What is the RGB Protocol?

Image source: RGB Website

The RGB Protocol is a set of open-source protocols for the Bitcoin Network that allows the development and execution of complex, confidential, secure smart contracts. The RGB Protocol uses the Bitcoin blockchain as the base layer that maintains the smart contract codes and the off-chain data.

The protocol’s infrastructure uses single-use seals, proof of publication, and Bitcoin commitments to tokenize and execute projects. The RGB design moves from the general “on-chain smart contract” design to the “client-side validation” design, using the blockchain for consensus alone.

History of the RGB Protocol

The RGB Protocol was originally designed by Giacomo Zucco in 2016 as a non-blockchain-based asset system called the BHB Network, based on Peter Todd’s “client-side validation” design. The prototype for the project was launched in 2017 with the backing of the Poseidon Group.

By 2019, Dr. Maxim Orlovsky of Pandora Prime AG became the project’s main designer and lead contributor, influencing its change from the BHB Network asset system to the current state RGB protocol, which allowed the project to compute confidential smart contracts.

That same year, Giacomo and Orlovsky created the Lightning Network Protocol/Bitcoin Protocol Standards Association (LNP/BP Standards Association) to oversee the development of the RGB Protocol and spearhead the creation and management of standards, registries, libraries, nodes, command-line tools, and documentations for the Lightning and Bitcoin networks. The association was funded by venture capitalists such as iFinex Inc., Fulgur Ventures, Pandora Prime AG, personal funds of Dr. Maxim Orlovsky, Hojo Foundation, DIBA Inc., and even anonymous community donations.

The current RGB Protocol is due to the technical and financial contributions of over 50 individuals and companies.

The RGB Team

As a decentralized protocol, there isn’t a formal team structure. Thus, contributions to the project come from a network of global developers and researchers. The project was co-founded by Giacomo Zucco, an Italian entrepreneur who has been a Bitcoin maximalist since 2012. He established the first Italian, Bitcoin-focused platform called Bitcoin.it and he aims to develop the Bitcoin network to rival blockchains such as Ethereum.

Maxim Orlovsky is a researcher and engineer who transformed the BHB network into the RGB Protocol. He is also the chief engineer of the LNP/BP Standards Association. He has contributed to several projects in the Bitcoin ecosystem, such as Lightning, privacy-preserving networking, functional programming, and deterministic computing.

Other notable contributors to the project include AJ Town, Christian Bacher, and an anonymous “ZmnSCPxj.” As previously stated, the project is being developed by a network of researchers and Bitcoin community members.

Introduction to Core Technology: Proof of Publication, Single-use Seals and Bitcoin Commitments

Image source: RGB Website

Proof of Publication

The RGB Protocol was designed using Peter Todd’s “client-side validation” technique that allows the verification of contract states and transactions without unduly burdening the Bitcoin blockchain.

This verification and validation depends on the Proof of Publication (PoP), which acts like a digital newspaper clipping that shares updates with the transaction participants, ensuring everyone relevant receives and acknowledges the updated changes.

Unlike other consensus mechanisms that need validation from the global network, PoP uses three underlying concepts to operate. First is Proof of receipt, which allows the participants to confirm the delivery recipient. This is similar to sending a confirmation email after an updated document.

The second is Proof of non-publication, which allows the network to confirm if the update was published. This prevents tampering or unvalidated changes in the protocol. The last is Proof of membership, which ensures that all parties are authorized to receive the update. This maintains transparency in the project or network.

Single-use Seals

To support the Proof of Publication consensus mechanism, Peter Todd proposed the single-use seal, a cryptographic commitment that ensures a duplicate commitment cannot be created in the future.

Initially introduced in 2016, the concept of the single-use seal ensured the creation of deterministic Bitcoin commitments that allowed projects on Bitcoin’s blockchain to use the same transaction without the need for mutual awareness. The seal comprises a SHA-256 transaction identifier and a 32-bit transaction output number committed to a specific message, similar to a secret code, which cannot be reverse-engineered even if the participant knows the content of the message.

The single-use seal acts similarly to the identifier of a shipping container, and it ensures each transaction has an identifier with attached smart contracts or assets that can only be spent once, protecting the network from a double-spending attack while maintaining the decentralized trustless structure.

Bitcoin Commitments

In cryptography, commitments are similar to locked chests where information is deposited. This information can be accessed under certain conditions, which is important in decentralized communication.

In the RGB Protocol, Bitcoin commitments are deterministic commitments that include three forms: Tapret, Operet, and Multi-protocol commitments. The Tapret commitments are based on the Taproot feature of the blockchain for creating secure, verifiable commitments.

The Opret commitment is based on the OP Return output (OP_RETURN). The OP Return output is an output that allows for the inclusion of arbitrary data for devices that are too old to utilize the Taproot feature. The Multi-protocol commitments are flexible enough to be used in multiple protocols.

Introduction to RGB Protocol’s Architectural Design

The base layer is Bitcoin’s blockchain, which serves as the bedrock for all transactions and commitments in the project. The client-side validation layer is built on top, consisting of the deterministic Bitcoin commitments (Tapret and Opret) and the AluVM, a virtual machine optimized for arithmetic and logical operations needed for validating smart contracts during client-side validation.

Built on top is the non-consensus critical layer. This layer consists of the single-use seal that provides an added layer of security for the RGB project, the multi-protocol commitment, and the RGB Schema that defines the rules of validation, state type, and logic type for client-side validation.

Then, finally, the RGB contract and lightning network consist of the Genesis state, Directed Acyclic Graph (DAG) state transition, and Bifrost protocol for smart contract coordination and interaction.

Features of The RGB Protocol Ecosystem: Smart Contract State and Wallet Integration

Image source: RGB Website

Smart Contract State

The RGB Protocol uses client-side validation and off-chain data to execute smart contracts on the Bitcoin blockchain. This deviation from the general execution model introduces a new operation for contracts and their state on the blockchain.

The RGB Protocol represents asset ownership on the network using elements like keys, identities, or values that can be transferred or modified using specific actions. Unlike conventional protocols, this data is stored off-chain to alleviate the burden on the blockchain. To avoid centralization of authority, the network members define and enforce the rules of the contract, ensuring the platform is censorship-resistant.

The protocol uses client-side verification, which relies on individual participants using cryptographic tools. Thus, RGB only published the state of the transactions. The actual content is confidential, which improves privacy. The protocol also uses a dual ownership structure for managing global (public) data that’s accessible to every member of the network and owned (private) data that specific parties control.

The RGB Protocol uses the Genesis Operation that defines the initial state ownership of the contract, its terms of distribution, and the owners’ rights. In the event of a transfer, the operation updates the state, executing the logic or rules that guide the transaction. This updated state is sent to the parties or communities involved to maintain its decentralized design.

Wallet Integration

With the RGB Protocol’s off-chain infrastructure for executing smart contracts, the integrated wallet doesn’t need to operate directly on-chain. Instead, it uses an API integration to fetch contract data, track contract states, and initiate verifications within the user’s wallet interface.

To support client-side verifications, the wallet design includes features allowing users to verify transactions within their familiar interface, which requires integrating tools for cryptographic proof. Some features will also enable the user to selectively disclose data or request blind signatures, which protects the user’s data.

These features are geared towards simplifying the user’s interaction with the RGB Protocol and Bitcoin’s blockchain, fostering wider adoption. It also helps to improve security and privacy for conducting transactions with sensitive data.

Risk Analysis

Advantages

The RGB Protocol has some key benefits as a solution for smart contracts on the Bitcoin blockchain. The first is scalability and efficiency. The RGB Protocol uses client-side verifications and off-chain data to reduce the burden of conducting transactions on Bitcoin while enabling faster processing time.

It also has features that improve user privacy and control over data by integrating these cryptographic tools into a simple-to-use interface. Finally, the protocol leverages the security of Bitcoin’s blockchain, which is one of the most secure globally.

Disadvantages

One of the significant disadvantages of the RGB Protocol is the number of participants required for client-side verification. Unlike on-chain transactions that require the whole network to validate transactions, the off-chain design of the RGB Protocol relies on servers or cloud-based infrastructures that could lead to centralization or potential censorship by compromising the servers.

The RGB off-chain design also introduces more complexities to the blockchain infrastructure, which could result in scalability issues.

Challenges

One major challenge for the protocol is consensus during dispute resolutions. Unlike on-chain validation that involves the whole network, the off-chain design presents more challenges to achieving consensus on contract upgrades and disputes, which could lead to employing centralized third parties or trust models.

The user is also tasked to be more vigilant about securing their private keys. This would be difficult for less careful users.

Competitive Analysis

The RGB and the OmniBOLT protocols are layer two projects that use the Lightning and Bitcoin network to facilitate faster and cheaper transactions. But they also have their differences.

The RGB Protocol is a general-purpose off-chain smart contract protocol that can be used in various projects, from finance to governance. On the other hand, OmniBOLT is a finance-focused project used to issue and transfer stablecoin on the network.

In as much as the two projects were designed to improve scalability on the Bitcoin network, the RGB protocol, which uses client-side validation, minimizes the burden on the blockchain. Unlike the RGB protocol, OmniBOLT relies heavily on the blockchain for validation, reducing the scalability capacity.

The RGB Protocol uses off-chain storage, which prioritizes scalability and privacy. The protocol lets users disclose data selectively, giving them control over sensitive information. The OmniBOLT protocol, on the other hand, uses on-chain storage, which prioritizes transparency and auditability, so the transactions are fully visible, similar to the Bitcoin standard for transactions.

The choice between the two depends on the specific use case and priorities, either for general-purpose applications that are privacy-centric or stablecoin-based use cases within the network.

Applications on the RGB Protocol

Infinitas

Image Source: Infinitas Website

The project is a Turing complete smart contract platform on Bitcoin that uses both the RGB Protocol and the Lightning network.

The project inherits the security of Bitcoin’s blockchain to protect user assets while employing an advanced trustless Bitcoin anchoring mechanism to protect user data from prying eyes. The project focuses on expanding the capacity of the RGB Protocol, paving the way for more complex applications and fostering an interconnected ecosystem for Bitcoin developers and users.

MyCitadel

Image Source: MyCitadel Website

MyCitadel is the first Graphical User Interface wallet (GUI wallet) to support features of the RGB Protocol. It was created by the developers of RGB, and it is a cross-platform wallet that allows users to enjoy the platform on their preferred devices.

Digital Bitcoin Art (DIBA)

Image Source: DIBA Website

DIBA is the first NFT marketplace on Bitcoin that uses RGB Protocol’s smart contracts and the Lightning Network. It was designed to help shape human understanding of non-custodial art assets on Bitcoin’s blockchain.

The beta version of the application is running on Bitcoin’s testnet and will be launched on the mainnet shortly.

Conclusion

The RGB Protocol is a smart contract protocol on Bitcoin’s blockchain that adopts a client-side validation model with off-chain data. It was initially designed and evolved by Giacomo and Maxim.

The project uses Proof of Publication, Single-use Seals, and Bitcoin Commitments to execute smart contracts on the blockchain. The infrastructure allows smart contract management, dual ownership, and wallet integration to enhance privacy and adoption.

Despite challenges, the RGB Protocol is committed to privacy and community-driven development to improve Bitcoin’s network