RGB Protocol-Tokens built on LN

RGB is a second-layer technology on the base of Bitcoin blockchain and compatible with Lightning network that has an scalable asset tokenization protocol.

Unlike Coloured Coins and other previous attempts to tie tokenized assets to Bitcoin protocol, RGB Protocol, as an addon, is distinguished by its ability to scale and compatibility with Lightning network.

Here is why RGB is better than current tokenization protocol:

A video on how RGB works:

Here the information of RGB protocol:
https://github.com/afilini/RGB/blob/master/00-introduction.md#digital-assets
https://prezi.com/liaz6nsa_cwo/building-on-bitcoin/

The important information from the github to understand RGB+my additional info

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Why is RGB protocol better than other bitcoin based ones?

Most “meta-protocols” developed on top of Bitcoin (digital asset protocols that rely on independent validation rules, leveraging Bitcoin’s blockchain just as “proof of publication”, in order to prevent double-spending and audit issuances and reserves), while providing a potential interesting solution, completely miss the standardness/interoperability point, while showing important scalability shortcomings.

Meta protocol in the market right now are Omni or Counterparty. Omni being the one used by Tether and Maidsafe. These protocol suffer when tx fees go up.

The “colored coin” idea (a particular subset of Bitcoin “meta-protocol”, where most of the features of the underlying platform, such as addresses, scripts and amounts, are leveraged to maximize interoperability) has been considered promising by many, but existing implementations still show important limitations. In particular, they inherit and further exacerbate the confidentiality/fungibility shortcomings, as well as the scalability shortcomings, of the “on-chain” Bitcoin layer.

A full colored coin creation protcool does not exist in Bitcoin at a mass scale anymore. They are still used in SPL and Digiasset of other onchain focused coins. However Bisq a decentralized offchain exchange goes use colored coins for it DAO token.
https://bitcoinmagazine.com/articles/five-years-making-bisq-exchange-launches-its-bitcoin-dao

As for confidentiality/fungibility, existent “colored coin” schemes heavily rely on the present serious lack of these features on Bitcoin itself: specific bitcoin amounts (often already not fungible enough in the current setting) are made even less fungible, “coloring” them in ways that greatly facilitate forensic analysis, clustering and “tainting” techniques, often invalidating external confidentiality/fungibility enhancing practices (i.e., coinjoin or other techniques where “order-based coloring” and “value-based coloring” would break) and relegating them to (pseudo)anonymity sets that will necessarily be small-to-irrelevant, for all but major asset-types.

A major bummer for current designs.

As for scalability, they inherit the typical limitations of “on-chain” Bitcoin transaction, making them worse because of the risk of perverse incentives for blockchain bloating, because of the "dust problem" and because of the lack of a trivial support for light-nodes in the form of “SPV”-like solutions (whose effectiveness is anyway seriously questioned for Bitcoin itself).

A major reason why no real token standard has found its way to Bitcoin.

Also, many of the existing implementations require a huge number of “ad hoc” deviation from the standard Bitcoin infrastructure, making their adoption difficult and full of friction and reducing the potential standardness/interoperability/leverage points of strength of the model. It is also possible that many of these first implementations just had their timing wrong (the market was not showing the current strong demand for a digital asset management standard, back when they have been conceived and implemented), and that a new, reviewed proposals could now gather more interest and momentum.

Many token standards are not that Bitcoin friendly and are in some ways their own chain.

How does RGB improve on this?

The “RGB” protocol is mostly aimed to “layer 2” scalability/fungibility strategies, but it relies for its bootstrap on a “layer 1” core, which borrows extensively from existent “colored coin” concepts, maximizing standardness properties, leveraging as much as possible the current Bitcoin infrastructure and interoperating seamlessly with it with minor, modular add-ons.

RGB will be offchain focused.

This part will introduce some new modifications in respect with traditional “colored coin” implementations, aimed to reach “on-chain” levels of confidentiality/fungibility and scalability which could be considered at least close to the ones of Bitcoin itself: the adoption of the "Client Side Validation" model, a set of responsible best practices to limit and disincentivize blockchain-bloating (pay-to-contract instead of op_return), a broad (pseudo-)anonymity set for asset users, a complete independence from output ordering.

This allows more privacy and more ease of adding to LN wallets.

Other modifications of the “layer 1” are introduced as a mean to make this protocol fully compatible with the main “layer 2”/”off-chain” standards, with a particular focus on Lightning Network, in order to seamlessly inherit all their game-changing scalability and confidentiality/fungibility features. Furthermore, the protocol proposal will contain an additional, specific and native “layer 2” solution based on the "Proofmashal" idea.

By using the LN, RGB piggybacks on the power of LN speed and privacy.

An asset-specific implementation of the “Proofmarshal” concept, based on “Single-Use-Seals” and “Proof-of-Publication-Ledgers”. In this integration, a Publisher Server might also act as “sealer”, with the ability to censor transactions but not to manipulate/forge/falsify them by committing multiple proofs from different anonymous users to a single UTXO. This could decouple the anti-double-spending function of the Bitcoin blockchain from the specific asset transations, making possible to "seal" a huge number of them spending a single Bitcoin UTXO.

This is useful for centralized asset such as stocks or stablecoin.

Being the protocol UTXO-based, it will be possible to link one or more assets to a Lightning Network channel, which becomes colored, exchanging state updates which are compliant to the asset scheme, with strong guarantees that asset distribution will be preserved also in case of non-consensual closures. In this way, it will be possible to leverage the scalability and privacy features of the Lightning Network, as well as LN-enabled atomic swaps and LN-based path discovery for decentralized asset exchange.

This allows multi tokens to use the same channel. This can be improved even more.


RGB protocol can do Multisig an application method that can mirror alot of smart contract functions.

In theory RGB can also do smart contracts. However the answer of such is not known.
Counterparty at one point was able to do eth based smart contacts. As such it can be done just not yet.

Another way RGB can scale is by using Statechains:
https://medium.com/@RubenSomsen/statechains-non-custodial-off-chain-bitcoin-transfer-1ae4845a4a39

Non-fungible colored coins on the Bitcoin blockchain can be transferred off-chain via Statechains

This is great and all when is it coming? Well by the end of the year.

The RGB protcool will be used by Spectrum.
https://www.coindesk.com/startups-debut-first-protocol-for-issuing-tokens-via-bitcoins-lightning-network