RGB protocol makes Bitcoin great again: from payments to smart contracts, starting a new journey in Web3

After more than a decade of vigorous development, Web3 technology has given rise to various innovations. Bitcoin has continuously enhanced its privacy protection capabilities without compromising decentralization and security, achieving advanced features such as Schnorr signatures and Taproot, laying the foundation for subsequent technological innovations. On-chain smart contracts represented by Ethereum have also ushered in a golden age of applications like DeFi. However, since 2022, the innovation in the Web3 industry seems to have hit a bottleneck, and blockchain technology has been unable to break through the constraints of the impossible triangle, making it difficult for large-scale applications to be realized.

So, have we reached the limits of technology? Are there deeper unknowns waiting to be explored? Perhaps it is in these explorations that the Bitcoin layer two protocol RGB is patiently waiting for the right moment, gradually maturing to challenge existing technical limitations and shine brilliantly.

Bitcoin: Establishing Its Position as a Layer of Currency

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

Due to the following key factors, Bitcoin is recognized as the safest and most stable cryptocurrency, and its value has gained global consensus:

First of all, the Bitcoin network covers the globe, with over 10,000 full nodes working together to verify and record transactions. This decentralization makes it difficult for attackers to tamper with transaction history. Secondly, Bitcoin employs powerful hashing capabilities as its proof-of-work mechanism, which is the cornerstone of network security. The significant computational power expended in block validation and mining makes it challenging for attackers to control the network. Furthermore, Bitcoin's consensus rules have not undergone significant changes historically, and this stability helps maintain the consistency and security of the network. Compared to other blockchain projects, Bitcoin's consensus rules are less susceptible to radical changes. The Bitcoin community is extremely focused on the security and stability of the network, concentrating on the security of the core protocol. Any modifications to the core protocol undergo careful discussion and testing to ensure network stability. In summary, Bitcoin is recognized as the most secure and stable among numerous blockchains, becoming the preferred choice for the Web3 currency layer due to its excellent decentralization, consensus mechanism, stability, and community focus.

Ensuring security and simplicity in parallel with Bitcoin script

Bitcoin, as an important role in the foundational currency layer of the Web3 world, has gradually evolved through careful discussion and testing of its core protocol. Particularly noteworthy is the development of its scripting system. The original intention of the Bitcoin scripting language is to ensure security and avoid potential risks, thus intentionally limiting functionality in its design while maintaining simplicity and security similar to a chip instruction set. Bitcoin scripts are a stack-based execution language based on reverse Polish notation. This script is designed to be executed on limited hardware.

In the mainstream Bitcoin node code, developers have imposed certain restrictions on executable script types, allowing only several types of transactions referred to as "standard scripts" to be executed. The most important is the P2SH (Pay to Script Hash) transaction, which actually allows any Bitcoin script to be executed, making it possible to execute scripts with certain complex functions on Bitcoin. For example, the Lightning Network has become the de facto standard for small, high-frequency Bitcoin payments.

With the introduction of the Schnorr signatures proposal and the Taproot soft fork upgrade, Bitcoin has taken an important step, marking a significant milestone. This enables Bitcoin to better support the development of layer two protocols, further enhancing its role in the future Web3 world.

Focus on Schnorr signatures and Taproot

Behind Schnorr signatures and Taproot lies a series of technological innovations that create new opportunities for Bitcoin. First, Taproot introduces more flexible payment channels, enabling various types of transactions to be executed on-chain in a more privacy-preserving manner. By hiding complex multi-signature scripts within a single script, Taproot makes various complex transactions appear as regular single-party payments, thereby enhancing privacy and security. The introduction of Schnorr signatures makes transactions on the Bitcoin network more compact, reduces transaction fees, and improves scalability, closely aligning with the efficient transaction demands of the Web3 world.

These two innovations not only enhance Bitcoin's performance and privacy but also bring more innovative possibilities to the ecosystem. More efficient scripting and signature technologies support cross-chain operations, Lightning Network scaling, and complex smart contracts. This refocuses Bitcoin on the core of Web3, paving the way for the construction of a safer and more efficient decentralized finance and application ecosystem.

The impact of Schnorr signatures

During the early design phase of the Bitcoin protocol, Satoshi Nakamoto needed to comprehensively consider various factors of the signature algorithm, including signature length, openness, patent issues, security verification time, and performance. Ultimately, he chose the Elliptic Curve Digital Signature Algorithm (ECDSA) and selected a specific elliptic curve secp256k1, based on the performance and security of this algorithm. However, besides ECDSA, there are still other digital signature algorithms that meet the conditions, especially the Schnorr Signature. The reason Satoshi Nakamoto did not adopt this algorithm previously may be that the patent for the Schnorr Signature had not expired in the year Bitcoin was born. German mathematician and cryptographer Claus-Peter Schnorr applied for and obtained the relevant patent in 1990, so within the patent validity period, the open-source community could not adopt this technology. Otherwise, Satoshi Nakamoto might have been able to use this signature mechanism in the initial version of the Bitcoin protocol.

Compared to ECDSA, Schnorr Signature is more aligned with the essence of Bitcoin signing. It not only offers better performance and shorter signature lengths but also has linear characteristics that simplify key aggregation, eliminating the need for special techniques required for multi-signature. This linear characteristic is easy to understand, as the keys of each participant are aggregated into a new key through a simple mechanism. There are various methods for aggregation, such as MuSig proposed by a trading platform and the updated version MuSig2. In the MuSig2 scheme, multiple signatures can generate an aggregated public key from their respective private keys and then jointly produce a valid signature for that public key, optimizing the interaction rounds from the original three rounds (MuSig) to just two rounds.

So, in the case of a 2-3 multisig transaction, the traditional method requires three public keys along with two signatures to initiate the transaction.

In the Schnorr Signature scenario, on-chain transactions only require one aggregated public key and one signature, which reduces the number of transaction bytes significantly, thereby lowering the transfer costs.

The innovation of Taproot scripts

Taproot is an innovative Bitcoin script structure designed to specify how to use and interpret Taproot-type transaction addresses. Taproot was initially inspired by Bitcoin developers' research on the Merkle Abstract Syntax Tree (MAST), and can be seen as a special implementation of MAST. With Taproot, Bitcoin UTXOs with multiple different branch scripts can reveal only one branch when spent, while the other branches will never appear on the blockchain, greatly enhancing the privacy and efficiency of transactions. This technology makes the use of complex scripts more convenient and efficient under a more secure premise.

In the Bitcoin protocol, the "locking script" ( output script ) specifies the conditions for receiving Bitcoin ( UTXO ), while the "unlocking script" ( input script ) defines the way to use Bitcoin ( UTXO ). The former can be seen as a lock, while the latter is the corresponding key. In the Segregated Witness ( SegWit ) upgrade, the script rules of Bitcoin have been comprehensively upgraded. Two new script rules have been introduced, namely P2WPKH ( paying to witness public key hash ) and P2WSH ( paying to witness script hash ), which enable the use of addresses starting with bc1. P2WPKH is mainly used for regular addresses, while P2WSH is commonly used for multi-signature addresses.

In the Segregated Witness upgrade, the concept of version numbers was introduced in the scripts, with the previous Segregated Witness rules marked as version V0. Taproot further upgraded the Segregated Witness framework, and the version number was updated to V1, which is also the origin of the "SegWit V1" title in BIP 341. Therefore, this new set of script rules is called P2TR(, paid to Taproot), to correspond with P2WPKH and P2WSH.

In addition, combining Schnorr Signature and Taproot, the construction of multi-signature ( multi-sign ) is very diverse. For example, pioneers in the Bitcoin community like Steve Lee introduced various methods in his speech, such as threshold signatures and Musig trees ( Musig Keytree ).

For example, for the exchange's hot wallet, a 2-3 multisignature scheme can be used, involving three private keys: the exchange's private key, the trusted third party's private key, and the cold wallet backup private key. In threshold signatures, multiple signers pre-construct the receiving address through the MuSig mechanism. During the actual transaction, it is sufficient to aggregate two signatures to complete the transaction.

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

In the previous text, we explored the foresight exhibited by the Bitcoin network through the introduction of Schnorr signatures and the Taproot soft fork upgrade. Meanwhile, as technological marvels never cease, the LNP/BP Standards Association has been quietly cultivating behind the scenes, as if a finely crafted artwork brings more innovative possibilities to the Bitcoin ecosystem. The LNP/BP codebase covers standards and best practices for Bitcoin layer two and above, which do not require soft forks or hard forks at the Bitcoin blockchain level, and are not directly related to the content covered by the Lightning Network RFC(BOLTs). In short, the LNP/BP standards encompass everything related to Bitcoin transactions, define the fundamental building blocks of layer two and above solutions, and describe complex use cases built on these modules. This opens up possibilities for financial assets, storage, messaging, computing, and other fields, as well as secondary markets utilizing the Bitcoin security model and Bitcoin as a payment method/exchange medium.

Here, we will only introduce a few key points that will have a significant impact on the future of Web3, such as key stage transactions in state channels, as well as some key protocols and technologies: 双向通道(Bi-directional channels), PTLCs, eltoo, 通道工厂(Channel factories), 离散对数合约(Discreet log contracts), 高频微支付(high-frequency micropayments), and Sphinx, among others.

Overview of State Channel Same-Stage Transactions

Funding Transactions(: Funding transactions are the initial transactions used to create payment channels in the Lightning Network. They pool the funds of the parties into a multi-signature address as collateral for the payment channel. Funding transactions ensure that all participants have committed a certain amount of funds before they begin conducting off-chain transactions in the payment channel. Funding transactions are the first step in creating a payment channel, ensuring the security and availability of the channel.

Partially Signed Bitcoin Transactions ) PSBT, Partially Signed Bitcoin Transactions (: Partially Signed Bitcoin Transactions are a type of special