RGB Protocol Opens a New Journey for Bitcoin: From Payments to Smart Contracts

After more than a decade of development, Web3 technology has given rise to various innovations. Bitcoin has continuously improved its privacy protection capabilities while maintaining decentralization and security, achieving advanced features such as Schnorr signatures and Taproot, laying the foundation for subsequent technological innovations. The evolution of on-chain smart contracts like Ethereum has spurred the prosperity of applications such as DeFi. However, since 2022, Web3 innovation has suddenly lost direction, and blockchain technology has been unable to break free from the constraints of the impossible triangle, making large-scale applications difficult to implement.

In this context, the Bitcoin second-layer protocol RGB is patiently waiting for the opportunity, gradually maturing, and is expected to challenge existing technological limitations, showcasing new vitality.

Bitcoin: Establishing its status as a monetary layer

The biggest difference between Web3 and Web2 lies in the built-in economic system, where the economic system is based on currency, with the protocol layer and application layer on top. The currency of Web3 is called cryptocurrency, issued through blockchain.

Bitcoin is recognized as the safest and most stable cryptocurrency, and its value has gained global consensus, mainly based on the following factors:

1. Global network coverage, over ten thousand full nodes collaboratively verifying transactions, high decentralization.

2. Powerful hash computing capability as proof of work is the cornerstone of network security.

3. The consensus rules are stable, with no significant changes in history.

4. The community is very concerned about network security and stability, focusing on core protocol security.

Bitcoin scripts ensure security and simplicity in parallel

The original intention of designing the Bitcoin script language is to ensure safety and avoid risks, so it intentionally limits functionality to maintain simplicity and security similar to a chip instruction set. The Bitcoin script is a stack-based execution language based on reverse Polish notation.

The mainstream node code restricts the types of executable scripts and only allows "standard script" transactions to be executed. Among them, the most important is the P2SH transaction, which actually allows any Bitcoin script to be executed, enabling complex functionalities such as the Lightning Network.

The introduction of Schnorr signatures and the Taproot soft fork upgrade marks an important milestone, laying the foundation for the development of second-layer protocols.

Schnorr signatures and Taproot

Taproot introduces more flexible payment channels, allowing complex transactions to be executed in a more private manner. By hiding multi-signature scripts within a single script, it enhances privacy and security. Schnorr signatures make transactions more compact, reduce fees, and improve scalability.

These two innovations not only enhance performance and privacy but also bring more possibilities to the ecosystem. More efficient scripting and signature technologies support cross-chain operations, lightning network scaling, and complex smart contracts.

The impact of Schnorr signatures

Schnorr signatures are more suitable for Bitcoin than ECDSA, providing better performance, shorter signatures, and linear properties, making key aggregation simple. Multiple signatures can generate an aggregated public key from the private key, jointly producing a valid signature for that public key.

Taproot script innovation

Taproot is an innovative Bitcoin script structure that specifies how to use and parse Taproot transaction addresses. It originates from MAST research and can be seen as a special implementation of MAST. With Taproot, the UTXO of multi-branch scripts only exposes one branch when spent, enhancing privacy and efficiency.

LNP/BP:"Bitcoin protocol/Lightning Network protocol" maturity

The LNP/BP Standards Association is working quietly behind the scenes to bring more innovative possibilities to the Bitcoin ecosystem. The LNP/BP codebase encompasses standards and best practices for Bitcoin's second layer and above, requiring no blockchain-level forks, and has no direct connection to the Lightning Network RFC. It defines the basic building blocks of second layer and above solutions and describes complex use cases built on these modules.

The key technology for Lightning Network supporting RGB smart contracts

The Lightning Network is a second layer solution for Bitcoin that allows for fast and low-cost transactions. Key technologies include:

• Bi-directional channel: Allows for real-time interaction in both directions without frequent on-chain transactions.
• Click on time lock contract ( PTLC ): Solve payment path privacy issue
• Eltoo: introduces state numbering to solve the problem of old state submissions.
• Discrete Log Contracts: Addressing scalability and privacy issues in smart contracts
• SPHINX: A source-based onion routing mechanism that ensures secure communication.

These technologies lay the foundation for supporting large-scale RGB smart contracts.

RGB protocol: Leading the change

RGB aims to combine Bitcoin as the underlying currency layer with the flexibility of smart contracts. It allows for the creation and management of various assets on the Bitcoin network, enabling broader financial and application innovations.

RGB smart contracts interpretation

The core of the RGB smart contracts is ownership and state validation. It is a distributed network where no one has a complete view of the current state, but global consistency is maintained through one-time sealing based on Bitcoin PoW and client verification rules.

RGB implements rules for rights transfer/state transition verification, defined by a pattern structure and simple scripts. Each right ( state ) cannot directly access state information under other rights, ensuring security.

Web3 and RGB Integration

RGB smart contracts provide users with rights management capabilities, from asset ownership to supply issuance rights. It controls the transfer of rights through Bitcoin scripts and a one-time sealing mechanism, ensuring security.

RGB aims to introduce state numbering to solve the old state problem, improving system efficiency and security. This provides stronger guarantees for contract transfers and state transitions, ensuring compliance with verification rules.

Open Infinity: A New World Analogous to TCP/IP

With the implementation of Schnorr signatures, Taproot, and the maturity of second-layer protocols like LNP/BP and RGB, the standard development path of Web3 is becoming increasingly clear. The Infinitas team believes this will form a layered architecture similar to TCP/IP, integrating the currency layer, protocol layer, and application layer.

This new pattern brings:

• Scalability and efficiency improvement
• Privacy and security enhancement
• More rich features
• Reduce the burden of blockchain
• Developer Innovation Space

The brilliant future of Web3 development

As the LNP/BP and RGB protocols mature, the Web3 world will become richer and more diverse:

• Mass adoption of decentralized finance
• Blockchain games are emerging
• Diversified on-chain social applications
• Deep integration with AI
• Integration with wearable devices and sensors

The RGB protocol allows us to stand at a new starting point, witnessing a future filled with infinite possibilities like Bitcoin. We look forward to a more open, inclusive, and innovative Web3 future as a result.