners. As the most secure computer network in the world, Bitcoin is censorship resistant and doesn’t bow to the tyrannical whims of central planners who have intentions of weaponizing the financial system against protesters. Unlike the Dutch farmland that is at risk of being confiscated, bitcoin cannot be confiscated via legislation; it’s money that you truly own. It’s for this reason that the energy usage of bitcoin mining has been incessantly attacked by ESG evangelists through coordinated media campaigns that portray bitcoin mining as an existential threat to the environment. This has resulted in some jurisdictions, like the EU, considering banning proof-of-work mining, like how the Dutch government is trying to get rid of some of its farmers. The truth is, bitcoin mining’s energy mix has the highest penetration of renewables of any industry in the world, plus it monetizes stranded energy that would have otherwise been wasted. A fact the ESG warriors conveniently ignore.
The time has come for the creation of bitcoin circular economies and for us to support our farmers in order to protect our food systems from Malthusian central planners. Instead of bowing to their zero-sum worldview, trade groups like the Beef Initiative should become the norm. These bitcoin-based commodity markets and/or exchanges can also play a big role in providing farmers with access to global markets in a frictionless manner. In addition, orange-pilling nation states is now more important than ever for two major reasons: First, it will give nations alternatives for raising capital, like the volcano bonds, that are not tied to “woke” capital with diabolical strings attached. Second, it will produce examples of the prosperity a nation with sound money can achieve. Samson Mow and JAN3 are doing great work on this front, but there is room for more to join.
In conclusion, should current trends of kowtowing to ESG by governments continue, Sri Lanka will end up being a harbinger of larger things to come in the months ahead.
This is a guest post by Kudzai Kutukwa. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
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.
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.
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.
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.
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.
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.
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.