What is RGB and why should I care?

Nowadays, the term ‘smart contract’ has many definitions, as people think that Vitalik Buterin introduced it to the space with launching Ethereum. In fact, already back in early 1990s it was Nick Szabo who coined it and defined it as "a set of promises, specified in digital form, including protocols within which the parties perform on these promises”. But the question arises - are smart contracts something that exist only in digital world or is there more to it?

In fact, there is another approach to understanding the concept behind the term, which is to analyse how the world around us works and how agreements between people are made in real life. If we imagine two parties that are totally anonymous, but are willing to interact with each other, make an agreement, exchange goods or services, and be sure that the agreement will be fulfilled, we spot several problems. The first and most crucial one is how do you prove, without giving away private information, in anonymous and/or trust-less environment, that one party actually owns the goods she’s selling and the other party - owns the money to pay? Partially, the answer to this has already been found many years ago by introducing bearer rights. Bearer right is a right to fully own and transfer something, stored by the owner himself (thus the name ‘bearer’) on a physical carrier (e.g. certificate of ownership) and being able to provide it as a proof to the party you economically interact with. Interesting fact about bearer rights is that there is no need to register your possession of an asset or a contract to any third party, public register or authority - transferring the ownership involves only providing the physical proof to the counterparty, without putting the information about it into any public data base. Thus, the bearer rights concept allows one to secure their privacy and full possession of an asset, while also maintaining the ability to exchange it with others and verify the information on the other party, fully peer-to-peer, no third parties or registries involved.


Second thing we need to consider is how do you enforce the fulfilment of the contract? Because the parties are anonymous, there is no way to enforce the fulfilment of the agreement as you don’t know on whom to apply physical pressure in case the other party cheats. Here Economics and, specifically, Game Theory come into play. By creating proper economical incentives of the agreement one can create a contract, where it will not be beneficial to the other party (or you yourself for that matter) to cheat.

To sum it up, we see that the term “smart contract” in fact can be applied to both physical and digital worlds, as a way to prove the ownership information and enforce the fulfilment of a certain agreement between parties without an external centralized agency (military, government, court etc) or physical enforcement. Computer Science in this regard is there to enhance these processes and make the real-life and digital human interactions more efficient.

But in order to fully follow the definition, smart contract systems must have the following parameters:
 1. Censorship resistance - to give full ownership of the agreement data to each contract participant, without the ability for any external party to take it away;


2. Scalability - to be able to scale up to world level and enable participation of as many parties as the agreement might involve;
 3. Privacy - to be able to operate in a private environment without giving away your identity, information on the asset one might own or agreements one participates in.

4. Verifiability - the counterparties must have the ability to verify the information on assets, ownerships and fulfilment of the agreement on their own, without the need to trust any third party, authority or register. 
 In digital world there are many different types of smart contracts, with different abilities, tradeoffs and functionality they can cover. Bitcoin is a very peculiar example of a smart contract system - as of now it is the only protocol that has resistance to censorship, though programmability, privacy and scalability are not the traits it possesses. Ethereum contracts are much more agile, but they are lacking censorship resistance, privacy, scalability and as a contract participant you always must delegate the verification of data to the global community, thus - you never truly own anything.

As of today there is only one technology in the world that meets all the above mentioned criteria. It’s RGB.

RGB is a scalable & confidential smart contracts system which can be viewed as both layer2 and/ or layer 3 technology working on top of Bitcoin and, most importantly, at the moment of writing - the only solution working with the Lightning Network. RGB leverages the strongest points of Bitcoin and Lightning, while expanding their functionality to an astonishing level. RGB gives the ability to separate many different types of ownership rights (ownership of different assets defined under a contract) such as the right to own, use, transfer, modify, sell etc., from the contract states (conditions, under which a contract exists currently), proofs and contract evolution. Thus we can say that the RGB contract defines an event-consequence algorithm 'if this happens then that happens’ with an obligation to follow certain verification rules on each step. And a natural question arises - how?

By embracing the concepts of client-side validation and single-use seals introduced a couple of years back by Peter Todd, adding zero-knowledge primitives such as bulletproofs and making all that work on the Lightning Network, RGB makes it possible to create complex agreements between parties, while securing their privacy, making transaction happen lightning-fast and giving tools for full rights ownership and management. And all that - with no new blockchain, no Bitcoin forks, no polluting the L1 time chain (all the contract data is always stored off chain) and no protocol-level token that makes it possible to run the system. But how did we come to this - one might ask?

RGB story began back in 2016 by Giacomo Zucco’s idea of making a better Colored coins and bringing tokens to the Lightning Network (thus the name RGB) leveraging Peter Todd’s concepts of client-side validation and single-use seals. A couple of years later Dr. Maxim Orlovsky from Pandora saw the potential in the technology, which was far beyond the token use case, and joined the initiative. In order to make the fully free and open source set of technologies that would carry the core cypherpunk values at heart, a Swiss non-profit called LNP/BP Standards Association was established and the process of hardcore brainstorm and development began. 
 By spring 2021, from an idea of a token protocol, RGB became a fully-fledged private and scalable smart-contract system on Bitcoin, finally offering solutions to many complex problems and strengthening Bitcoin ecosystem. And, again, all that - with no token to make it work, no polluting Bitcoin time chain with data and no compromise on your privacy or ownership rights! With RGB one can finally forget about shitcoins, unscalable and constantly hackable Solidity contracts and focus on solving real problems and enhancing the Bitcoin and Lightning ecosystems.

Why RGB is important?

Because of so many things that can be done with it, for example:
 1. Fungible assets & securities (options, futures):
 1.1. Centrally or federation-issued. 1.2. Issued anonymously or publicly.
 1.3. With possible secondary issuance, demurrage, inflation, etc.
 2. Different forms of bearer rights (voting, governance models etc).
 3. Non-fungible assets (tokenized art, game skins, collectibles, education certificates).
 4. Decentralized digital identity, roaming profiles and key management.
 5. Complex right management, accounting systems & utility tokens even beyond financial world: electricity, medical records, logistics etc.
 
 The best news is that one can already play around with it. By 2021 RGB released its first beta and pioneers such as Pandora Prime company launched first user-facing products: MyCitadel wallet, RGBex explorer and Bitcoin Pro asset issuance tool to push forward the adoption. With the desire to ossify the protocol as soon as possible, on the 13th of June 2022 RGB released its first version of ‘consensus-level’ libraries that give one the possibility to start building their own businesses and solutions on top of it having more reassurance that the protocol works and no drastic changes would be made to it. With that release, in 2022 the RGB protocol attracted attention of various players of the industry that picked up Pandora’s initiative and also started building their products around it: from stable coins and art collectibles, to DAOs, inheritance systems and education certificates.


To wrap up

We strongly believe that privacy, programmability, bearer rights, security and scalability are the core drives of building the future of Bitcoin. With RGB finally giving the opportunity for the users to solve much more than just financial interaction problems, we created tools to everyone out there to thrive in the cypherpunk world we have around us and protect what they own. With the individuals becoming more and more exposed in the society, each of us constantly being under surveillance and regulations trying to get deeper under our skin, technologies like RGB are one of the few straws we can use to preserve our self-sovereignty and freedoms. If Bitcoin is a ‘fuck you’ money, then RGB is a ‘fuck you’ smart contracts. For more information on RGB check out these resources: https://www.rgbfaq.com https://www.rgb.tech http://youtube.com/@LNPBP http://twitter.com/lnp_bp https://t.me/lnp_bp https://t.me/rgbtelegram

Version of the article published in Bitcoin Magazine Ukraine in Ukrainian language https://bitcoinmagazine.ua/technologies/1678169018-shcho-take-rgb-i-chomu-mene-tse-mae-hvilyuvati