If you’re like most of us, when you hear about a “Bitcoin Scaling” project your first instinct is to laugh it off as a cash grab. And the sad truth is, 90% of the time, you’d be on the money. But when we have a project that’s been building on Bitcoin since 2019 and has the respect of legends like Casey Rodarmor (creator of runes), maybe it’s time to pay attention.

Today, we’re taking a look at the Nervos Network, its CKB blockchain, and their new RGB++ protocol standard.

The case for DeFi on Bitcoin

Messari analyst Kinji Steimetz argues that while the total addressable market (TAM) of wrapped Bitcoin (wBTC) was hamstrung by HODLers not wanting to realize deep profits by moving funds, native applications on the Bitcoin blockchain don’t have the same drawbacks.

And if we just take a second to quantify the sheer size of this addressable audience, the bull case becomes clear. Bitcoin market cap, at any given time over the past few years, accounts for roughly half of the value of all digital assets. If we can imagine a future native Bitcoin application with a TVL (Total Value Locked) of just 1% of the available BTC, it would instantly have the second most TVL out of any chain at around $12b.

It doesn’t matter if the vast majority of Bitcoin holders are those laser-eyed halfwits you see reply-guying on Twitter. The type that just want to squirrel away their sats in the coldest of cold wallets, never to surface prior to the inevitable dollar hyperinflation and global bitcoin-ization. If even 1% of these holders are open to the idea of native applications/scaling solutions, ding-ding-ding, you have your target market.

All eyes have been on BTC this cycle. With the ETFs solidifying the corn’s persistent position in the eyes of institutions and retail, odds are good that development and investment surrounding the OG blockchain will continue. You know us, where we see development, we will send out some feelers and see what’s what. And today, we’re looking at Nervos.

Built different - CKB and RGB++

Despite having some deep roots (2019 is ancient history at this point), the Nervos Common Knowledge Base (CKB) chain has a modular architecture, with Bitcoin at its core. Nervos CKB acts as a helper chain, where all execution takes place. Here’s how a basic transaction would work:

1. Bob holds 100 RGB Assets on Bitcoin, which he interacts with via the Nervos CKB chain. These “tokens” are inscribed on the Bitcoin blockchain for provenance, much the same as ordinals.
2. When he wants to send 70 of his RGB Assets to Alice, he executes a transaction on the Nervos CKB. The chain sends a transaction on the Bitcoin blockchain, where Bob’s inscribed tokens are split and sent to wallets belonging to Alice (70) and Bob (the remaining 30).

Sound a lot like ordinals/runes? At the base level, absolutely. The key difference is that smart contract functionality can be baked into the CKB chain, allowing for complex logic to be implemented. In the case above, these RGB Assets could be replaced by a hash of a smart contract, which is executed on CKB once the Bitcoin UTXO is spent.

Because RGB assets/hashes and ordinals/runes/BRC-20s all reside on the BTC Layer 1, they are complementary, not competitive, in the eyes of CKB. You could have a future where CKB smart contracts interact directly with your favorite runes or BRC-20s.

The new version of RGB, RGB++, offloads a lot of tasking to the CKB chain itself, providing some benefits to the user:

1. Verification is done automatically through the CKB chain’s connection to Bitcoin light nodes. Self-verification is no longer necessary.
2. Similarly, the CKB chain performs data storage with RGB++, so users no longer need to provide their own storage.
3. With the original RGB protocol, recipients needed to provide their own confirmation that they received the tokens (basically like an invoice). This required both parties to be online when a transaction took place - not ideal. This is no longer necessary with RGB++ now that Send/Claim are separate transactions.

This all comes at the cost of privacy. With RGB, users could transact privately since it relies on client-side validation. Now with this data offloaded from the user (client) onto the public CKB blockchain, this privacy goes away.

RGB++ also includes “transaction folding,” which you can just think about as rolling up multiple transactions into a single BTC transaction. In essence, this is what Lightning does to cut down on fees.

All in all, this upgrade drastically improves the usability of the CKB chain, putting it back into the arena when it comes to Bitcoin scaling solutions.

The underlying tech

CKB’s isomorphic binding is inherently different from the traditional 2-way peg mechanism that most Bitcoin sidechains use. Lost you? Here’s how CKB’s isomorphic binding works:

Step 1 - Mapping UTXOs to Cells. In RGB++, each Bitcoin UTXO (Unspent Transaction Output) is mapped to a “Cell” on the CKB blockchain. You can think of these Cells as knowing everything about their partner UTXO, plus you can apply logic to it that activates when this UTXO is spent.

Step 2 - Executing Logic. When a UTXO is spent on Bitcoin, the corresponding Cell is activated on CKB, applying its pre-arranged logic on the CKB chain. This could be a simple token transfer, minting an NFT, distributing an airdrop, or a complex string with multiple steps on CKB.

This process ties logic directly to UTXOs on Bitcoin. This is unlike sidechains, where a peg maintains that price of Bitcoin, while all execution, verification, and trust is dependent upon the validators of the sidechain itself. No bridging necessary with RGB++, these are all native transactions.

Think of CKB being the “execution & DA'' layer 2 to Bitcoin’s “settlement” layer 1 and you’re 95% of the way there. When a UTXO is spent on Bitcoin, this is verified by the PoW miners of the Bitcoin blockchain - to undo transactions from RGB++, you’d have to bring down Bitcoin itself. The intimate entanglement of Cells and UTXOs means that the chains move in lockstep, CKB providing the scaling and logic, while Bitcoin provides the value and security.

The ecosystem and how to interact

If you’ve been playing around with ordinals and inscriptions on Bitcoin, you’ll be prepared for the UX nightmare that I’m about to describe. If not - well, you’ve been warned.

Download a wallet

To interact with the apps, you’ll have to use a browser extension (or mobile) wallet. JoyID is the native wallet for the ecosystem and you’ll need that in order to conduct transactions on RGB++. Note that UniSat, Leather, and OKX don’t yet have native RGB++ support (at the time of writing).

Send a little BTC over to your wallet from an existing BTC balance or from a centralized exchange. Alternatively, do a swap from ChainFlip or Thorchain if your funds are on other networks (ChainFlip generally has better rates, but Thorchain has more chains). Don’t forget to account for BTC fees.

Note that you’ll have to set your default address to “Native SegWit” in the “Manage” tab of JoyID.

Speculate on memecoins

While RGB++ will eventually host useful applications, for now, memecoins are what we have to speculate on. This is a standard stepping stone for ecosystems, speculation leads value creation. Don’t let the VCs gaslight you into thinking this is a new phenomenon.

Huehub and Omiga are the first DEXs for RGB++ and it is where we start our journey. To be honest, there isn’t too much to do just yet. So far we have memecoins, with $SEAL being the clear frontrunner, amassing a market cap of around $20m at the time of writing. (The name comes from a joke about the RGB++ light paper, in case you were wondering.)

Early holders of $SEAL already received an airdrop, so perhaps that is one to pay attention to. From our investigation, community members regard $SEAL as the token for RGB++, lesson in there.

Also, you buy tokens in bunches, much like ordinals. Yes, it is annoying, but should be improved in future iterations.

Oh, Huehub is planning on adding a launchpad, in order to become RGB++’s pump.fun or Jupiter. Pretty cool.

Mint a domain

The first thing I do when I venture into a new environment is to mint a domain name. It’s convenient, generally cheap, and gives some nice squatters' rights if the chain ever gains some traction.

For RGB++, you can do this through .bit, which just added support for the protocol.

Mint some NFTs (or “DOBs”)

The JoyID wallet has its own NFT marketplace, where users can buy and sell DOBs (Digital Objects). These DOBs have some interesting features that make them stand out from the ERC-721 NFTs we’ve come to know and love.

DOBs - Completely onchain and immutable. Experiments such as Nervapes (secondary market) are issuing the main metadata (the ape’s body) to Bitcoin, while cosmetic items like clothing and wearables can be customized on the CKB chain.

Spore - is taking it to the next level. Their DOBs (such as the Unicorn Box collection) can be redeemed at any time for their equivalent value of $CKB tokens. Beyond that, they can be accessed without fees and are fully customizable within their 500kb size. If you’re an NFT enthusiast, take a look at their docs and try it out. We’re very early on this one.

The Bull Case

As mentioned, it takes only a small subset of Bitcoin holders to adopt a technology in order to amass some serious dough. Merlin chain required holders to take on massive trust assumptions above and beyond Bitcoin’s own, due to their bridge. Despite this, over $1b was bridged to the chain in order to farm rewards. And if users were comfortable with that risk/return, imagine what could happen with a Bitcoin-native solution. A solution where hodlers don’t have to even move their funds from their tried-and-true wallets and pile on risk.

EVM-powered L2s like Merlin or BSquared are at an early advantage due to the smooth transition for developers in Solidity and existence of tools like wallets and SDKs. But this is a marathon, not a sprint. Bitcoin development moves notoriously slow, and maxis seem to be content twiddling their thumbs, waiting for the “right” type of scaling solution before risking their precious coins. Get enough maxis on board, and we reach Valhalla by nightfall.

The Bear Case

The problem? This technology is brand new. The RGB++ whitepaper dropped in February and applications/tooling are only now coming online. EVM-based Bitcoin L2s have the developers and support from many powerful funds, pumping users into their ecosystems. The market is flush with BTC L2s, and standing out amongst the crowd by saying “look how BTC-aligned we are!” could be a losing strategy.

User Experience (UX) needs to be taken seriously in today’s day and age. If we expect users to know their way around a command prompt, we’ve already lost. The rise of “VC chains” has proven that the vast majority of users will sacrifice security in the name of usability.

How we’re playing it

As always, we will continue to preach intellectual curiosity. Try it for yourself. Poke around and see what the fuss is all about. You might find that it’s not worth your time and there, you’d have your answer.

From our perspective, the sheer magnitude of the dormant capital on Bitcoin is a powder keg. All it’s going to take is a single spark to kickstart huge new ecosystems. Is RGB++ that spark? In our opinion, apps and UX need to come first. The ecosystem is underdeveloped and the applications are barebones today, but it’s still very early and the tech is quite promising.

If we were going to speculate, we’d grab some $SEAL (or $CKB if we were a boomer) and play around with the NFTs while the rest of the ecosystem develops. Early venture funds like OKX and ABCDE will be the ones to watch, as they are at the forefront of RGB++ tech adoption. If BTC scaling is your jam, Nervos is one to watch with a keen eye.