Preface
There are more and more discussions about the expansion of Bitcoin. Among them, the RGB protocol, which is committed to providing smart contract support for Bitcoin, and the Lightning Network, which focuses on reducing Bitcoin transaction fees, are once again highly anticipated by users. It is hoped that they can make new progress and solve Bitcoin’s current predicament as soon as possible.
As can be seen in its Github directory, RGB's explanation is to provide scalable private smart contracts for Bitcoin and Lightning Network, creating the possibility of issuing assets in the Bitcoin network.
It’s just that due to the subsequent rise of Ethereum and Bitcoin being more considered as a store of value and a bellwether of the cryptocurrency world, the practice of issuing assets and creating contracts on Bitcoin has been lukewarm.
Until recently, the popularity of BRC-20 has brought up the old tune of Bitcoin asset issuance again. Compared with the former’s direct on-chain inscription system, RGB uses more off-chain processing logic that is somewhat similar to the Lightning Network.
What is RGB protocol
The origins of the RGB protocol can be traced back to 2018, when members of the Bitcoin community began to explore a new way to create and manage assets on the Bitcoin network. Their goal was to design a protocol that would leverage the security and decentralization of Bitcoin while supporting more complex features such as asset issuance and smart contracts.
To achieve this goal, they began to study how to combine asset and status information with Bitcoin's UTXO model and proposed a new protocol called RGB. The core idea is to combine asset issuance, ownership, and status updates with Bitcoin's UTXO model through client verification, rather than relying on full nodes of the Bitcoin network like the current BRC-20.
As for why it is called RGB, you can easily associate it with the three primary colors of red, green and blue. In fact, the initial research direction of the RGB protocol was dyed coins, so the concept related to color was used. Although the current work of the RGB protocol has little to do with dyed coins, the name has been retained.
The main function of RGB
RGB is a scalable and privacy-friendly smart contract system. Developed by the LNP/BP Association, it is mainly used to support the deployment of smart contracts on Bitcoin and Lightning Network. It supports developers to create, deploy and execute smart contracts on Bitcoin or Lightning Network while maintaining the security of their data.
Compared with Bitcoin, Ethereum's biggest innovation is its support for smart contracts. Smart contracts are programs that run on the blockchain, also known as programmable contracts that are automatically executed by a piece of code.
The biggest difference between Ethereum and Bitcoin is that Ethereum can perform complex logical operations through smart contracts. Today, DeFi and other DApp applications on Ethereum are implemented through smart contracts. However, since Bitcoin does not support smart contract deployment, the development of the chain ecosystem is limited. Even the recently popular BRC-20 token is implemented through the inscription of the third-party Ordinals protocol. The token issuance process is relatively simple, with only three processes: deployment, casting, and transfer. It does not support token destruction or additional issuance.
RGB aims to make Bitcoin realize all the possibilities based on smart contracts like Ethereum or other block networks (Solana, BNB Chain, etc.). Developers can deploy tokens, NFT asset issuance contracts, decentralized financial applications (DEX, lending), DAO, etc. on Bitcoin. The protocol promises to support complex smart contracts running on Bitcoin and Lightning Network.
From this point of view, RGB is neither a specific block network nor a token issuance protocol, but an infrastructure that provides smart contract support for the Bitcoin network.
As a smart contract system, the solution proposed by RGB is also different from previous smart contract solutions such as Ethereum.
RGB modularizes the processes of smart contract issuance, data, and status, and executes smart contract code maintenance and data storage off-chain, with the mainnet Bitcoin as the final state commitment layer. This means that RGB uses the off-chain smart contract model to store all smart contract data off-chain, and the Bitcoin mainnet only serves as a confirmer of the final state, reducing the use of block space and greatly improving throughput.
Current uses of RGB
Developers can use RGB to deploy homogeneous tokens RGB20 and non-homogeneous tokens NFT contracts, which are compatible with the Lightning Network.
Because RGB can support users to issue homogeneous tokens on Bitcoin or Lightning Network by deploying smart contracts, it is also considered an alternative to BRC-20 tokens.
The biggest advantage of RGB20 and BRC-20 tokens is that the tokens issued by RGB20 can be circulated in the Lightning Network, with low gas fees and fast transfers. However, BRC-20 is engraved on Satoshi, and all activities are carried out on the Bitcoin chain, which has limited scalability.
Bitcoin NFT Marketplace DIBA
It is the first Bitcoin NFT trading market built using the RGB smart contract platform, supporting users to create and trade NFTs on Bitcoin, which are often referred to as UDA unique digital assets.
In addition, users can experience RGB smart contracts and related assets through Bitcoin network related wallets:
Iris Wallet
This is a wallet application for issuing and receiving RGB assets, developed by Bitfinex Labs, and users need to download it from the Google Store.
My Citadel
Supports RGB asset wallet. Currently, users need to download the installation package.
Bitmask
It can be used to experience the minting, issuance and application of RGB assets. BitMask is a Chrome extension wallet created by DIBA that supports stablecoins and NFTs. Currently, users can experience the issuance and transfer of RGB20 assets by using the Bitmask wallet beta. From the current user experience, the Bitmask wallet is easier for users to get started.
RGB workflow and related technologies
RGB actually binds the issuance of off-chain assets to the UTXO changes on the chain. Since UTXO can confirm Bitcoin transaction events at a certain point in time, we can make changes in such transaction events correspond to changes in the status of some other things.
For example, if I issue an asset in another place, it corresponds to UTXO1 on the Bitcoin network. If I transfer this asset to someone else, then this transfer behavior can be mapped to UTXO2 on the Bitcoin network.
Because UTXO itself is fixed and agreed upon, as long as I can prove that this binding is reliable, then the changes in UTXO on the Bitcoin mainnet and the corresponding changes in the status of other assets should also be agreed upon.
Going further, the RGB protocol uses the security of Bitcoin mainnet UTXO to endorse the security of its off-chain asset issuance or contract logic.
RGB Protocol Workflow
1. The asset issuer creates a new asset on the client and generates a one-time seal and commitment.
2. The asset issuer anchors the new asset to the Bitcoin network and embeds the commitment into the output (UTXO) of the Bitcoin transaction.
3. The asset recipient verifies the validity of the asset by viewing the commitment and verifying the one-time seal.
4. When assets are transferred, the old one-time seal is destroyed, and the new one-time seal, commitment, and transaction data are anchored to the Bitcoin network.
In this way, the RGB protocol enables asset issuance, transfer, and verification on the Bitcoin network while maintaining privacy, scalability, and decentralization.
At the same time, RGB can also be well integrated with the Lightning Network. In its official documentation, RGB describes itself as an L2 or L3; when the Lightning Network exists, RGB can be used as an L3 to quickly exchange Bitcoin and RGB tokens off-chain, thereby achieving more efficient transactions and asset management.
Other important technologies
In fact, to ensure that the assets issued by RGB off-chain can indeed match the UTXO on the chain, some other technologies are needed to achieve this.
Client-side validation: In the RGB protocol, transaction verification and data storage are done on the client side (such as wallet software) rather than on the blockchain. This keeps transaction data off the chain, improving privacy. Client-side validation can also reduce on-chain data storage requirements and improve network scalability.
This is also a big difference between RGB and BRC20. Since the transaction data is on the client rather than on the chain, it can theoretically greatly reduce the current network congestion and high transaction fees.
Single-Use-Seals: A technology that ensures that asset ownership cannot be tampered with. A one-time seal is a cryptographic signature that is used to lock the state of an asset. When an asset is transferred, the old seal is destroyed and a new seal is created. This way, any attempt to tamper with the asset ownership will be discovered because the state of the seal will not match.
This also corresponds to the destruction and generation of UTXO described in the previous section. The old seal represents the old UTXO, and the new seal points to the new UTXO.
Commitments: To associate assets with the Bitcoin network, the RGB protocol uses a technology called commitments. A commitment is a cryptographic proof that an asset is associated with a specific Bitcoin transaction. Commitments are embedded in the output of a Bitcoin transaction (UTXO), which allows assets to be transferred on the Bitcoin network.
Anchoring: In order to connect client verification and the Bitcoin network, the RGB protocol uses anchoring technology. Anchoring is the process of combining a one-time seal and a commitment. When assets are transferred, new one-time seals, commitments, and transaction data are anchored to the Bitcoin network, ensuring the security and consistency of the entire system.
Conclusion
RGB has been silent for a long time and has been dug up again. In fact, it is still due to the trend of BRC-20 issuing assets. Without making value judgments and discussing the significance, we can find that after the first wave of speculation, more opportunities will emerge silently and push the entire ecosystem forward in the noise.
At the same time, RGB has actually launched a wallet that can send and receive BTC-based network assets and supports NFT-related functions. The RGB-related Telegram discussion group remains active, and developers are keen to discuss and answer technical questions.
Some people benefit from the hype, and it brings new technical problems. Solving these problems often generates new narratives, awakening old protocols like RGB, which may lead to the next wave of hype.