Foreword

Recently, the BTC ecosystem has been booming, and although most of the protocols in various directions are still in their early stages and the infrastructure is still incomplete, they still cannot resist everyone's enthusiasm for pursuing these innovations.

From a long-term perspective, most current projects, tokens, or NFTs will eventually disappear, but this does not affect their good wealth effect in the early stages of construction.

I have always been paying attention to the BTC ecosystem, mainly based on the following reasons:

1. The price of BTC cannot always rise, so with the halving, miners' profits cannot be guaranteed enough. Although there is a dynamic balance, based on the recognition that "computing power is the basis for ensuring security", there must be a new narrative to solve this problem.

2. One solution is to build the ecosystem of BTC, create more transactions, and provide enough transaction fees for miners; the other is to increase issuance (although many people say this is impossible, but I don't think it is completely impossible). Relatively speaking, the second solution is likely to undermine the consensus of BTC, so the first solution is definitely the better one, and the first solution will bring a new narrative.

However, due to the underlying architecture of BTC, the progress of various developments is relatively slow. In the rapidly changing and information-rich crypto industry, it is easy to miss the focus, which also caused me to miss the early opportunities in the rapidly developing track of BTC ecology.

I personally believe that BTC on-chain NFTs will be limited by the size of the blockchain space. As for the Inscription series, I personally lean towards the concept of "accessories" (of course, my understanding may not be correct). Although both play a very important role in the explosion of the BTC ecosystem (easy to understand, easy to fomo), they are still not the foundation for building a complex ecosystem in my mind.

My focus as a practitioner in the encryption industry is more on innovations that I believe can change the entire BTC ecosystem. So today, I will talk about a protocol that I am optimistic about:

2、Let's talk about the RGB protocol

2.1 What is the RGB protocol?

In simple terms, you can understand this protocol as being created for the purpose of using smart contracts on the Bitcoin network. One of the important reasons for the rise of ETH is the introduction of smart contracts, which gradually built a huge and diverse ecosystem. Various assets, financial models, and more were introduced through contracts (which I personally understand as functions), and can even be linked to the real world (such as the current RWA).

What if we introduce smart contracts into the BTC system, can't we also create many interesting things?

Of course! (I do not agree with the view that BTC only has a store of value.)

However, due to the significant differences in code architecture between BTC and ETH, it is challenging to build contracts on top of BTC. Therefore, innovative solutions that are very crypto native are needed.

2.2 UTXO Model

Before we talk about this, let's take a look at the Bitcoin account model (because if we don't talk about this, there will inevitably be things that are difficult to understand later).

We are familiar with traditional models that have accounts and balances. When trading, it's simply a matter of transferring a certain amount of tokens from A to B.

However, the UTXO model is different. It does not have accounts or balances, only transaction information.

Speaking of transactions, there are two sides: input and output. However, this transaction is different from the traditional transaction in our thinking. Please refer to the following image:

You are Bob, and you have 1 BTC, which is reflected in a UTXO. Now, if you transfer 0.5 BTC to Alice (ignoring gas fees), two new UTXOs will be generated - one for your own responsibility for 0.5 BTC (bottom right), and one for Alice's responsibility (top right). The original UTXO will no longer be available. Of course, if your input (left side) is a combination of several UTXOs (such as 1 BTC being a combination of 0.8 BTC and 0.2 BTC UTXOs), the situation will be more complex.

However, as you can see, it continuously creates new UTXOs based on old ones to transfer the entire transaction information. This is completely different from ETH accounts (ETH account information is more like a traditional database, with names and balances, and spending will change the balance accordingly...).

2.3 RGB Principle

According to its official explanation, the working principle of the RGB protocol is as follows:

1. The asset issuer creates a new asset on the client side, generating a one-time seal and transaction commitment. At this point, the asset belongs to a Bitcoin UTXO, whether it is an existing one or a temporarily created one.

2. The issuer anchors new assets to the Bitcoin network by embedding commitments into Bitcoin transaction outputs (UTXOs).

3. The asset recipient verifies the validity of the asset by accepting the commitment and verifying 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.

Twitter user @trustmachinesco explained the process in a more intuitive way:

3.1 Infinitas

3.2 COSMINMART

COSM Wallet

COSM Market

COSM Lanuchpad

3.3 Pandora Prime Inc

3.4 DIBA（DIGIT ALBITCOIN ART）