Author: Ash, Bitcoin Square; Sawyer, Echo, Bihelix

Introduction

For over a decade, Bitcoin has been at the forefront of the cryptocurrency revolution, pioneering the concept of decentralized digital currency and blockchain technology. Despite its groundbreaking innovation, Bitcoin's core functionality has mainly focused on serving as a medium of exchange and a store of value. However, with the introduction of the Ordinals protocol last year and the recent emergence of the Runes protocol, people have begun to reconsider the various possibilities of Bitcoin beyond value storage. These new asset issuance protocols have reignited interest in the Bitcoin ecosystem and highlighted the limitations of Bitcoin in terms of scalability and transaction confirmation time. It is in this context that the RGB protocol has emerged, opening up a whole new realm of possibilities for the Bitcoin ecosystem and injecting new vitality.

Overview of the RGB Protocol

1. What is the RGB Protocol?

The RGB protocol is a second-layer solution built on top of the Bitcoin blockchain, aimed at supporting the creation and management of complex assets, smart contracts, and decentralized applications (dApps). By fully leveraging the native power of the Bitcoin network, RGB aims to transform Bitcoin into a comprehensive platform suitable for various use cases, ultimately promoting the growth and expansion of the entire ecosystem.

2. Development History of the RGB Protocol

The initial concept of the RGB protocol can be traced back to 2016, when Giacomo Zucco of BHB Network proposed it based on Peter Todd's ideas about client-side validation and single-use seals. In 2017, BHB Network implemented RGB in the original MVP (Minimum Viable Product) and received support from the Poseidon Group. In 2019, Maxim Orlovsky and Giacomo Zucco jointly established the LNP/BP standard association, dedicated to advancing the development of RGB from concept to practical application.

Since 2019, Dr. Maxim Orlovsky has played a key role in the development of the RGB protocol, responsible for designing and implementing the current protocol version. In 2021, the LNP/BP standard association demonstrated the integration of RGB with the Turing-complete AluVM, marking a significant milestone. The following year, the association launched the official website for the Contractum language, a functional declarative programming language customized for building smart contracts using RGB technology on the Bitcoin and Lightning networks. In April 2023, the LNP/BP standard association released RGB v0.10, announcing a focus on developing support for the Lightning Network. In the future, RGB assets will be able to transfer rapidly and at low cost through the Lightning Network, enhancing asset liquidity and efficiency. Additionally, RGB may enable the Lightning Network to have comprehensive smart contract functionality, addressing the limitations of Bitcoin and the Lightning Network in terms of smart contracts.

3. Working Principles of the RGB Protocol

RGB is a protocol built on the PoW consensus layer of the Bitcoin blockchain. The protocol is a version of a Directed Acyclic Graph (DAG), where participants cannot see the complete state of the network, and each new transaction requires confirmation from at least two previous transactions before being recorded on the network. Client-side validation is supported by the RGB mode.

Source: RGB Blackpaper

4. Technical Highlights of the RGB Protocol

The core idea of the RGB protocol is to rely on Bitcoin's proof of work and decentralized network to prevent double spending and provide resistance to censorship. It shifts the validation process of token transfers from global blockchain consensus to off-chain, independently completed by the recipient's client. Interaction with the Bitcoin main chain only occurs after successful validation, ensuring efficiency and privacy.

• Single-use seals: Ensure that each UTXO can only be used once, by encapsulating asset information and contract state in the UTXO. When the UTXO is spent, ownership of the asset and contract state change. In simple terms, single-use seals are an abstract mechanism to prevent double spending.
• Client-side validation: Each client only validates transactions related to its wallet, eliminating the need for global validation of all transactions, improving system scalability, but potentially increasing validation time for assets with long transaction histories.
• Deterministic Bitcoin commitments: RGB uses Taproot-based OP_RETURN commitments to aggregate all state transitions into a commitment, ensuring each state transition can only be committed once, preventing double spending, with the final commitment hash embedded in Bitcoin transactions.
• Batch processing: RGB allows for processing multiple state changes in a single Bitcoin transaction, reducing on-chain fees, suitable for large-scale transfers or UTXO consolidation scenarios.
• Privacy protection: Transfers in RGB utilize Bitcoin transactions as containers for asset transfers, creating new UTXOs to receive tokens while consuming old UTXOs, not directly displaying transfer paths in the Bitcoin transaction graph, enhancing privacy. Off-chain communication ensures secure transmission and validation of payment information, preventing on-chain information leakage and protecting the activity privacy of RGB users.

Use Cases and Significance of the RGB Protocol

1. Fully Leveraging Bitcoin's Monetary Properties

The long-term value of Bitcoin (BTC) as a cryptocurrency depends on the breadth and depth of its application ecosystem. Similar to how the US dollar became a global reserve currency due to its widespread use in most global economies and commercial activities, underpinned by systemic support in trade (petrodollar), finance (Wall Street), clearing (SWIFT system), and settlement (Fedwire settlement system), the value of Bitcoin will be limited if its blockchain cannot establish a value transmission system based on BTC, relying solely on centralized exchanges to support its financial aspects, making it difficult to support large transactions as a means of transfer and payment.

The introduction of the RGB protocol helps address the scalability and Turing completeness deficiencies at the core of Bitcoin. Through the RGB protocol, we can establish a BTC-based value transmission system similar to the US dollar on the native Bitcoin blockchain, introducing a large number of commercially applicable applications. This not only strengthens the Bitcoin ecosystem but also enables it to support more complex financial and commercial activities, further enhancing the value and prospects of BTC.

2. Tokenization of Native Bitcoin Assets

One of the key features of the RGB protocol is its ability to facilitate the tokenization of various assets on the Bitcoin blockchain. This means that almost any asset, whether digital or physical, can be represented as unique tokens or "RGB assets" on the Bitcoin network, including real estate, art, commodities, securities, and even NFTs representing unique digital collectibles. By enabling asset tokenization, the RGB protocol opens up new opportunities for asset management, trading, and investment within the Bitcoin ecosystem. These tokenized assets can be easily transferred on the Bitcoin blockchain, providing higher security, transparency, and liquidity.

3. Smart Contracts and Decentralized Applications

The smart contract functionality of the RGB protocol is particularly important as it enables the implementation of complex financial products and services on the Bitcoin blockchain. Smart contracts are self-executing programs that can automatically execute when predefined conditions are met, eliminating the need for third-party intermediaries and reducing the risk of fraud or manipulation. With the RGB protocol, developers can build decentralized applications (dApps) and utilize smart contracts to automate various processes. This not only expands the traditional monetary role of Bitcoin but also provides an opportunity to create an ecosystem of decentralized applications and services on the Bitcoin network.

4. Scalability and Security

In introducing new functionalities to the Bitcoin ecosystem, the RGB protocol also addresses key issues of scalability and security. By utilizing the OP_RETURN field in Bitcoin transactions to store asset metadata, RGB minimizes the impact on the size of the Bitcoin blockchain, helping to maintain its scalability and efficiency. Leveraging the security and decentralized nature of the Bitcoin network, the RGB protocol provides a secure and highly reliable platform for these applications. These decentralized applications not only enhance the functionality of the Bitcoin network but also promote wider adoption and participation, further driving the development of the Bitcoin ecosystem. In summary, the introduction of the RGB protocol marks a transition for the Bitcoin blockchain from a simple store of value and payment method to a multi-functional and multi-application decentralized platform.

RGB Ecosystem Projects

BiHelix

BiHelix is an optimized node Bitcoin ecosystem infrastructure built on the native Bitcoin blockchain, combined with the RGB protocol and the Lightning Network, dedicated to driving the widespread application of Bitcoin. Its main focus areas include:

Node optimization: BiHelix will develop RGB supernodes capable of connecting to the Lightning Network, serving as the core product of the ecosystem. Through node optimization, BiHelix aims to enhance network performance and efficiency, enabling it to handle more transactions and more complex applications, thereby providing a stronger infrastructure for the Bitcoin ecosystem.

Transformation of AluVM and establishment of a decentralized Schema Store: BiHelix will complete the transformation of AluVM. AluVM is a purely functional RISC virtual machine designed for developing advanced smart contracts. Unlike other virtual machines, AluVM is based on registers and does not allow random memory access, making it more robust and secure. BiHelix will also establish a decentralized Schema Store for storing and managing the structure and specifications of smart contracts, enhancing the flexibility and scalability of smart contracts.

Storage optimization: BiHelix is researching and optimizing a database storage method to replace the existing RGB Stash file-based storage. This improvement will enhance the efficiency and reliability of data management, making large-scale data processing and access more efficient and providing a solid foundation for future expansion.

Protocol architecture optimization: BiHelix is dedicated to optimizing the entire protocol architecture. Firstly, it will introduce node communication protocols (such as the Nostr protocol) to address the issue of single-node user historical data communication and improve network interoperability. Secondly, it will adopt recursive zero-knowledge proof technology to address the issue of excessive data verification and enhance network privacy and security. Ultimately, these improvements will significantly enhance the engineering capabilities and application potential of the RGB protocol.

Through these measures, BiHelix not only enhances the infrastructure capabilities of the Bitcoin network but also provides solid technical support for various innovative applications. Ultimately, BiHelix's efforts will drive Bitcoin from a single store of value to a multi-functional, multi-application decentralized platform, achieving a comprehensive upgrade and expansion of the Bitcoin ecosystem. In the near future, we can also expect the launch of BiHelix nodes based on RGB and LN in mainstream wallets.

Conclusion

The RGB protocol has undergone 6 years of development, and while not yet widely adopted, its potential is enormous. The new version v0.10 expands asset issuance and smart contract functionality, gradually approaching full compatibility with the Lightning Network. Time will tell whether this will be a catalyst for the development of RGB, and it is believed to have the potential to catalyze the evolution of the Bitcoin ecosystem, transforming it from a simple store of value into a comprehensive platform for decentralized applications, tokenized assets, and smart contracts. By unlocking new use cases, RGB, as a key infrastructure, can play a crucial role in shaping the future of Bitcoin and the broader cryptocurrency landscape, heralding innovation in the crypto world.

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