Although the hype around Ordinals NFT and BRC-20 has died down, Bitcoin scalability is about to undergo a new wave of disruption. The assets minted by the Ordinals protocol have been heavily criticized for their inefficiency and high costs, and people are hoping to find a way to issue assets on the BTC network that won’t burden it. One highly discussed solution is the RGB Protocol.
Similar to the functionality currently offered by Ethereum, RGB aims to create and manage assets on the Bitcoin network in a more cost-effective and user-friendly way, including building decentralized applications (DApps), NFTs, tokenizing real-world assets, and more.
The Origin of the RGB Protocol
The roots of the RGB Protocol can be traced back to 2018, when Bitcoin developers Giacomo Zucco, Peter Todd, Alekos Filini, and others began exploring new ways 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 asset issuance and more complex features like smart contracts. RGB was originally launched by Giacomo Zucco as the “BHB Network” and was later rebranded in 2019.
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How the RGB Protocol Works
RGB is based on the idea of client-side validation, which means that most data is stored off-chain and only necessary transaction data is stored on the Bitcoin blockchain. This approach can help scale the network by reducing the amount of data that needs to be stored and validated on the blockchain, thereby speeding up transaction speeds and lowering fees.
The core idea behind the RGB Protocol is to combine asset issuance, ownership, and state updates with Bitcoin’s UTXO model through client-side validation, rather than relying on the full nodes of the Bitcoin network like BRC-20. This approach leverages the security of Bitcoin’s mainnet UTXO to provide security for off-chain asset issuance and contract logic.
According to its official explanation, the RGB Protocol works as follows:
1. The asset issuer creates a new asset in the client, generating a one-time seal and a transaction commitment.
2. The issuer anchors the new asset to the Bitcoin network by embedding the commitment in a Bitcoin transaction output (UTXO).
3. The asset recipient validates the validity of the asset by verifying the commitment and validating the one-time seal.
4. During the asset transfer process, the old one-time seal is destroyed, and the new one-time seal, commitment, and transaction data are anchored to the Bitcoin network.
This process allows the RGB protocol to facilitate secure, decentralized, and privacy-protecting asset transfers on the Bitcoin network.
Twitter user @trustmachinesco explained the process in a more intuitive way:
1. Matt issues 100 $MATT tokens for himself on the RGB network.
2. On the Bitcoin network, Matt’s token issuance corresponds to the Bitcoin UTXO (Unspent Transaction Output) A he currently holds.
3. Matt transfers 50 $MATT tokens to Blockingm.
4. On the Bitcoin network, Matt’s token transfer corresponds to a new UTXO B, and the UTXO A from step 2 is destroyed.
5. On the Bitcoin network, Blockingm’s receipt of the tokens corresponds to a new UTXO C, representing Blockingm’s current Bitcoin UTXO.
6. Similarly, when Blockingm makes a transfer, her original UTXO C is destroyed, producing a new UTXO D.
As $MATT tokens change hands, each transfer will be represented by the corresponding UTXO on the Bitcoin mainnet.
The RGB protocol can also seamlessly integrate with the Lightning Network. RGB is described as an L2 or L3 solution, and when combined with the Lightning Network, RGB can act as L3, enabling fast off-chain exchanges of Bitcoin and RGB tokens for more efficient trading and asset management.
Use Cases
The NFT market Bitcoin Art and Assets (DIBA) is the first Bitcoin NFT market to use RGB smart contract. The protocol does not use Ordinals, but instead uses the RGB smart contract protocol to mint NFTs on the Bitcoin network. Founder and CEO Gideon Nweze believes that the RGB protocol allows for cheaper and more private transactions, making it easier to issue tokens on Bitcoin. This alternative approach can bring NFTs to Bitcoin without affecting block space and transaction fees.
Assets minted by the Ordinals protocol have been criticized for their inefficiency and high cost. Nweze said this is because Ordinals writes assets directly to the Bitcoin blockchain, while RGB layers transactions on top of the network. He explained in his post, “If I want to build a house, I don’t put all the storage space in the foundation, I build rooms and storage rooms on top of it. Ordinals is like trying to cram everything into the foundation, while smart contracts put everything on the floor above it.”
DIBA investor and renowned venture capitalist Tim Draper believes that what Gideon and the DIBA team have built is proof of the “potential NFT of Bitcoin.”
Conclusion
Bitcoin scalability is destined to be one of the most important narratives in the encryption field, and the RGB protocol will continue to improve along with new stories and hype cycles in encryption.
It is worth noting that the RGB protocol can only mint NFTs and cannot mint BRC-20 tokens. Another emerging BTC scalability project is Trustless Computer, which can use smart contracts to mint BRC-20 tokens. According to their team, Trustless Computer is not purely a Layer 2, but a “protocol within Layer 1” that reduces the bandwidth required for tokens by 80% to 90% using smart contracts.
Although some major Bitcoin advocates, including Jan3 founder Samson Mow, believe that the hype of Ordinals and BRC-20 will end “in a few months”. However, creating protocols and assets on the Bitcoin network is the trend, and the hype of Ordinals will support Bitcoin in attracting more developers and capital to use Layer 2 solutions.
The RGB team wants to do a lot of things. Its impact on the Bitcoin network and the encryption ecosystem will largely depend on whether it can be adopted by developers, companies, and users. If widely adopted, it may become an important part of the Bitcoin ecosystem, allowing for the construction of more complex financial applications on the Bitcoin network.
Author: BlockingBitpushNews Mary Liu
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