introduction
For more than a decade, Bitcoin has been at the forefront of the cryptocurrency revolution, pioneering the concept of decentralized digital currency and blockchain technology. Despite Bitcoin’s groundbreaking innovations, its core functionality has been primarily focused on being a medium of exchange and a store of value. However, with the introduction of inscriptions by the Bitcoin Ordinals protocol last year and the more recent emergence of the Runes protocol, people have begun to re-examine Bitcoin’s many possibilities beyond a store of value. These new asset issuance protocols have sparked renewed attention to the Bitcoin ecosystem, while also highlighting Bitcoin’s limitations in terms of scalability and transaction confirmation times. It is against this backdrop that the RGB protocol was born, opening up a whole new realm of possibilities and injecting new momentum into the Bitcoin ecosystem.
Overview of RGB protocol fundamentals
1. What is the RGB protocol?
The RGB protocol is a second-layer solution built on the Bitcoin blockchain, designed to support 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. The development history of the RGB protocol
The initial concept of the RGB protocol can be traced back to 2016, proposed by Giacomo Zucco of the BHB Network based on Peter Todd's ideas about client-side validation and single-use seals. In 2017, the BHB Network implemented RGB in its original MVP (minimum viable product) with the support of the Poseidon Group. In 2019, Maxim Orlovsky and Giacomo Zucco jointly founded the LNP/BP Standards Association, dedicated to promoting the development of RGB from concept to practical application.
Since 2019, Dr. Maxim Orlovsky has played a central role in the development of the RGB protocol, being responsible for designing and implementing the current version of the protocol. In 2021, the LNP/BP Standards Association showcased the integration of RGB with the Turing-complete AluVM, marking a significant advancement. The following year, the association launched the official website for the Contractum language, a functional declarative programming language tailored for building smart contracts using RGB technology on Bitcoin and the Lightning Network. In April 2023, the LNP/BP Standards Association released RGB v0.10, announcing a focus on developing support for the Lightning Network. In the future, RGB assets will be able to be transferred quickly and at low costs via the Lightning Network, enhancing the liquidity and usability of the assets. Moreover, RGB may endow the Lightning Network with comprehensive smart contract capabilities, bridging the limitations of Bitcoin and the Lightning Network in smart contracts.
3. How the RGB protocol works
RGB is a protocol built on the PoW consensus layer of the Bitcoin blockchain. This 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 the confirmation of at least two previous transactions to be recorded on the network. Client-side validation is supported by the RGB model.
Source: RGB Blackpaper
4. Technical key points of the RGB protocol
The core idea of the RGB protocol is to rely on Bitcoin's proof-of-work and decentralized network to ensure the prevention of double spending and provide censorship resistance. It shifts the verification process of token transfers from global blockchain consensus to off-chain, completed independently by the receiving client's side. Only after successful verification will it interact with the Bitcoin main chain when necessary, ensuring efficiency and privacy.
Single-use seal: Ensures that each UTXO can only be used once by encapsulating asset information and contract status within the UTXO. When the UTXO is spent, the asset ownership and contract status change. In simple terms, a single-use seal is an abstraction mechanism used to prevent double spending.
Client-side validation: Each client only verifies transactions related to its wallet, eliminating the need for global validation of all transactions. This improves system scalability, but may increase verification time when dealing with assets with long transaction histories.
Deterministic Bitcoin commitment: RGB uses Taproot-based OP_RETURN commitments, aggregating all state transitions into a single commitment, ensuring each state transition can only be committed once, preventing double spending. The final commitment hash is embedded in the Bitcoin transaction.
Batch processing: RGB allows multiple state changes to be processed in a single Bitcoin transaction, reducing on-chain fees, making it suitable for large-scale transfers or merging UTXOs.
Privacy protection: RGB transfers utilize Bitcoin transactions as containers for asset transfers by creating new UTXOs to receive tokens, while old UTXOs are consumed, not directly showing transfer paths in the Bitcoin transaction graph, enhancing privacy. Off-chain communication ensures the secure transmission and verification of payment information, preventing on-chain information leaks and protecting the activity privacy of RGB users.
Use cases and significance of the RGB protocol
1. Fully leverage the monetary attributes of Bitcoin
As a cryptocurrency, Bitcoin (BTC) relies on the breadth and depth of its application ecosystem for its long-term value. Similar to how the USD became a global hard currency due to its widespread use in most economies and commercial activities, this is supported by the USD in various fields including trade (petrodollars), finance (Wall Street), clearing (SWIFT system), and settlement (Fedwire settlement system). If the Bitcoin blockchain cannot establish a BTC-based value system and relies solely on centralized exchanges to support its financial aspect, its applications will be extremely limited, making it difficult to support large transactions as a mere payment means.
The introduction of the RGB protocol helps address the underlying scalability and lack of Turing completeness of Bitcoin. Through the RGB protocol, we can establish a BTC-based value transmission system similar to the USD on the Bitcoin native blockchain, thus introducing a large number of commercial applications with practical use cases. This not only enhances the Bitcoin ecosystem but also enables it to support more complex financial and commercial activities, further increasing the value and application prospects of BTC.
2. Tokenization of Bitcoin native assets
One of the main 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 a unique token or 'RGB asset' 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 greater 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 automatically executing programs that can execute automatically when predefined conditions are met, eliminating the need for third parties and reducing the risk of fraud or manipulation. With the RGB protocol, developers can build decentralized applications (dApps) that utilize smart contracts to automate various processes. This not only extends Bitcoin's traditional monetary role but also provides opportunities to create an ecosystem of decentralized applications and services on the Bitcoin network.
4. Scalability and security
While introducing new features 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 decentralization 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 broader adoption and participation, further driving the development of the Bitcoin ecosystem. In summary, the introduction of the RGB protocol marks the transition of the Bitcoin blockchain from a mere value storage and payment means to a new era of a multifunctional and multi-application decentralized platform.
RGB ecosystem projects
BiHelix
BiHelix is an optimized Bitcoin ecosystem infrastructure built on the Bitcoin native blockchain, integrating RGB protocol and the Lightning Network, dedicated to promoting large-scale applications of Bitcoin. Its main work direction revolves around the following four aspects:
Node optimization: BiHelix will develop RGB supernodes that can connect to the Lightning Network, serving as core products of the ecosystem. Through node optimization, BiHelix aims to enhance the performance and efficiency of the network, enabling it to handle more transactions and more complex applications, thereby providing more robust infrastructure for the Bitcoin ecosystem.
Reconstruction of AluVM and the establishment of a decentralized Schema Store: BiHelix will complete the reconstruction of AluVM. AluVM is a pure 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 to store and manage the structures and specifications of smart contracts, thereby enhancing the flexibility and scalability of smart contracts.
Storage optimization: BiHelix is researching and optimizing a database storage method to replace the current RGB Stash file storage format. 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.
Optimization of protocol architecture: BiHelix is committed to optimizing the entire protocol architecture. First, a node communication protocol (like the Nostr protocol) will be introduced to improve the communication issues of single-node users' historical data, enhancing network interoperability. Second, recursive zero-knowledge proof technology will be adopted to alleviate the problem of excessive data verification, improving network privacy and security. Ultimately, these improvements will significantly enhance the engineering capability and application potential of the RGB protocol.
Through these measures, BiHelix not only enhances the infrastructure capability of the Bitcoin network but also provides solid technical support for various innovative applications. Ultimately, BiHelix's efforts will drive Bitcoin from a singular value storage means towards a multifunctional, multi-application decentralized platform, achieving a comprehensive upgrade and expansion of the Bitcoin ecosystem. Recently, we can also expect BiHelix nodes based on RGB and LN to go live in mainstream wallets.
Summary
After six years of development, the RGB protocol has not yet achieved widespread adoption, but its potential is immense. The new version v0.10 expands asset issuance and smart contract functions, gradually approaching full compatibility with the Lightning Network. Time will tell whether this will act as a catalyst for RGB's development, but it is believed to have the potential to catalyze the evolution of the Bitcoin ecosystem, transforming it from a simple value currency 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, signaling innovation in the crypto world.
