Release of new report:“Emergence of Token Layers on Bitcoin -Overview of Client-Side Validation, RGB and Taro-”
I am pleased to announce that Diamond Hands has published its second original research paper; this time on Client-Side Validation tokens on Bitcoin, RGB and Taro.
Tokens on Bitcoin and the Lightning Network have been one of the hottest topics in the Bitcoin ecosystem especially after the announcement of Taro by Lightning Labs last year.
This report provides a comprehensive overview of the client-side validation token model, technology, potential, and use cases.
In particular, we try to answer some of the most common questions about tokens on Bitcoin, RGB and Taro, such as the following
- Tokens already exist on Ethereum and many other smart contract chains. What’s wrong with that?
- What are the differences and advantages of the Client-Side Validation model?
- What does the emergence of token layers on top of bitcoin mean for bitcoin, lightning and other chains?
- What are the tradeoffs and drawbacks for Client-Side Validation tokens on Bitcoin? Would they replace all of Global Consensus token use cases?
- What are the differences between RGB and Taro. Will they compete with each other or can they coexist?
We also had similar questions ourselves before working on this report and have tried to answer them through this research.
Hopefully, this will help other users, developers and companies who are interested in the prospect of token layers on Bitcoin.
Highlights from the report
- Smart contract chains are the dominant platform for token issuance. However, they suffer from scalability, centralization, and privacy issues.
- The Client-Side Validation (CSV) model offers an alternative approach and has advantages in both scalability and privacy. In addition, the CSV model is compatible with the Bitcoin blockchain.
- The ability to interoperate with the bitcoin asset and connect to the Lightning Network for cheap, fast and stable payments will be key differentiators for tokens on bitcoin.
- Client side validation, combined with other off-chain protocols, will form the basis for financial layers built on top of Bitcoin.
- RGB is a CSV smart contract platform with strong privacy features. Single-use seals are used to associate off-chain data with on-chain transactions.
- While RGB offers tremendous potential for more scalable and private smart contracts, its broad scope and complexity can result in a steep learning curve for developers.
- Taro is a token protocol using Taproot, developed by Lightning Labs. It focuses on practical token use cases and is designed with Lightning compatibility in mind.
- On the other hand, its limited on-chain capabilities and scalability issues may lead to widespread adoption of permissioned services in favor of convenience in the long run.
- RGB and Taro are sometimes compared to each other; however, in our opinion, they have different characteristics and trade-offs and therefore can co-exist.
- There are also some valid criticisms of token issuance on Bitcoin in general. Not all use cases require tokens, and there are alternative approaches and technologies to enable similar use cases without tokens.
