Bitcoin Rises Again: From Payments to Smart Contracts, RGB Opens a New Era in Web3

Web3 technology has experienced more than a decade of vigorous development, resulting in innovations on multiple levels. Bitcoin has continuously enhanced its privacy protection capabilities while maintaining decentralization and security, achieving advanced features such as Schnorr signatures and Taproot, laying the foundation for future technological innovations. The development of smart contract platforms like Ethereum has given rise to the prosperity of blockchain applications such as DeFi, driving two bull markets.

However, since 2022, the innovation in the Web3 industry seems to have hit a bottleneck, with blockchain technology struggling to break through the constraints of the impossible triangle, making large-scale applications difficult to implement. So, have we already reached the technological boundary? Are there still unknown areas waiting to be explored? In fact, the Bitcoin layer two protocol RGB is quietly waiting for the right moment, gradually maturing, and is expected to break through existing technological limitations, bringing new possibilities to Web3.

Bitcoin: Establishing Monetary Layer Status

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

Bitcoin is recognized as the most secure and stable cryptocurrency due to the following characteristics, and its value has gained global consensus:

First, the Bitcoin network covers the globe, with over ten thousand full nodes collaborating to verify transactions, making it difficult for attacks to tamper with transaction history due to its decentralization. Second, Bitcoin employs powerful hash calculations as proof of work, which is the cornerstone of network security. Additionally, the consensus rules of Bitcoin have historically changed little, helping to maintain network consistency and security. Compared to other projects, Bitcoin's consensus rules are not easily subject to radical changes. The Bitcoin community places a high emphasis on network security and stability, focusing on the security of the core protocol. Modifications to the core protocol undergo careful discussion and testing to ensure network stability. In summary, Bitcoin has become the preferred choice for the Web3 currency layer due to its excellent decentralization, consensus mechanism, stability, and community focus.

ensuring security and simplicity in Bitcoin scripts

Bitcoin, as the foundational currency layer of the Web3 world, has seen its core protocol evolve gradually through careful discussion and testing. Notably, the development of the Bitcoin scripting system is worth attention. The original intention behind the design of the Bitcoin scripting language was to ensure security and mitigate risks, which is why its functionality was intentionally limited while maintaining simplicity and security similar to a chip instruction set. Bitcoin script is a stack-based execution language based on reverse Polish notation, designed to be executed on limited hardware.

In the mainstream Bitcoin node code, developers have restricted the types of executable script, allowing only certain types of "standard scripts" transactions to be executed. Among them, the most important is the P2SH ( Pay to Script Hash ) transaction, which actually allows any Bitcoin script to be executed, making it possible to perform more 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 Schnorr signatures and the Taproot soft fork upgrade, Bitcoin has taken an important step, marking a 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

Schnorr signatures and Taproot are backed by a series of technological innovations, creating new opportunities for Bitcoin. Firstly, Taproot introduces more flexible payment channels, allowing various types of transactions to be executed on-chain in a more private manner. By hiding complex multi-signature scripts within a single script, Taproot makes various complex transactions appear as regular single-party payments, enhancing privacy and security. The introduction of Schnorr signatures makes Bitcoin network transactions more compact, reduces transaction costs, and improves scalability, aligning with the efficient transaction demands of the Web3 world.

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

The impact of Schnorr signatures

During the initial design of the Bitcoin protocol, Satoshi Nakamoto had to consider various aspects 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 the specific elliptic curve secp256k1, based on the performance and security of this algorithm. However, aside from ECDSA, there are still other digital signature algorithms that meet the criteria, especially the Schnorr Signature. The reason Satoshi Nakamoto did not adopt this algorithm may be that the patent for the Schnorr Signature had not expired in the year Bitcoin was created. The German mathematician and cryptographer Claus-Peter Schnorr applied for and obtained the relevant patent in 1990, so during the patent's 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 signatures. Not only does it perform better and have shorter signature lengths, but it also possesses linear characteristics, making key aggregation straightforward, eliminating the need for special skills required for multi-signatures. This linear property is easy to understand, with the keys of all participants aggregating to form a new key through a simple mechanism. There are various aggregation mechanisms, such as MuSig proposed by Blockstream and the updated version MuSig2. In the MuSig2 scheme, multiple signatures can generate an aggregated public key from their respective private keys, and then collectively create a valid signature for that public key, reducing the interaction rounds from the original three rounds (MuSig) to just two rounds.

Taking a 2-3 multisignature transaction as an example, the traditional method requires three public keys plus two signatures to initiate a transaction. In the case of Schnorr Signatures, an on-chain transaction only requires one aggregated public key and one signature, significantly reducing the transaction byte size, thereby lowering transfer costs.

Innovation of Taproot Scripts

Taproot is an innovative Bitcoin script structure designed to define how to use and interpret Taproot-type transaction addresses. The inspiration for Taproot initially came from Bitcoin developers' research on the Merkle Abstract Syntax Tree ( MAST ), and can thus be seen as a special implementation of MAST. Through Taproot, Bitcoin UTXOs with multiple different branch scripts can expose only one branch when spent, while the remaining branches never appear on the blockchain, significantly enhancing transaction privacy and efficiency. 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 method for using Bitcoin ( UTXO ). The former can be regarded 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 ( pay to witness public key hash ) and P2WSH ( pay to witness script hash ), which enable the use of addresses starting with bc1. P2WPKH is mainly used for standard addresses, while P2WSH is commonly used for multi-signature addresses.

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

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

For example, in the case of a cryptocurrency exchange's hot wallet, a 2-3 multi-signature scheme can be used, involving three private keys: the exchange's private key, a trusted third party's private key, and a cold wallet backup private key. In threshold signing, 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.

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LNP/BP: "Bitcoin Protocol/Lightning Network Protocol" Maturity

In the previous text, we delved into the foresight demonstrated by the Bitcoin network through the introduction of Schnorr signatures and the Taproot soft fork upgrade. Meanwhile, as the technological marvels never cease, the LNP/BP Standards Association has been quietly working behind the scenes, as if crafting a finely carved artwork, bringing more innovative possibilities to the Bitcoin ecosystem. The LNP/BP codebase encompasses standards and best practices for Bitcoin's second layer 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 cover everything related to Bitcoin transactions, define the basic building blocks of second layer solutions and above, and describe complex use cases built on these modules. This opens up possibilities for financial assets, storage, messaging, computing, and more, as well as secondary markets leveraging the Bitcoin security model and Bitcoin as a means of payment/exchange.

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, etc.

) Overview of State Channel Same Phase 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 start 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 is a special Bitcoin transaction format that allows multiple participants to collaboratively construct and sign transactions. In the Lightning Network, PSBT can be used to create, update, and close payment channel transactions. When the parties of a payment channel want to execute a transaction, they can collaboratively construct the PSBT, each perform partial signatures, and then merge the partially signed transactions to finalize and submit the transaction to the Bitcoin network. PSBT makes the transaction process of multi-party collaboration more flexible and efficient.

State-Based Bitcoin Transaction ( BSBT, Base-Signed Bitcoin Transactions ): BSBT is a type of transaction used in the Lightning Network to construct and update channel states. It contains the current state information of the channel and is signed by the channel owner. BSBT is used to record the latest state in the channel to ensure the correctness and security of transactions. When the channel state changes, BSBT is created and updated to reflect the new channel state.

![Make Bitcoin Great Again: From Payments to Smart Contracts