This is an opinion editorial by Roy Sheinfeld, cofounder and CEO of Breez.
Although Breez often ranks highly on lists of the best “Lightning wallets,” attentive readers will have noticed that we never refer to Breez as a “wallet.” We’re not trying to confuse anyone. On the contrary, it’s the language of “wallets” in the context of Bitcoin and Lightning that’s confusing.
Wouldn’t it be odd to hear someone refer to a fiat payment app, like CashApp, PayPal, or Venmo as a “wallet?” Nobody, not even the companies themselves, describes them as “wallets.” And though many Bitcoin and Lightning companies and apps are both more versatile and further removed from what we normally think of as “wallets,” that’s still what we call them.
This is a very common misconstrual, as Gigi has also noted and (independently) debunked. So let’s think about what a wallet really is, what a Bitcoin “wallet” really is, what a Lightning “wallet” really is, and what we should call these things instead of “wallets.” We will spare no effort in pursuit of truth and liberating ourselves from “scare quotes.”
What’s A Wallet?
“A wallet is a flat case or pouch often used to carry small personal items such as paper currency, credit cards; identification documents such as driver’s license, identification card, club card; photographs, transit pass, business cards and other paper or laminated cards.” As Giacomo Zucco put it in a recent chat we had, wallets contain little documents and pieces of information we use to interact with others.
What we call wallets first showed up around the 17th century, concurrent with the rise of paper money. And since there are only so many ways to make a small folding case to carry money, wallets haven’t changed much over the centuries. Compare these two specimens:
On the left is a leather wallet that archaeologists found in the wreckage of a 160-year-old submarine, and on the right is a typical wallet anyone might have in their pocket today.
The big difference isn’t in the wallets, but in their contents. The modern wallet contains credit cards, which arose in the middle of the last century. It’s no coincidence that credit cards entered the market around the same time as machine-readable standards enabled a transformation from physical to electronic money.
The more we rely on electronic money of whatever kind, the less we rely on wallets. The quantity of electronic money out there now outstrips physical money by a ratio of about 20:1 and each card in the modern wallet can contain balances dozens of times greater than the antique wallet could hold.
Now consider: if you took the modern wallet back 160 years to the time of the antique wallet, people back then could almost certainly tell you what it is and what it’s used for. Explaining credit and debit cards would be challenging, but they are still physical objects to represent electronic money. The next step would be to explain fiat payment apps, like PayPal. Your great-great-great-grandparents would positively no longer see a wallet there. By the time you try to explain your favorite Bitcoin/Lightning “wallet,” they’d not even be sure you’re speaking the same language.
We in the 21st century might want to expand the definition. Language evolves. Like Giacomo said, wallets contain documents and little pieces of information that let us interact with others. Phones can now contain digital driving licenses (for as long as driving licenses are still a thing), credit card information, photos of loved ones, passwords, contact info and membership info … phones can contain the digital versions of everything we carry in leather wallets.
As a matter of fact, the term “wallet” might cover more of the functions these devices perform than “phone.” (While we’re on the topic of proper labeling, “phone” is such an outdated term! Here in Israel, nobody younger than Methuselah refers to their mobile device as a “phone.” Get with it anglophones.) So the 21st century correlate of the leather wallet is the phone, right?
But then does it still make sense to call a specific, single-purpose app a wallet? Many apps store information that is readily available to us. If we don’t refer to a contacts app on the device as a wallet, even though it replaces traditional business cards, why use that term for a Bitcoin app like BlueWallet or Wallet of Satoshi? It’s the phone itself that is the wallet, not the apps. Apps are more like the compartments in the wallet. If we’re going to adapt the term “wallet” to our transhumanist age, let’s do it right.
Wallets haven’t changed, but money has, how we store information has, and the term “wallet” no longer fits.
What’s A Bitcoin “Wallet?”
Bitcoin “wallets” and physical wallets are both storage media. Physical wallets store bills and cards that are marked with patterns of information. The right tokens with the right patterns denote value, and wallets move those tokens around in meatspace.
Bitcoin “wallets” also store patterns of information, but they don’t directly store value. Bitcoin’s value is stored only as records on the public blockchain. Bitcoin “wallets” store private keys that allow users to authorize changes to the blockchain on their behalf. Anything that can store a long string of numbers (i.e., private keys) — a piece of paper, neurons, or a fancy, password-protected flash drive — would count as a bitcoin “wallet.” In Bitcoin, the right private keys with the right patterns indirectly denote value, because these keys allow you to move value around in cyberspace.
When friends split a tab with cash, and bills move from one wallet to another, the value is transported. When friends split a tab with bitcoin, the sender encrypts a transaction with the recipient’s public key and then their numbers shift around on the blockchain, where the value was and remains.
Let’s compare again these two kinds of transactions visually:
Again, it’s easy to see where a wallet fits into the transaction on the left: cash exits wallet A, changes hands, enters wallet B. But when it comes to Bitcoin, what we call “wallets” are those colored boxes at the bottom containing the private keys. Does … does anyone else find that metaphor … silly? Like, if a piece of paper, neurons and a flash drive can all be called “wallets,” even though none of them contain any physical tokens of value or even any bitcoin (whatever that would mean), then isn’t that metaphor misleading and unhelpful?
As Kiara Bickers puts it in her great book, “Bitcoin Clarity,”
“With a physical wallet, you are directly holding cash that has value, but with a digital wallet you never hold the value directly, you only ever hold access to it on the blockchain. If you cross a national border from one country into another, did your bitcoin move with you? Well, no. … The private keys stored in your bitcoin wallet represent only the ability to move funds, not the funds themselves.” (p. 18)
If you want a better term that is less misleading and more accurately descriptive, how about “signers?” Same denotation plus vastly improved connotations equals Pareto-efficient semantics.
(Hat Tip to NVK and Conor Okus for helping me to think through this question and terminology.)
What About Lightning “Wallets?”
The term “wallet” is applied to all manner of Lightning apps. While that term misses the mark in every case, it errs in different directions depending on the type of app in question. Interestingly, reflecting on how Lightning apps are not like wallets does help to identify what they are like, so let’s do that.
Custodial “Wallets” Are Accounts
Custodial “wallets” don’t transport tokens of value, but they do have an analog in the fiat world: bank accounts. Remember how custodial accounts actually work:
- You pledge your bitcoin to some intermediary and authorize them to transact on your behalf.
- They execute transactions as you instruct.
- You really hope that they’re actually following your instructions, taking good care of your money, and will still have it when you want to close your account.
In effect, whoever’s operating the custodial “wallet” is “an establishment for the custody [and] exchange of money … and for facilitating the transmission of funds.” In other words, they’re a bank, and that’s not my judgment, it’s the Merriam-Webster Dictionary. That’s just what the word means. And the “wallet” they provide is “an arrangement in which a bank keeps your money but makes it available to you when you want it” – i.e., a bank account (Cambridge American Dictionary).
Custodial “wallets” are merely user interfaces for these accounts. They just provide a way for users to pass instructions to and receive messages from the custodial intermediary. Not really “wallets,” are they?
Noncustodial Lightning Payment Apps
So an actual wallet contains tokens of value to carry them around physical space. A bitcoin “wallet” (or a signer, remember?), holds your keys, signs transactions and broadcasts them to the network. Custodial Lightning “wallets” are really like bank accounts, where the value is entrusted to a third-party who transacts on the user’s behalf.
So what about noncustodial Lightning “wallets”? (Ugh. It feels awkward just typing that.)
The Lightning Network consists of nodes connected by payment channels. Signing plays a role here too, because every Lightning transaction is a Bitcoin transaction. However, Lightning transactions require routing bitcoin from one Lightning node to another … and another … and another, along their payment channels, until the payment reaches its destination.
The point is that Lightning payment apps aren’t just flashy user interfaces to manage “wallets” or “account balances” — they have to route payments through a fluctuating network graph. And ensuring a decent routing-success rate entails a number of subsidiary tasks. These include, for example, channel management — opening and closing channels with other nodes in the network — and liquidity management — ensuring enough outbound and inbound liquidity.
Some users prefer managing their liquidity and available routes manually on self-hosted nodes. Most users, though, delegate these technical tasks to Lightning service providers, like Breez and Phoenix.
Reading this, did anyone think “Well, that’s simple! They’re just describing a wallet!”? That’s the point. There is no such thing as a Lightning wallet.
From “Wallet” To Payment App
Metaphors are great when they help people to communicate a complex reality vividly and succinctly. When E.M. Forster writes that “Life is a public performance on the violin in which you must learn the instrument as you go along,” it hits. It doesn’t require explanation; it’s already an explanation of something much bigger. “Lightning wallet” is not like that. As a metaphor, it confuses, misleads and obfuscates.
A better approach would probably be to use terms that describe functions (think: “bolt cutter”). If an app sends and receives payments, let’s call it a payment app. If it’s used to play podcasts and stream sats to podcasters, call it a podcast app. If it’s used to manage finances, call it a finance app. This applies equally to bitcoin and fiat (remember PayPal, Venmo, CashApp etc.). The app’s name should derive from its function, not how it implements that function. And if we must use metaphors, those metaphors should at least reflect the current state of our technological reality.
We’re sure that many people will continue to refer to Lightning payment apps and custodial accounts as “wallets,” and that legislating language never works (or we would be writing these posts in Esperanto, rajto?). I’m all for free speech, but simply using a term does not make it accurate or valid. It’s still important to think about the relation between how we talk about Lightning and how we think about Lightning, and how the former might influence the latter for better or worse.
Our world is made of concepts (ask Immanuel Kant), and concepts are made of language (ask Ludwig Wittgenstein). Therefore, getting the language right should help us understand and shape the world. How do you expect to launch the Lightning revolution with a mere “wallet?”
This is a guest post by Roy Sheinfeld. 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.