RGB And Taro, Both Putting Tokens On Bitcoin, Take Two Different Approaches To Development

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RGB and Taro, two pro­to­cols capa­ble of putting tokens like sta­ble­coins on Bit­coin, have tak­en dif­fer­ent approach­es to solv­ing sim­i­lar problems.

This is an opin­ion edi­to­r­i­al by Kishin Kato, the founder of Trust­less Ser­vices K.K., a Japan­ese Light­ning Net­work research and devel­op­ment company. 

Demand for sta­ble­coins on Bit­coin is return­ing as the Light­ning Net­work offers mas­sive scal­a­bil­i­ty advan­tages. Cur­rent­ly, users in emerg­ing mar­kets who want to trans­act and save in USD will set­tle for sta­ble­coins on oth­er chains, accord­ing to pro­po­nents. Putting my per­son­al feel­ings about these oth­er blockchains aside, I must acknowl­edge that bit­coin received in cheap, cross-bor­der remit­tances can­not eas­i­ly be sold for dol­lars while they reside in non-cus­to­di­al Light­ning channels.

RGB and Taro are two new pro­to­cols that enable token issuance on Bit­coin, and are there­fore expect­ed to bring sta­ble­coin trans­ac­tions on Light­ning. I stud­ied these pro­to­cols and the client-side val­i­da­tion par­a­digm that they employ and pub­lished a report on my find­ings called “Emer­gence Of Token Lay­ers On Bit­coin” through Dia­mond Hands, a major Japan­ese Light­ning Net­work user and devel­op­er com­mu­ni­ty and Bit­coin-focused solu­tion provider.

Dur­ing this research, I noticed sub­tle dif­fer­ences in how these seem­ing­ly-sim­i­lar pro­to­cols were being devel­oped, and became inter­est­ed in how these dif­fer­ences may affect their tra­jec­to­ries. In this arti­cle, I would like to share my impres­sions of these projects and how they may affect Light­ning as we know it.

Priorities And Mindset, Revealed Through Protocol Development

Pro­to­col devel­op­ment is not easy, and often takes years. Decid­ing what fea­tures to pri­or­i­tize and com­pro­mise on is crit­i­cal, and one of the pri­ma­ry dif­fer­en­tia­tors between RGB and Taro is the deci­sions they have made in that regard.

RGB, with its ambi­tions as a smart-con­tract­ing lay­er on top of Bit­coin (i.e., not just for tokens), has a robust on-chain pro­to­col to exe­cute off-chain state tran­si­tions. Care­ful design has result­ed in supe­ri­or pri­va­cy, on-chain scal­a­bil­i­ty and ver­sa­til­i­ty, at the cost of con­cep­tu­al com­plex­i­ty. On the oth­er hand, Taro seems to be more focused on off-chain use, such as on the Light­ning Net­work, spec­i­fy­ing meth­ods for mul­ti-hop pay­ments and token exchange. How­ev­er, among the prac­ti­cal short­cuts Taro has tak­en in favor of con­cep­tu­al sim­plic­i­ty is its neglect to stan­dard­ize at least one basic build­ing block of its on-chain protocol.

Since Taro assets are stored using an on-chain UTXO, Taro trans­ac­tions can the­o­ret­i­cal­ly be con­struct­ed in two ways: one where the sender pays bit­coin for the recipient’s out­put, and the oth­er where the recip­i­ent con­tributes their own input to pay for it them­selves. The for­mer case is sim­pler, but the sender is effec­tive­ly gift­ing some bit­coin; the lat­ter can be more pre­cise, but requires sender-recip­i­ent inter­ac­tion to cre­ate the trans­ac­tion. Unless these meth­ods and their selec­tion are stan­dard­ized, wal­let inter­op­er­abil­i­ty is a pipe dream.

Per­haps Taro’s reluc­tance to stan­dard­ize such a basic com­po­nent can be explained by its approach to devel­op­ment. Over­all, while RGB is being devel­oped quite trans­par­ent­ly, Light­ning Labs seems to reserve more con­trol over its project in Taro, pos­si­bly to take a more iter­a­tive, feed­back-based approach to bring­ing its prod­uct to market.

Indeed, once a pro­to­col is wide­ly adopt­ed it is dif­fi­cult to update or replace with­out break­ing inter­op­er­abil­i­ty. How­ev­er, this is not nec­es­sar­i­ly the case if your imple­men­ta­tion is the only one. Light­ning Labs may be reserv­ing its abil­i­ty to rapid­ly iter­ate by inten­tion­al­ly post­pon­ing wide­spread adop­tion of the pro­to­col. I got this impres­sion from the afore­men­tioned gap in stan­dard­iza­tion, as well as the fact that Light­ning Labs plans to ship its Taro wal­let with LND, its Light­ning node imple­men­ta­tion with more than 90% mar­ket share.

It is cer­tain­ly pos­si­ble that Light­ning Labs’ approach will be more suc­cess­ful at bring­ing tokens to Light­ning. But unless it sur­ren­ders its dom­i­nant role at some point, Taro risks becom­ing lit­tle more than an LND API. It is not unimag­in­able to me that Taro will remain an LND-spe­cif­ic feature.

Will Lightning Survive Tokens?

As a semi-para­noid Bit­coin­er, I must won­der if the pro­lif­er­a­tion of tokens on Bit­coin will result in neg­a­tive con­se­quences for the Light­ning Net­work or Bit­coin itself. While con­cerns of the lat­ter are val­i­dat­ed by Circle’s (the issuer of USDC) abil­i­ty to influ­ence users dur­ing any poten­tial con­tentious hard fork in Ethereum, I would like to point out a spe­cif­ic avenue of con­cern for Lightning.

As men­tioned ear­li­er, Taro’s approach if con­tin­ued will result in the increased util­i­ty of LND through use of its includ­ed Taro wal­let, in rela­tion to oth­er imple­men­ta­tions. This can poten­tial­ly fur­ther lock in LND’s dom­i­nant posi­tion in the node imple­men­ta­tion land­scape. To keep Light­ning decen­tral­ized, it is prefer­able that users are spread more even­ly across mul­ti­ple imple­men­ta­tions, so that even the most pop­u­lar imple­men­ta­tion can­not sim­ply imple­ment pro­to­col changes with­out con­se­quence to its users.

While I per­son­al­ly am not a fan of the vast major­i­ty of cryp­to tokens, I do believe that the Light­ning Net­work has some­thing to prospec­tive­ly offer users of such tokens: fast, pri­vate and decen­tral­ized exchange and pay­ments. Being able to pay some­one in their local or pre­ferred cur­ren­cy instant­ly, with­out the sender own­ing any of it, has immense poten­tial to dis­rupt exist­ing pay­ment and remit­tance rails. Though it is unclear what pro­to­col will pre­vail for token issuance on Bit­coin, I hope that pro­lif­er­a­tion of tokens will not sac­ri­fice the things that bit­coin and Light­ning stand for.

This is a guest post by Kishin Kato. Opin­ions expressed are entire­ly their own and do not nec­es­sar­i­ly reflect those of BTC Inc or Bit­coin Magazine.

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