Crypto
Will El Salvador’s Bitcoin Bet Pay Off?
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.
The United Fruit Company (AKA El Pulpo which means “the octopus”) was an American company that had an overarching presence in Latin American countries. They grew and traded all kinds of fruits, but they were a gargantuan monopoly in the banana trading business. El Pulpo’s dominance extended beyond Central America, stretching as far as the West Indies which saw the company control 603,111 acres of land by 1954. Guatemala, Panama, Costa Rica and Honduras were heavily dependent on the export of bananas, which accounted for a major portion of their total exports — hence these countries earned the nickname, banana republics. As a result the company had immense control over the economies of these nations and were notorious for bribing local politicians to get their way, as well as ousting leaders that wouldn’t play ball.
Jacobo Arbenz, a democratically elected president of Guatemala, was made an example of by El Pulpo when the company had him ousted by the U.S. government in 1954 for expropriating some of the company’s land and redistributing it. The seeds for instability were sown in the Central American nation which eventually culminated in a 36 year long civil war between 1960 and 1996. El Pulpo left behind a legacy of destruction and death, not just in Guatemala but throughout Central America.
The United Fruit Company became the embodiment of neocolonialism in the region largely due to the influence of the U.S. government and the power of the almighty dollar. While El Salvador wasn’t a direct victim of El Pulpo, just like its Central American neighbors it was not immune to U.S. intervention in the region, mostly evident during the 12 year Salvadoran Civil War that left 75,000 people dead, the majority of which were civilians. Today El Salvador faces a different version of El Pulpo in the form of the global fiat financial system represented by the IMF.
On September 7 2021 El Salvador made history by becoming the first country in the world to officially adopt Bitcoin as legal tender. Almost immediately the IMF and the World Bank were quick to issue stern warnings to El Salavador’s government about this policy decision, urging them to reverse it. After all they are “guardians of the international financial system,” like Agent Smith in the movie The Matrix. What started out as an experiment in El Zonte (popularly known as Bitcoin beach) in 2019, thanks to an anonymous donor and the tireless efforts of surfer Michael Peterson, has now morphed into a revolutionary movement that inspired Bitcoin City, Bitcoin-backed bonds (aka Volcano Bonds) and financial inclusion for 70% of the population that were previously unbanked. 12 years after Bitcoin came into existence, it is now being used as legal tender in a country. El Salvador may have been the first to adopt Bitcoin, but it definitely won’t be the last.
Just like how the United Fruit Company had Latin America in its grip, the IMF wields a tremendous amount of power over the global economy. Established in 1944 at the Bretton Woods conference, the IMF’s initial role was to secure international monetary cooperation, to ensure stability of currency exchange rates and to expand international liquidity. After President Nixon closed the gold window in 1971, it lost its authority to regulate exchange rates and the IMF pivoted to being a lender of last resort to distressed nations — a mission that has achieved lackluster results to date. For example, a Heritage Foundation study shows that IMF loans to developing countries have been mostly ineffective and some of the countries that received these loans were worse off economically afterwards:
- Of the 89 less developed countries that received IMF loans between 1965 and 1995, 48 are no better off economically today than they were before receiving IMF loans.
- Of these 48 countries, 32 are poorer than they were before receiving IMF loans.
- Of these 32 countries, 14 have economies that are at least 15 percent smaller than when they received their first IMF loans.
With these results in mind let’s turn our attention back to El Salvador to try and figure out why the IMF is vehemently against Bitcoin’s legal tender status. After all, El Salvador is a small country with a population of just ~6.5 million people and a GDP of $25 billion — why then does the IMF perceive Bitcoin adoption by El Salvador as “posing risks to financial stability, financial integrity and consumer protection?” The simple answer is that the IMF is one of the enforcers of the dollar hegemony in the world and the successful adoption of Bitcoin by any nation state poses a significant threat to the “rules-based order.” The U.S. has de facto veto power over all major decisions made by the organization and has the largest voting power of any nation on earth.
As an alternative monetary system Bitcoin was designed to obsolete the role of trusted third parties like central banks and by extension organizations like the IMF. Given the fact that El Salvador is a dollarized economy, the circulation of a U.S, dollar alternative like Bitcoin, may eventually reduce the role of the dollar in transacting, not just in El Salvador but throughout Central America and the rest of the global south. This would slowly usher in a multi-polar world and could possibly lead to bitcoin replacing the dollar as the global reserve currency. In such a world, there is absolutely no need for organizations like the IMF.
The bitcoin-backed bonds have also ruffled the feathers of the IMF with some directors “expressing concern over the risks associated with issuing bitcoin-backed bonds.” The brainchild of Samson Mow, the $1 billion of Volcano Bonds will be used to buy $500 million worth of Bitcoin and $500 million will go towards infrastructure, including infrastructure to harness volcanic energy to mine bitcoin. The global bond market is worth $100 trillion and a successful bond issue will not only be transformative for the market but will serve as a proof of concept for other countries seeking an exit out of the IMF’s system of fiat-based ponzi scheme debts. This is a perspective that prominent investor Simon Dixon echoed in a recent interview where he said,
“If [El Salvador] succeeds, this is a big problem for the business model of the IMF. They’re not a bailout company, they’re not a mechanism for developing the world…They’re a mechanism for dollarizing the world and implementing a global central bank digital currency on top of their special drawing rights, so they can maintain control of their mechanisms.”
As the modern day El Pulpo, the IMF is hell bent on maintaining their dominant position in the global economy and despite all the positive developments that could accrue to El Salvador thanks to the Bitcoin Law, they will continue to vehemently oppose it. They will use every tool at their disposal to not only ensure the reversal of Bitcoin’s legal tender status in El Salvador but to stop other fiat-enslaved countries from following a similar path to debt freedom. A recent example of this would be the $45 billion bailout package they approved for Argentina in March which included a provision that forces the Argentinian government to crack down on cryptocurrencies and discourage their use as a condition for the bailout. The clause detailed Argentina’s efforts “to discourage the use of cryptocurrencies with a view to preventing money laundering, informality, and disintermediation” in order to “to further safeguard financial stability.” Argentina’s central bank subsequently banned financial institutions in the country from offering any Bitcoin or cryptocurrency related services to their clients. This is just the beginning and it wouldn’t be surprising to see this clause being included in every bailout package going forward.
With the Bitcoin price at ~$20,000 as of time of writing, approximately 56% lower than it was during El Salvador’s adoption last year, mainstream media pundits are quick to point out El Salvador’s paper losses, which are estimated to be anywhere between $40 million and $60 million on the Bitcoin that the government bought, as evidence of the dismal failure of the “Bitcoin policy.” This analysis is misleading in that it equates a drop in portfolio value to actual realized losses, which aren’t applicable in this case as El Salvador hasn’t sold a single bitcoin. Secondly it’s also myopic because by exchanging dollars with an infinite supply, for bitcoin, a scarce digital bearer-asset, President Bukele’s move insured El Salvador against dollar debasement. Interestingly enough prior to the Bitcoin Law, El Salvador was hardly mentioned in the Western mainstream media except in relation to gang violence. However, ever since the Bitcoin Law came into effect, President Nayib Bukele has been accused of gambling the country’s resources on bitcoin, with the policy being deemed a failure.
Furthermore, El Salvador’s sovereign debt rating has been downgraded by Fitch, Moody’s and S&P to junk status, with all three rating agencies citing the sovereign’s adoption of Bitcoin as a threat to securing IMF financial support as one of the reasons for the downgrade. According to S&P “The risks associated with the adoption of bitcoin as legal tender in El Salvador seem to outweigh its potential benefits. There are immediate negative implications for the credit.” On February 16, U.S. Senators, James Risch (R-Idaho), Bob Menendez (D-N.J.) and Bill Cassidy (R-La.) introduced the “Accountability for Cryptocurrency in El Salvador (ACES) Act,” which is legislation that compels the State Department to write a report on El Salvador’s adoption of Bitcoin as legal tender and a plan of action to mitigate risks arising from this. To put “risks” in perspective, El Salvador’s GDP ($25 billion) is 840 times smaller than the U.S.’s GDP ($21 trillion). Commenting on the bill in a press release Dr. Cassidy said, “El Salvador recognizing Bitcoin as official currency opens the door for money laundering cartels and undermines U.S. interests … If the United States wishes to combat money laundering and preserve the role of the dollar as a reserve currency of the world, we must tackle this issue head on.” It’s undeniable that this is a tactic straight out of El Pulpo’s playbook whose intention is to stymie El Salvador’s Bitcoin adoption.
Despite all the challenges and attacks there is a silver lining in the clouds. From the time the Bitcoin Law came into effect a year ago El Salvador has seen a 30% increase in tourism according to Salvadoran Tourism Minister, Morena Valdez. This year alone El Salvador has welcomed 2.2 million tourists and in a recent tweet President Bukele noted that tourism in the country had recovered to pre-pandemic levels, citing “Bitcoin and surf” coupled with the ongoing crackdown on gangs, as the major reasons for the recovery. In addition to this, the beach town of El Zonte is set to receive over $200 million worth of infrastructure upgrades. Given the uptick of tourism due to El Zonte’s iconic status from Bitcoin Beach, the money is being used to finance the construction of brand new amenities to cater to the tourists flocking to the town. With tourism currently contributing 9.3% to El Salvador’s overall GDP these are all very significant positive developments.
El Salvador’s GDP grew by 10.3% in 2021 and it’s worth noting that prior to 2021 El Salvador had never had double digit GDP growth. Exports for 2021 also grew by an additional 13%. Annual remittances to El Salvador account for 24% of its GDP (approximately $6 billion) with 70% of Salvadorans reliant on them for survival. Thanks to Bitcoin they could save at least $400 million in money transfer fees annually which equates to 1.5% of El Salvador’s GDP. Furthermore since there are now more Salvadorans with Bitcoin wallets than those with bank accounts these cost savings are immediately being realized by the majority of the populace. The media conveniently ignores mentioning these and numerous other immediate benefits that have materialized post Bitcoin adoption.
In 1958 Guinea attempted to claim its monetary sovereignty from the French by leaving the CFA franc zone. Over a 2 month period the French pulled out of Guinea taking everything with them from light bulbs to sewage pipe plans, and they even went as far as burning essential medicines. The next step was to destabilize Guinea and undermine any efforts of economic prosperity through a covert operation that became known as “Operation Persil,” where they counterfeited Guinean bank notes and flooded them into the country. The intention of the operation was to engineer economic collapse via hyperinflation. The French produced banknotes that proved to be more resistant to the humidity of the Guinean climate better than the official bank notes, thus economic instability in the country was successfully triggered and the Guinean economy collapsed. For the El Pulpos of the world like the IMF, destroying Bitcoin is an absolute necessity because failure to do so would lead to their extinction. It would be naive to assume that these organizations will let El Salvador walk out of their fiat ponzi-scheme system without putting up a fight.
As the cracks in the fiat monetary system begin to appear, Bitcoin is a defense system against financial censorship, dollar debasement and seizure like in the case of the confiscation of Russia’s foreign reserve; it still achieves global consensus in an adversarial environment. Bitcoin is a tool for resisting all forms of monetary repression and El Salvador’s adoption of it is a declaration of monetary independence from the dollar imperialism that grips the world. As geopolitical tensions rise and the gradual de-dollarization of the world occurs, the options for nation states will be a dollar standard vs a BRICS standard or a Bitcoin standard. Having chosen the latter, El Salvador is the new Camelot.
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’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.
