WEBVTT - Automatic transcript; recognition may contain errors. Reviewed for technical wording and speaker labels. Times match the published episode. 00:00:00.530 --> 00:00:02.890 Before the show, a quick word from our sponsor. 00:00:10.970 --> 00:00:14.270 Live from Utrecht, this is the Van Wirdum Sjorsnado. Hello. 00:00:14.910 --> 00:00:16.410 Hello. Hey, who's there? 00:00:16.890 --> 00:00:18.330 It's another Dutch guy. 00:00:19.090 --> 00:00:20.090 Welcome to the show, Ruben. 00:00:20.310 --> 00:00:20.650 Thank you. 00:00:21.750 --> 00:00:24.590 Welcome back, Ruben. Ruben, did you start selling your tweets yet? 00:00:24.850 --> 00:00:28.590 You know, like I tried to sell one of my tweets to my sister, but she said, what 00:00:28.590 --> 00:00:32.450 the hell are you doing? And then she just laughed at me. So I failed. 00:00:32.750 --> 00:00:35.790 Which rule of acquisition is it? Exploitation begins at home? 00:00:36.030 --> 00:00:39.190 Yeah, exactly. I mean, families who you got to exploit first, right? 00:00:41.240 --> 00:00:42.760 Sjors, did you make any good deals? 00:00:43.460 --> 00:00:43.860 No. 00:00:44.200 --> 00:00:46.540 We are actually going to discuss NFTs today. 00:00:46.780 --> 00:00:49.540 I have been making some really bad price predictions because I hope those tweets 00:00:49.540 --> 00:00:50.600 will become worth a lot. 00:00:50.940 --> 00:00:52.000 Bad price predictions? 00:00:52.300 --> 00:00:54.340 Yeah, bad takes usually make more money than good takes. 00:00:54.560 --> 00:00:59.950 I didn't know that. That's a good tip. Pro tips. But anyways, we are kind of 00:00:59.950 --> 00:01:01.450 discussing NFTs today, aren't we? 00:01:01.650 --> 00:01:02.150 Yes, we are. 00:01:02.370 --> 00:01:04.530 Not exactly, but partly. 00:01:04.970 --> 00:01:07.570 Very exactly. Amongst other things. 00:01:07.930 --> 00:01:08.090 Yeah. 00:01:09.420 --> 00:01:10.840 RGB, that's what it's called, right? 00:01:11.060 --> 00:01:11.380 That's right. 00:01:13.080 --> 00:01:16.100 Jogged my memory there. What does it stand for, guys? RGB. 00:01:16.480 --> 00:01:20.080 Well, I think it's just a reference to the color scheme, red, green, blue. 00:01:20.130 --> 00:01:20.330 Yeah. 00:01:20.240 --> 00:01:23.640 But it doesn't actually mean anything in the context that we're going to talk 00:01:23.640 --> 00:01:24.800 about it. It's just the letters. 00:01:25.080 --> 00:01:26.880 Yeah, and I think it's because… 00:01:26.880 --> 00:01:28.440 Unless they made it a backronym. I don't know. 00:01:28.580 --> 00:01:32.380 No, no, I don't think there's an acronym. It's referring to colored coins, right? 00:01:32.420 --> 00:01:37.220 So the colored coin idea of having other coins on the Bitcoin blockchain. The 00:01:37.220 --> 00:01:39.380 word color, RGB, that's how it's connected. 00:01:39.760 --> 00:01:45.400 Clever. I didn't know that. Okay, so we're going to discuss RGB tokens today. 00:01:46.000 --> 00:01:47.040 Wait, is it RGB? 00:01:47.160 --> 00:01:48.020 The RGB system. 00:01:48.220 --> 00:01:49.160 The RGB system. 00:01:49.340 --> 00:01:49.480 Yeah. 00:01:49.740 --> 00:01:51.360 Okay, where do we start, Ruben? 00:01:51.540 --> 00:01:52.400 Well, that's a good question. 00:01:52.620 --> 00:01:57.620 I think we should start with the very, very long time ago in a blockchain far 00:01:57.620 --> 00:02:01.120 away. It was really, really, really cheap to make transactions and people thought 00:02:01.120 --> 00:02:06.330 they could put everything on the blockchain. For example, the Bitcoin PDF. The 00:02:06.330 --> 00:02:12.230 Bitcoin white paper is on the blockchain in its entirety. And this was done 00:02:12.230 --> 00:02:18.020 in a very, very, very inefficient way, which is by creating fake transactions. 00:02:18.600 --> 00:02:22.840 And those fake transactions, so you're not spending to real other people, to real 00:02:22.840 --> 00:02:27.380 addresses, you're creating fake addresses that you can actually interpret and 00:02:27.380 --> 00:02:31.960 then you can reconstruct a file from it. So this would be, for example, multisig addresses. 00:02:32.580 --> 00:02:37.440 Yeah, so the idea is that addresses, as our listeners will probably know, they're 00:02:37.440 --> 00:02:43.080 just a bunch of numbers and letters. They're effectively a number in the end. And 00:02:43.080 --> 00:02:47.600 by, I guess, you're manipulating these addresses, you're just creating addresses, 00:02:47.600 --> 00:02:51.120 even though you don't have the private key. Yeah, you're sending some coins to 00:02:51.120 --> 00:02:56.980 these and then special software can interpret these numbers and turn them into… 00:02:57.870 --> 00:02:58.350 Yeah. 00:02:58.490 --> 00:02:59.390 Whatever data you want. 00:02:59.510 --> 00:03:04.350 Pretty much. So we addressed addresses in an earlier episode, but in this case, 00:03:04.570 --> 00:03:08.750 the thing you're sending to wouldn't even be an address. It's a script that you 00:03:08.750 --> 00:03:13.300 put directly in the output of a transaction. And that gives you a lot of space to 00:03:13.300 --> 00:03:17.320 put stuff in. The technicalities don't really matter, but exactly. There is no 00:03:17.320 --> 00:03:21.740 private key with which to spend these coins because the public key, or even the 00:03:21.740 --> 00:03:25.980 hash of the public key, was generated as if it wasn't really a public key. It was 00:03:25.980 --> 00:03:31.220 just a series of bytes that looked like a public key, but actually just contained 00:03:31.220 --> 00:03:36.780 the contents of a file. And this means that money is unspendable, which is very 00:03:36.780 --> 00:03:41.620 annoying. And the reason for that is that... Coins, we have this thing called the 00:03:41.620 --> 00:03:47.600 UTXO set. The UTXO set is the set of coins that exist on the blockchain that can 00:03:47.600 --> 00:03:53.410 be spent by anyone. And nodes keep that in RAM. So when a new block 00:03:53.410 --> 00:03:58.790 comes in, the node will check whether or not it's spending money that actually 00:03:58.790 --> 00:04:03.270 exists. And this check is done using the UTXO set, which generally is kept in 00:04:03.270 --> 00:04:07.670 RAM, could be 10 gigabytes. And so it's very annoying when there's something in 00:04:07.670 --> 00:04:11.290 that blob of memory that everybody needs to keep track of that has no meaning, 00:04:11.430 --> 00:04:14.530 that can never be spent. Because the node doesn't know it can't be spent. The 00:04:14.530 --> 00:04:18.210 node just thinks anytime somebody could spend this, even though we know it's the 00:04:18.210 --> 00:04:19.690 Bitcoin PDF, you can't spend it. 00:04:20.110 --> 00:04:26.110 Yeah. So what you're saying so far is that people were using, basically abusing 00:04:26.110 --> 00:04:30.350 the Bitcoin system in a way. They were manipulating addresses and sending coins 00:04:30.350 --> 00:04:33.610 to these addresses. Not a lot, but just some coins to have these addresses on the 00:04:33.610 --> 00:04:39.310 blockchain. And that translated into data that could be images or the Bitcoin 00:04:39.310 --> 00:04:43.610 white paper or other pieces of text or memes or whatever people felt like they 00:04:43.610 --> 00:04:48.030 were uploading. And because normal Bitcoin software can't really tell the 00:04:48.030 --> 00:04:52.930 difference, normal Bitcoin software just sees addresses. So now all these normal 00:04:52.930 --> 00:04:56.610 Bitcoin nodes like mine and yours and all our listeners who are running Bitcoin 00:04:56.610 --> 00:05:01.850 nodes, they actually have to check the coins on these addresses. 00:05:02.160 --> 00:05:04.840 I think they have to keep those addresses in mind. So there's two things that 00:05:04.840 --> 00:05:07.880 happen, right? Because these things were put in the blockchain, well, you have to 00:05:07.880 --> 00:05:11.500 download the blockchain. So that's just wasted bandwidth for downloading. But 00:05:11.500 --> 00:05:15.260 that's not too bad. The problem is that it has to be interpreted as potentially 00:05:15.260 --> 00:05:21.230 valid coins. And as an optimization, you want to keep in memory those coins that 00:05:21.230 --> 00:05:24.410 could potentially be spent. And there's no way to drop them from memory. At least 00:05:24.410 --> 00:05:24.850 there wasn't. 00:05:25.010 --> 00:05:30.930 So the problem is that you think they are spendable as a regular full node, 00:05:30.970 --> 00:05:34.510 but actually they are not. But there's no way of knowing other than kind of 00:05:34.510 --> 00:05:37.530 externally figuring out like, hey, this is just a white paper. 00:05:38.260 --> 00:05:42.310 Yeah, but you couldn't… you couldn't add that to the node right? If… if… Say, we 00:05:42.310 --> 00:05:45.410 made a change to Bitcoin Core that says, you know what, we know that's the white 00:05:45.410 --> 00:05:47.860 paper. Let's just skip those coins. 00:05:48.160 --> 00:05:51.980 I guess theoretically you could throw it out of UTXO sets if you're certain 00:05:51.980 --> 00:05:52.700 they're unspendable. 00:05:52.860 --> 00:05:56.800 That's the problem. If you're certain. What if some really, really smart alien 00:05:56.800 --> 00:06:00.660 actually made it look like it's just the white paper? But no, no, no. It's 00:06:00.660 --> 00:06:05.840 really... There are private keys for it. And one day this alien tries to spend... 00:06:05.920 --> 00:06:10.580 The white paper. And we accidentally soft forked those coins out of existence and 00:06:10.580 --> 00:06:13.840 this alien gets really angry because he's like, hey, you can't just confiscate my money. 00:06:14.000 --> 00:06:18.880 That sounds like an ECDSA break, but I'm not sure. Depends on, I guess, how it's done. 00:06:19.420 --> 00:06:25.340 Maybe the person who created the white paper actually generated lots of 00:06:25.340 --> 00:06:29.840 public keys from private keys and then reordered them in such a way that it… 00:06:29.840 --> 00:06:33.080 Created a readable white paper. I don't think that's even practical. 00:06:33.260 --> 00:06:37.880 No, but to your point, maybe there is a way in which it is actually valid, and we 00:06:37.880 --> 00:06:40.540 [unclear] be 100% certain. But one thing I wanted to add... 00:06:40.540 --> 00:06:43.660 There's also a thing of where do you draw the line, because we do have vanity 00:06:43.660 --> 00:06:48.500 addresses, and you can sort of use that as well to create stuff. And where… at 00:06:48.500 --> 00:06:51.520 what point are you sure it's a vanity address and at what point… 00:06:51.520 --> 00:06:55.460 Well, this… this would be like that would be absolutely unacceptable right? So 00:06:55.460 --> 00:06:59.320 the idea that you can't just decide what is vanity and what should be thrown away. 00:06:59.500 --> 00:07:00.560 That's my point, I agree. 00:07:00.840 --> 00:07:04.820 But if you could mathematically prove that a coin cannot be spent, like 00:07:04.820 --> 00:07:08.980 theoretically impossible to be spent, then you could have that discussion. But 00:07:08.980 --> 00:07:10.280 the problem is we can't really prove that. 00:07:11.200 --> 00:07:16.620 But yeah, so one thing that I wanted to add is that... It is actually important 00:07:16.620 --> 00:07:20.100 that if you want to put data on the Bitcoin blockchain, it needs to be a valid 00:07:20.100 --> 00:07:23.740 transaction. So you can't just, that's why we're talking about these addresses, 00:07:23.980 --> 00:07:27.500 right? Because you can't just take the Bitcoin white paper and just put it there 00:07:27.500 --> 00:07:31.240 and just be like, hey, please put this in the blockchain. No, you need to do it 00:07:31.240 --> 00:07:35.140 in a format that the blockchain recognizes. And that's how you end up with these addresses. 00:07:35.740 --> 00:07:35.880 Yeah. 00:07:36.500 --> 00:07:42.150 Okay. So that was... The original problem, people were just bloating the 00:07:42.150 --> 00:07:45.590 blockchain with all sorts of nonsense that most of us don't care about. And we 00:07:45.590 --> 00:07:50.910 still need to all validate it and store it or whatever. That needs to be solved. 00:07:51.170 --> 00:07:52.570 Sjors, how did we solve that? 00:07:52.790 --> 00:07:56.910 Well, this was solved many, many years ago using something called OP_RETURN. And 00:07:56.910 --> 00:08:01.610 the idea of OP_RETURN is that you create a transaction that spends coins and then 00:08:01.610 --> 00:08:07.450 it produces a coin, quote unquote, which has the instruction OP_RETURN. 00:08:08.200 --> 00:08:11.420 And then it's followed by whatever text you want to put on the blockchain. And 00:08:11.420 --> 00:08:15.640 now when a full node sees this, it knows, okay, if it starts with OP_RETURN, this 00:08:15.640 --> 00:08:20.190 coin is not spendable. Therefore, yeah, this coin is not spendable so I can 00:08:20.190 --> 00:08:23.090 forget about it. I do not have to put this in my RAM. I don't have to remember 00:08:23.090 --> 00:08:27.130 this. And the idea there was it was kind of a compromise. Say, well, people are 00:08:27.130 --> 00:08:30.510 going to put spam on the blockchain whether we like it or not. Let's at least 00:08:30.510 --> 00:08:33.950 reduce the amount of damage they're doing and make sure they pay like a 00:08:33.950 --> 00:08:38.340 reasonable fee for it as well. So there are some restrictions on the size of 00:08:38.340 --> 00:08:43.780 OP_RETURN to make sure that it's not too cheap to use it, but it is also 00:08:43.780 --> 00:08:46.040 cheaper than just spamming a blockchain. 00:08:46.710 --> 00:08:50.610 Right, so I guess we're still sort of unhappy about it, but if people are going 00:08:50.610 --> 00:08:54.590 to do it anyways, then this is the least damaging way of doing it. 00:08:54.770 --> 00:09:00.430 Yeah, well, at least it pays fees when you do this, and nodes only have to 00:09:00.430 --> 00:09:03.650 download it, but they can throw it away. They don't have to remember it. So the 00:09:03.650 --> 00:09:09.070 resource wasting is just a little bit of bandwidth and one-off CPU, 00:09:09.370 --> 00:09:13.290 but it's not wasting people's RAM, and RAM is probably one of the most scarce 00:09:13.290 --> 00:09:14.090 resources. 00:09:14.410 --> 00:09:14.670 Right. 00:09:14.850 --> 00:09:16.970 So it's fine. It can't be done any better. 00:09:17.230 --> 00:09:21.870 Yeah. So the main thing is it doesn't enter the UTXO set and therefore it is a 00:09:21.870 --> 00:09:23.350 lot better than the previous solution. 00:09:24.140 --> 00:09:29.120 So how much data fits into... One of these OP_RETURNs. 00:09:29.440 --> 00:09:29.900 80 bytes. 00:09:30.240 --> 00:09:36.240 Yes and no, because I think that's not a consensus rule. That's just a 00:09:36.240 --> 00:09:41.360 propagation rule. So I believe it's actually valid to create one with more data, 00:09:41.460 --> 00:09:44.960 but then it won't be propagated. So yeah, practically speaking, you're right. 00:09:45.640 --> 00:09:48.660 But... Can we do better? Can we compress it somehow? 00:09:49.380 --> 00:09:53.800 Yeah, we could. No. Well, I mean, I think I know where you want to go towards the 00:09:53.800 --> 00:09:55.040 so-called Merkle tree. 00:09:55.260 --> 00:09:55.600 Yes, please. 00:09:55.800 --> 00:10:01.630 But I think we want to go somewhere else first because we can talk about 00:10:01.630 --> 00:10:04.590 the kind of fun things you can put in OP_RETURN that have meaning. 00:10:05.250 --> 00:10:05.670 Okay. 00:10:06.070 --> 00:10:08.810 Without actually compressing it. So we'll get to the compression part later. 00:10:09.010 --> 00:10:09.210 Okay. 00:10:10.030 --> 00:10:13.610 So let's say you really like Rare Pepe. 00:10:14.380 --> 00:10:15.300 I know I do. 00:10:15.740 --> 00:10:21.130 So Rare Pepe was a trading card system on the blockchain. And the way it worked 00:10:21.130 --> 00:10:26.370 is you could have a card and then you could offer it for sale and somebody could 00:10:26.370 --> 00:10:30.250 buy it and then that other people would have the card and they could sell it, etc. 00:10:30.670 --> 00:10:35.630 Yeah, when you say card, you mean image. It's a digital image. 00:10:35.810 --> 00:10:39.130 Yes, but in this case, it's important to note that the image is not on the 00:10:39.130 --> 00:10:42.770 blockchain. There's a reference to the image on the blockchain, the hash of the 00:10:42.770 --> 00:10:47.470 image. So I wouldn't still not call that compression, but I would say you're not 00:10:47.470 --> 00:10:49.150 spamming the blockchain with the entire image. 00:10:49.970 --> 00:10:53.810 Sure, so explain this to someone who's new because it sounds like it makes no 00:10:53.810 --> 00:10:57.650 sense at all. You have an image and then you have a hash and then you have it on 00:10:57.650 --> 00:11:01.530 the blockchain. Why should people care about the hash or the image or any of this? 00:11:01.770 --> 00:11:05.250 Well, this is exactly what's going on with the NFT hype nowadays. 00:11:05.530 --> 00:11:06.710 That's why I'm asking. 00:11:06.970 --> 00:11:10.930 So I would say there's no reason to care about this, but people were doing it. So 00:11:10.930 --> 00:11:15.270 we just have to sort of explain at least what they were doing. And so what you 00:11:15.270 --> 00:11:19.470 would do is you would have this image somewhere, maybe on a web server or maybe 00:11:19.470 --> 00:11:23.130 on your own computer. And so everybody would have access to this image because 00:11:23.130 --> 00:11:28.850 it's just data. But the question is who really owns the image from whatever that 00:11:28.850 --> 00:11:31.050 means, right? Whatever it means to own the image. 00:11:31.310 --> 00:11:35.390 That sounds like an important question though. What does that mean? But go on. 00:11:35.550 --> 00:11:37.130 I think it meant absolutely nothing. 00:11:37.410 --> 00:11:37.630 Right. 00:11:38.110 --> 00:11:42.270 But the way it was done is like everybody would have the image and you could take 00:11:42.270 --> 00:11:45.070 the hash of the image and then the hash of the image would be on the blockchain. 00:11:46.210 --> 00:11:47.550 And so that's how... 00:11:47.020 --> 00:11:52.040 Let me… let me give you an example, where I think it might make sense, possibly, 00:11:52.040 --> 00:11:55.680 if you're playing something I've never played this, but you've got something like 00:11:55.680 --> 00:12:01.630 Magic The Gathering, if you'd want to make that into a digital version then, you 00:12:01.630 --> 00:12:05.910 could somehow prove that you own a specific card if you want to play it against 00:12:05.910 --> 00:12:09.550 another player. Well, if it's just an image, then everyone would have all the 00:12:09.550 --> 00:12:12.190 cards all the time. So now if you use... 00:12:12.190 --> 00:12:15.730 Well, that's the idea. Yeah, you prove that you have the image, whatever having 00:12:15.730 --> 00:12:16.190 means. 00:12:16.470 --> 00:12:16.890 Right. 00:12:16.890 --> 00:12:19.850 But at least if everybody agrees on the rules, then you can do that. 00:12:20.110 --> 00:12:24.610 Right. So yeah. So within some contexts, it might actually make some sense. 00:12:24.750 --> 00:12:29.350 Yeah. I mean, I think it does make sense in some limited context. But the main 00:12:29.350 --> 00:12:34.410 thing is, is there going to be some kind of person who controls the NFT, right? 00:12:34.430 --> 00:12:37.990 If somebody issued it or they can issue more of it, then it becomes kind of 00:12:37.990 --> 00:12:41.050 questionable. But if it's like a one-time thing, like, you know, maybe somebody 00:12:41.050 --> 00:12:45.990 made a card game and it's just, it's kind of like a full node where you download 00:12:45.990 --> 00:12:51.880 the software's open source and then the software interprets the NFTs. And 00:12:51.880 --> 00:12:56.260 as long as everybody kind of agrees on the card game and the NFTs, then you have 00:12:56.260 --> 00:13:01.840 a card game with like you said, with cards that are actually rare. But, you know, 00:13:01.920 --> 00:13:05.200 anyone can just take the same game and play it for free. Right. So that's that's 00:13:05.200 --> 00:13:05.660 always inevitable. 00:13:06.150 --> 00:13:10.170 Which is pretty much how this Counterparty slash Rare Pepe system worked as far 00:13:10.170 --> 00:13:14.370 as I know. So basically, you would put on the blockchain the hash of the image 00:13:14.370 --> 00:13:18.650 probably, and then you would say well, I'm now transferring this to this other 00:13:18.650 --> 00:13:22.910 person by just sending them coins essentially. And then whoever has the private 00:13:22.910 --> 00:13:27.360 key of where you sent the card has is now the new owner, and so you would have a 00:13:27.360 --> 00:13:30.500 piece of software that would read the blockchain and would see okay, this card is 00:13:30.500 --> 00:13:32.520 now moved to this other person and it's moved again. 00:13:32.520 --> 00:13:36.560 Yeah, I want to take a small step back, and Ruben this is also something you 00:13:36.560 --> 00:13:40.800 wanted to discuss is the idea of colored coins. So we already mentioned it in 00:13:40.800 --> 00:13:45.220 this in the beginning of the episode. Yeah, so the idea of Ruben, colored coins, 00:13:45.220 --> 00:13:49.170 can you explain what colored coins are? and then we'll move on… Then we'll move 00:13:49.170 --> 00:13:50.050 back to NFTs. 00:13:50.270 --> 00:13:55.790 Yeah. So, well, it is very similar because a NFT is a colored coin of one, 00:13:56.010 --> 00:14:01.890 basically. So it really is just the issuance of an asset. The name colored 00:14:01.890 --> 00:14:06.110 coin has been kind of what's been used. I think it's been maybe Counterparty was 00:14:06.110 --> 00:14:06.570 the first. 00:14:07.050 --> 00:14:08.970 No, Counterparty is not a colored coin. 00:14:09.130 --> 00:14:11.190 Colored coins predate Counterparty. 00:14:11.390 --> 00:14:13.930 Yeah. There's Mastercoin. I don't know. 00:14:14.350 --> 00:14:18.680 I can give you an example of a colored coin. If you want, but let's explain how it works. 00:14:19.360 --> 00:14:23.280 Well, yeah, okay. But, I mean, are you saying that Counterparty doesn't have 00:14:23.280 --> 00:14:26.400 colored coins? Because I think technically they do. You could issue coins. 00:14:26.660 --> 00:14:28.980 Counterparty can do colored coins, among other things. 00:14:29.100 --> 00:14:29.220 Yeah. 00:14:29.440 --> 00:14:31.220 But colored coins was a system on its own. 00:14:31.420 --> 00:14:32.240 I see. Okay. 00:14:32.680 --> 00:14:38.420 Okay. So the example I once even used, I think, was called Bits of Bullion. 00:14:38.790 --> 00:14:44.710 And what this was, was there was a trust, like a UK or whatever Cayman 00:14:44.710 --> 00:14:50.070 Islands structure, probably Gibraltar. And this trust owned gold in the real 00:14:50.070 --> 00:14:55.970 world. And then this trust had basically had its own bylaws and it would define 00:14:55.970 --> 00:14:59.190 the beneficiaries of the trust. So the nice thing about a trust is like nobody 00:14:59.190 --> 00:15:04.430 really owns the trust. The trust simply exists. And you create it and you set it 00:15:04.430 --> 00:15:07.710 in motion and then it kind of just exists out there. It's kind of a cool legal 00:15:07.710 --> 00:15:13.160 structure. But basically this trust would own gold and then there would be an 00:15:13.160 --> 00:15:16.260 instruction in the bylaws of the trust that says, well, there's this colored coin 00:15:16.260 --> 00:15:19.480 out there on the blockchain with this and this block hash or this and this 00:15:19.480 --> 00:15:24.780 transaction hash. And whoever owns descendants of this original transaction 00:15:24.780 --> 00:15:30.680 is actually a beneficiary of the trust legally. And so is entitled to that 00:15:30.680 --> 00:15:32.960 gold to be able to redeem it if they wanted to. 00:15:33.340 --> 00:15:38.570 Right. So what you're saying is basically that the... There is a UTXO on the 00:15:38.570 --> 00:15:44.060 Bitcoin blockchain and somebody basically said like, hey, if you own parts of the 00:15:44.060 --> 00:15:47.720 coins that are in here, then you also have ownership over something else. 00:15:47.860 --> 00:15:51.980 Yeah. So for example, they might start with 10,000 satoshis and they would say 00:15:51.980 --> 00:15:56.600 every satoshi represents one gram of bullion in this specific vault, you know, at 00:15:56.600 --> 00:16:02.180 Brink's. And then if you were to buy this gold, you could basically go to 00:16:02.180 --> 00:16:06.830 whatever an exchange, you would send the right amount of Bitcoin or fiat. And 00:16:06.830 --> 00:16:11.690 then they would send you 30 satoshis. Now you'd own 30 grams of gold. And if you 00:16:11.690 --> 00:16:15.890 send those exact same 30 satoshis back, you could redeem it. But you could also 00:16:15.890 --> 00:16:17.630 send those 30 satoshis to somebody else. 00:16:18.010 --> 00:16:22.510 Yeah, so the coins, the satoshis were colored, basically. So it's where the 00:16:22.510 --> 00:16:23.250 naming comes from, right? 00:16:23.250 --> 00:16:27.450 Exactly. And this is very, very brittle because you need to use a special wallet 00:16:27.450 --> 00:16:32.270 that understands these coins and keeps them separate. If you... put those 00:16:32.270 --> 00:16:35.530 satoshis in a regular wallet, it doesn't understand it. It will just spend it. 00:16:35.750 --> 00:16:40.030 And your entire scheme, you just destroyed your gold. But this really existed, so 00:16:40.030 --> 00:16:42.230 it's kind of cool. 2014 or 2015. 00:16:42.630 --> 00:16:47.430 Yeah, the analogy I used when I tried to explain this to people is imagine you're 00:16:47.430 --> 00:16:52.490 organizing like a small festival and you go to the bank and you get a whole bunch 00:16:52.490 --> 00:16:57.550 of pennies. You put special stickers on the pennies. And at the festival, you can 00:16:57.550 --> 00:17:01.750 use these pennies with the special stickers and they're worth a beer. Right yeah, 00:17:01.750 --> 00:17:06.110 if you walk out of the festival with the pennies then there's still worth the 00:17:06.110 --> 00:17:07.170 penny, but only a penny. 00:17:07.170 --> 00:17:12.470 Yeah, and if you accidentally like try to give somebody a euro, you know, 100 00:17:12.470 --> 00:17:15.630 pennies, then you're screwed, because you actually just gave them 100 beers. 00:17:15.630 --> 00:17:20.570 Exactly yeah. If that person knows how to get back to the festival at least. So 00:17:20.570 --> 00:17:24.510 yeah, you're… you're giving a new meaning to the satoshis on the Bitcoin 00:17:24.510 --> 00:17:28.270 blockchain. That's what colored coins are. Yes. And then we just discussed Rare 00:17:28.270 --> 00:17:34.000 Pepe and Pepe Cash and all that. And they did something similar, but they used 00:17:34.000 --> 00:17:38.000 OP_RETURN and it works technically in a bit of a different way, right? 00:17:38.200 --> 00:17:41.360 Yeah, very much differently. So the colored coins really just use Bitcoin's 00:17:41.360 --> 00:17:45.020 normal transaction mechanism. You just combine these satoshis and move them 00:17:45.020 --> 00:17:50.280 around. But the Rare Pepe used more like a series of instructions. 00:17:50.820 --> 00:17:55.060 So I think two things that I guess it used, right? A series of instructions where 00:17:55.060 --> 00:17:59.390 you could say, create a new asset and do something with it. But also, if the 00:17:59.390 --> 00:18:03.230 asset moved on the blockchain, I guess it would also move. I've never really 00:18:03.230 --> 00:18:05.510 studied it in enough detail to completely [unclear] this. 00:18:05.930 --> 00:18:10.250 Yeah, I'm not entirely certain whether or not satoshis were moving and they had 00:18:10.250 --> 00:18:13.590 meaning inside of Counterparty. I thought it did, but I'm not certain. 00:18:13.610 --> 00:18:17.730 I'm pretty sure that's not the case. I think they just used the data from the 00:18:17.730 --> 00:18:21.630 OP_RETURNs and that data just meant something else within the Counterparty 00:18:22.770 --> 00:18:23.210 context. 00:18:23.210 --> 00:18:28.470 Yeah, but at least the new owner was probably done using who got the coins, like 00:18:28.470 --> 00:18:32.870 which private key received what? I'm not sure how they would do it. Yeah maybe, 00:18:32.870 --> 00:18:35.710 they would have… the transaction might have two outputs, and one output would be 00:18:35.710 --> 00:18:40.130 OP_RETURN and the other would go to some address and then I… don't know somebody… 00:18:40.130 --> 00:18:44.490 it doesn't matter because there's something new and better RGB. 00:18:44.490 --> 00:18:45.830 That's what the episode is about. 00:18:45.830 --> 00:18:46.610 That's right. 00:18:46.610 --> 00:18:48.850 I think that's where we… we are now. We discussed: 00:18:50.140 --> 00:18:54.120 OP_RETURN, colored coins, the other thing, Counterparty. 00:18:54.300 --> 00:18:54.420 Yeah. 00:18:55.040 --> 00:18:57.020 And that was all to get to RGB. 00:18:57.520 --> 00:18:58.020 That's right. 00:18:58.760 --> 00:18:59.560 Sjors, what is RGB? 00:18:59.660 --> 00:19:03.000 Do I have to explain it? I thought Ruben was going to explain it. 00:19:01.020 --> 00:19:01.860 Ruben [unclear]. 00:19:03.480 --> 00:19:09.160 Okay, so... With RGB, it's a very similar system in the sense that we still 00:19:09.160 --> 00:19:13.580 have these tokens that are being generated and they're being moved on the Bitcoin 00:19:13.580 --> 00:19:19.160 blockchain. But what we're doing here is we're using the existing UTXOs 00:19:19.160 --> 00:19:24.640 as kind of a vessel for which we add the coins there and we move the coins there. 00:19:24.740 --> 00:19:30.540 So let's say I have a UTXO and I have some RGB tokens in there. Well, first I 00:19:30.540 --> 00:19:34.380 would have to generate them, but let's skip that for a second. There's an output. 00:19:34.580 --> 00:19:39.980 It's mine. There are maybe there's 10 USD Tether RGB tokens in there. 00:19:40.180 --> 00:19:42.240 When you say in there, what do you mean? 00:19:43.460 --> 00:19:46.980 Somehow, and that is of course like, so there needs to be some kind of Genesis 00:19:46.980 --> 00:19:51.240 moment, right? Where the tokens were generated. So the whole point of this system 00:19:51.240 --> 00:19:56.980 is that it allows you to create tokens and then spend them. And so first the 00:19:56.980 --> 00:20:02.120 USD Tether people would have to issue this token. And generally, the way that's 00:20:02.120 --> 00:20:05.480 done in RGB is actually you do use an OP_RETURN. So first, there's going to be a 00:20:05.480 --> 00:20:09.320 transaction. The transaction has an OP_RETURN, so everybody can kind of see it. 00:20:09.520 --> 00:20:14.860 And that transaction says, hereby, I declare that now inside of this new UTXO, 00:20:14.980 --> 00:20:18.380 there are just $1 million worth of USDTether. 00:20:18.680 --> 00:20:24.380 Yeah, and this is actually where your, well, hash at least comes up. Because what 00:20:24.380 --> 00:20:29.260 is in the OP_RETURN, as far as I know, is a hash of a JSON file. So anybody who 00:20:29.260 --> 00:20:35.140 has the JSON file will know that the hash refers to it, and they can then read 00:20:35.140 --> 00:20:38.800 the JSON file and see what the supply is and what the rules are for whatever 00:20:38.800 --> 00:20:39.900 asset has been created. 00:20:40.280 --> 00:20:42.940 A JSON file is just text, right? 00:20:43.120 --> 00:20:45.960 It's just text, yeah, with annoying brackets and, you know. 00:20:46.120 --> 00:20:52.000 So, okay, so now we have a UTXO with $1 million in their USD Tether dollars IOUs, 00:20:52.120 --> 00:20:57.340 and... When they first sent them to a buyer, somebody who says, okay, I'll give 00:20:57.340 --> 00:21:02.640 you $1,000, you give me $1,000 worth of these coins. So the first thing is what 00:21:02.640 --> 00:21:07.740 RGB does is client-side validation, meaning that the JSON file that Sjors just 00:21:07.740 --> 00:21:12.480 pointed out needs to be transferred during the coin transfer. So as soon as these 00:21:12.480 --> 00:21:17.360 coins, they move from one owner to the next owner, you also have to provide all 00:21:17.360 --> 00:21:21.190 the data, which refers to the hash that you put in the Bitcoin blockchain. 00:21:21.430 --> 00:21:21.770 Right. 00:21:22.110 --> 00:21:27.850 So the first person who buys the Tether, basically, has to receive an email. And 00:21:27.850 --> 00:21:33.600 inside that email should be the JSON file. And I guess also a proof that, 00:21:33.600 --> 00:21:35.380 you know, they now own the coins. 00:21:35.680 --> 00:21:35.860 Yeah. 00:21:36.560 --> 00:21:40.880 Right. So that's the big difference compared to colored coins and Counterparty is 00:21:40.880 --> 00:21:45.960 that now we have a separate layer essentially of JSON file texts that are also 00:21:45.960 --> 00:21:50.340 being sent around and they're being linked to in the Bitcoin blockchain. Is that right? 00:21:50.520 --> 00:21:54.400 Yeah. And this also detaches the amount from the amount that's really being moved 00:21:54.400 --> 00:21:56.580 from the amount of satoshis that's being moved. 00:21:57.950 --> 00:21:59.210 Yes, you're making a transaction. 00:21:59.250 --> 00:22:01.430 But I think that was already the case for Counterparty. 00:22:01.570 --> 00:22:04.590 Yeah, for Counterparty it is, but for colored coins it wasn't. For colored coins, 00:22:04.690 --> 00:22:08.450 the satoshis really mattered. But in the case of RGB, you're just sending 00:22:08.450 --> 00:22:12.030 somebody a transaction and then along with the transaction an email with what's 00:22:12.030 --> 00:22:14.770 actually happening. And that transaction might move one satoshi or a thousand 00:22:14.770 --> 00:22:18.930 satoshis. It doesn't really matter. The instructions are separate, are not on the chain. 00:22:19.110 --> 00:22:24.330 Right. So, okay, so we have this one output with $1 million worth of USD Tether, 00:22:24.350 --> 00:22:28.670 and now they want to send $1,000 to somebody else. So what they do is they take 00:22:28.670 --> 00:22:34.510 that output and they spend it and they send it to another output. And it's still 00:22:34.510 --> 00:22:39.590 owned by the same USD Tether people who issued the first $1 million. But inside 00:22:39.590 --> 00:22:43.990 of that output, there is going to be, basically, there is a public key there that 00:22:43.990 --> 00:22:49.960 is the person who owns the UTXO. And inside of that, there is through 00:22:49.960 --> 00:22:55.820 some cryptographic trickery that's very similar to Taproot they add another 00:22:55.820 --> 00:23:00.690 hash inside of this new UTXO and inside of this new hash 00:23:01.560 --> 00:23:06.860 There, they point to an output where they want a certain amount of these coins to 00:23:06.860 --> 00:23:11.200 move. So they would point to, in case, let's say I was buying $1,000 worth of 00:23:11.200 --> 00:23:16.160 USDTether, I would have to give an output to the USDTether people. And then when 00:23:16.160 --> 00:23:21.380 they spend their output, they will point back to me with the committed data. And 00:23:21.380 --> 00:23:25.100 they say, okay, now $1,000 are inside of Ruben's UTXO. 00:23:25.240 --> 00:23:29.680 Who else can read this? Can I read this? How do I know this transfer happened? 00:23:30.200 --> 00:23:34.360 So this is a hidden transfer in the sense that it's a commitment that's hidden 00:23:34.360 --> 00:23:39.670 inside of the public key. So it is literally... The USD Tether 00:23:39.670 --> 00:23:44.210 people need to show the commitment to me. So I can open a commitment. They can 00:23:44.210 --> 00:23:47.430 open a commitment. And I can show the commitment to you. And I can prove that I 00:23:47.430 --> 00:23:51.040 have a thousand of these USD Tether coins. And that's what I would have to do if 00:23:51.040 --> 00:23:54.710 I… let's say, I want to then send a hundred dollars to you Aaron. Then I would 00:23:54.710 --> 00:23:58.790 have to show that data. And that is the entire story of the client-side 00:23:58.790 --> 00:24:03.590 validation. The entire history of the coin in this case. The coins were created, 00:24:03.850 --> 00:24:07.570 then the coins were sent to me. I would have to show an entire history to you. 00:24:08.110 --> 00:24:12.250 And once you see the history and you're satisfied, you see like, okay, yeah, this 00:24:12.250 --> 00:24:17.970 is correct. Ruben does have 1,000 of these USD Tether coins. Only then will you 00:24:17.970 --> 00:24:19.830 accept another 100 from me. 00:24:19.780 --> 00:24:23.620 And… and this is kind of nice because it creates a really selective privacy 00:24:23.620 --> 00:24:28.640 thing. So, yeah, Aaron, you can see that you really got the 100 because you… you 00:24:28.640 --> 00:24:32.240 get all the history you need to confirm that. So from the 1 million, you see that 00:24:32.240 --> 00:24:36.260 1,000 was sent to Ruben and from that [unclear] was sent to you. You can see all 00:24:36.260 --> 00:24:41.350 that. But what happened to the rest of that 1 million, you cannot see. I… I guess 00:24:41.350 --> 00:24:45.950 the only thing you'll be able to see is that you know, 1 million minus 1,000 was 00:24:45.950 --> 00:24:51.010 sent somewhere else. So it wasn't like increased, but you can't see what happened 00:24:51.010 --> 00:24:55.250 after that. So you get a… you know… You can imagine history as a giant tree of 00:24:55.250 --> 00:25:00.030 transactions, but you only get everything that leads to your little branch in the universe. 00:25:00.400 --> 00:25:00.480 Yeah. 00:25:00.780 --> 00:25:06.400 Right. So this sounds like we're making, well, I'm not making anything. The RGB 00:25:06.400 --> 00:25:10.700 people are making an entirely different cryptocurrency system that's being 00:25:10.700 --> 00:25:12.260 anchored in the Bitcoin blockchain, right? 00:25:12.910 --> 00:25:13.690 Yeah, I guess. 00:25:14.010 --> 00:25:19.570