Bitcoin UTXO Scaling History and Understanding the Future Development of RGB/RGB++

Since the birth of Bitcoin, upgrades and scalability have been long-discussed topics. From hardware advancements like CPU/GPU/FPGA to today’s ASIC-driven chip miners, the Bitcoin ecosystem has grown to a trillion-dollar market value.

On the software side, Bitcoin upgrades come in two forms: soft forks and hard forks. Soft forks are akin to patching or fine-tuning, while hard forks fundamentally alter Bitcoin’s operating mode. Important hard forks to date include SegWit (Segregated Witness) and Taproot upgrades. SegWit expanded Bitcoin’s block space from 1 MB to 4 MB, while Taproot enhanced Bitcoin’s script execution capabilities.

Beyond this, there are off-chain scaling solutions for Bitcoin, such as RGB and the latest RGB++ approach. These solutions leverage Bitcoin’s security and economic value, aiming to deeply integrate with Bitcoin to create more practical capabilities.

From RGB to RGB++

RGB++ is a simple but meaningful addition to RGB and the two are highly similar. The core idea behind the RGB scaling solution is to separate the transaction signature information from the transactions themselves, reducing the data size of each block and thus improving the network’s transaction processing capacity. Through this approach, the Bitcoin network can accommodate more transactions per block without sacrificing security.

Based on Peter Todd’s concept of user-side validation proposed in 2016, the RGB protocol was first introduced to address asset issuance and smart contract issues. RGB++ emerged in 2023, gaining attention alongside the popularity of BTC L2. It’s an improved version based on the RGB concept proposed by the Nervos team.

The RGB protocol allows smart contracts to run within the UTXO mechanism, enabling the issuance and management of various highly scalable, programmable, and confidential assets without altering Bitcoin’s existing technical infrastructure.

RGB++ builds upon the RGB protocol by directly restoring asset data in different RGB locally using Nervos, along with Nervos’ Cell mechanism and Bitcoin’s UTXO, thereby enhancing complex functions like asset transfer.

While RGB++ is an improved scaling solution based on RGB, it not only maintains the advantages of RGB but also introduces some new features to further enhance network efficiency and security. For example, RGB++ adds support for zero-knowledge proofs, enabling the validation of transactions without revealing sensitive information, thus improving transaction processing speed and protecting user privacy.

In terms of integration, the RGB++ protocol enhances asset transfer through the introduction of “homomorphic encryption” allowing transactions on Layer 2 protocols such as jumping from the Bitcoin chain to the CKB chain. This allows multiple transactions to be executed on CKB with low costs and high performance before returning to Bitcoin for security.

Moreover, the RGB++ protocol allows Bitcoin to be combined with UTXO-based public chains like Cardano and Fuel, where these chains serve as the data storage and availability layer for RGB assets, transferring data verification from users to third-party platforms/public chains. RGB++ adopts different virtual machines and verification schemes, enabling users to complete asset transfer independently by just accessing Bitcoin and CKB light nodes, thus realizing custody of self-verification and significantly reducing the threshold for ordinary users.

After several years of relatively tepid existence, RGB garnered widespread industry attention upon the launch of RGB++, making CKB and RGB++ currently hot tokens. CoinW Academy believes CKB has a high probability of leading the Bitcoin UTXO scaling route.

Behind RGB++, UTXO as Scaling 2.0 Solution

The current BTC L2 scaling solutions can be roughly divided into EVM-compatible solution and UTXO solution. The former, represented by BEVM and BitVM, aims to replicate Ethereum’s scaling route, centered around “Rollup” The latter, represented by RGB/RGB++, takes Bitcoin’s UTXO mechanism as its blueprint, paving out Bitcoin’s future development direction.

In simple terms, Bitcoin lacks an account and balance mechanism. The entire system can be viewed as a ledger, with only transaction addresses and transaction information. All nodes collectively constitute a ledger, determining the balance of an address by calculating the total sum of all unspent UTXOs under that address.

That is to say, to understand the Bitcoin holdings from a user or address, one needs to traverse all UTXOs of that address and sum them up. UTXO (Unspent Transaction Output) records all transactions in the Bitcoin network but does not record the final state of any account.

The UTXO mechanism ensures that each Bitcoin address has an independent UTXO set, making it nearly impossible to trace the ownership and transaction history of specific Bitcoins while also enhancing security.

RGB also released the official version V0.11, marking an important advancement in the UTXO route. In this version, various formats for RGB assets were defined, similar to Ethereum’s ERC-20 and ERC-721 formats:

RGB 20: Similar to fungible tokens.

RGB 21: Non-fungible tokens (NFTs), unique digital assets.

RGB 25: An alternative asset type.

Taking the issuance of RGB-20 tokens as an example, a standard asset issuance process can be divided into the following steps:

Define the attributes of the asset, such as name, quantity, and supply.

Specify permissions to issue and burn tokens.

Designate a UTXO (Unspent Transaction Output) to hold the initial tokens.

In terms of asset transfer, the operation of RGB is similar to the Lightning Network, requiring both parties to be online to initiate and complete a transaction of assets.

Technically, the RGB protocol includes the following elements:

Disposable Seal: This ensures that a message (or transaction) can only be used once, typically achieved through Bitcoin’s UTXO model.

User Verification: Unlike Bitcoin’s consensus mechanism, RGB uses user verification, requiring users to independently confirm transactions related to their assets.

Overall, RGB transactions utilize Bitcoin to ensure their security, eventually binding transaction proofs back to asset states for Bitcoin transactions to confirm.

Furthermore, to reduce costs, RGB can encapsulate multiple state changes into a single Bitcoin transaction, similar to the batch processing mechanism of Rollup, which can improve payment efficiency.

In summary, after the launch of the v0.11 version, RGB not only expands the protocol’s functionalities but also enhances its application capabilities in asset issuance and smart contracts. It also strengthens its interoperability and flexibility within the Bitcoin ecosystem by introducing support for side chains such as the Liquid Network and BTC L2. These improvements are instrumental in driving the development of the RGB protocol, providing a more robust and secure infrastructure for asset issuance and trading within the Bitcoin ecosystem.

Conclusion

From Bitcoin to RGB, and from RGB to RGB++, the development of Bitcoin’s UTXO and EVM compatibility gradually strengthened. From the current development trend, RGB++ appears to be the most compatible scaling solution from Bitcoin ecosystem, to the extent that the RGB protocol taking full advantage of Ethereum’s development.

CoinW Academy has monitored Bitcoin’s innovation and technical iterations. In addition to supporting CKB, which has already been launched, we will continue to monitor innovative solutions from RGB and will timely support more RGB/RGB++ asset issuances to enhance the liquidity of Bitcoin’s trillion-dollar assets.