In recent days, the recovery of BTC has rekindled investors' enthusiasm, while in the developer community, their building has not stopped for a moment, especially for those project teams focused on technology in one direction.

For example, Nervos Network (CKB) launched the Bitcoin Layer 1 asset issuance protocol RGB++ in the first half of the year, and now it has launched the CKB RGB++ Layer. This will not only ignite Bitcoin finance (BTCFi) but may also drive all UTXO chains to take off.

Why do we say this? Let's take a look at what's going on. This article is mainly divided into the following aspects:

• Why the primary market is optimistic about BTC Layer2
• Why bet on UTXO
• The disruptive nature and achievements of CKB RGB++
• Overview of CKB RGB++ Layer
• RGB++ Layer upgrade BTCFi use cases

1. Why the primary market is optimistic about BTC Layer2

After the fourth quarter of 2021, the primary market generally believes that BTC Layer2 will produce several unicorns in the next three years, similar to how Ethereum Layer2 brought several years of excitement to the market.

Why do they all think this way?

First, BTC needs use cases

Currently, Bitcoin's market capitalization has reached $1.3 trillion, and it has always been used as a "store of value," but this does not mean that BTC lacks use cases. Before the third quarter of 2023, looking at the limited ways WBTC flowed Bitcoin into the DeFi space (with a market cap of $11 billion, less than 1% of Bitcoin's market cap), there is actually a large amount of asset liquidity in the Bitcoin network that has not been released, and Bitcoin's native ecosystem has huge potential momentum.

Second, the market potential of BTC Layer2 is large enough, potentially reaching a market cap of $130 billion

There are many industry data comparisons regarding Layer 2, with Ethereum being the most successful. For example:

🔹 Ethereum's market cap is $400 billion, and Layer2s on Ethereum account for about 10% of that market cap, so the valuation is about $40 billion.

🔹 Bitcoin's market cap is $1.3 trillion, which means the market cap of Bitcoin Layer 2 could potentially reach $130 billion.

Third, the consensus on developing Layer2 on BTC has formed

After the Ordinals protocol was released, the concept of inscription was ignited within a few months, showing that developing an ecosystem on BTC is possible, and it has even surpassed all smart contract platforms. The fact that all subsequent smart contract platforms are also working on inscriptions shows that where the community is, there is consensus.

2. Why bet on UTXO

(1) Mainstream blockchain models

In the current blockchain world, there are mainly two types of record-keeping methods:

• UTXO model (Unspent Transaction Output) and Account model. Bitcoin uses the UTXO model. This model is closer to cash transactions; for example, you have a piggy bank, and when you receive money from others, that money is new coins in your piggy bank that you have not yet spent (official term "Unspent Transaction Output"). Each coin inside can be seen as a UTXO. When you are ready to buy something worth $6 with $10, your piggy bank system will generate two new UTXOs: one paying the merchant $6 and the other giving you $4 as change. (Understanding the UTXO model is key to understanding RGB and subsequent content.)
• Account model, which Ethereum uses. This is easy to understand; it's like a bank account where you have a balance and spend as much as you want. The system only needs to track changes in user account balances, which is the model used by most public chains today.

Currently, the Account model has advantages in programmability and flexibility; in simple business and cross-chain scenarios, UTXO has its unique and pioneering advantages.

(2) Current classification of BTC Layer2

According to incomplete statistics, by June 2024, there are over 200 BTC Layer2 projects either developed or in preparation. The categories of Bitcoin L2 solutions roughly include state channels (like Lightning Network), sidechains (like Liquid, Merlin), Rollups (like Rollkit), and client verification (like RGB, RGB++, Taro), among others.

These projects can currently be summarized into two major camps:

• EVM camp, which mainly refers to the ETH tech stack + bridges to solve BTC's scalability issues, allowing for rapid setup in the short term. Most BTC Layer2 projects adopt this solution.
• UTXO camp, which is based on the UTXO model, such as CKB, which proposed RGB++.

The EVM camp primarily uses cross-chain bridges to transfer BTC and assets from EVM chains to L2. Although this can achieve greater performance improvements, it cannot reach the security of the BTC mainnet. Purely using a POS mechanism requires more funds to activate; once all users who received airdrops leave, the project is declared dead.

The UTXO camp belongs to a more native technical faction. UTXO is the most distinctive data model of Bitcoin, so the Bitcoin Layer2 ecosystem is expected to present an ecosystem model different from that of Ethereum. Applications based on the UTXO architecture naturally share security with the main chain, and this model brings many expectations to the market, potentially building an ecosystem model different from Ethereum's L2, which is also the market's expectation.

The Nervos team has persistently chosen to extend and upgrade on the UTXO model of BTC, using a more native approach to modify the UTXO model that supports Bitcoin. Inspired by the RGB protocol, they created the Bitcoin Layer 1 asset issuance protocol RGB++, providing Turing-complete contract capabilities for Bitcoin without the need for cross-chain bridges.

In the long run, the native characteristics of CKB's chain and the compatibility of its underlying architecture will allow it to go further in this chaotic battle of BTC Layer2 without standards.

3. The disruptive nature and achievements of CKB RGB++

Nervos Network has expanded on the core technology of Bitcoin, providing support for Bitcoin Layer 2 (L2) through a scalable Layer 1 blockchain --- CKB.

To improve Bitcoin's programming limitations, Nervos Network adopted a custom model (Cell model) for state storage and a custom virtual machine (CKB-VM) to execute transactions.

CKB is composed of a proof-of-work (POW) consensus mechanism, a virtual machine based on the RISC-V instruction set, a state model based on Cells, a state-oriented economic model, and a peer-to-peer network.

What is RGB++?

Cipher, co-founder of CKB, creatively proposed the RGB++ protocol as a solution to the challenges currently faced by the RGB protocol --- using a Turing-complete UTXO blockchain to solve the practical challenges encountered in client verification.

Since the mainnet launched the RGB++ protocol in April 2024, the number of projects issuing assets based on this protocol on Bitcoin has surged. Consequently, on-chain transaction activity on Nervos CKB has also rapidly increased. The number of new CKB addresses in April approached 400,000, with a month-on-month growth of 181%.

RGB++ is positioned as a Layer 1 asset issuance protocol for Bitcoin, which means you can use the RGB++ protocol to issue crypto assets on the most secure and consensus-driven Bitcoin blockchain. After issuing assets, you can transfer them to others, and the recipient does not need to run a client for verification because the assets issued through the RGB++ protocol will generate corresponding shadow assets on the CKB blockchain.

With this basic understanding, we can grasp the upcoming launch of the CKB RGB++ Layer.

4. Overview of CKB RGB++ Layer

Recently, it has been reported on media platforms that CKB RGB++ will upgrade to RGB++ Layer, extending bridge-less cross-chain functionality and smart contract capabilities to all UTXO chains.

What is the significance of upgrading to RGB++ Layer?

(1) CKB RGB++ Layer is the UTXO smart contract layer

After the upgrade, CKB RGB++ Layer will further abstract and expand on the original guarantee of Bitcoin's native security and programmability, emphasizing the isomorphic binding with the UTXO model, preparing to create an independent and universal UTXO smart contract layer.

Does it sound like reading a foreign language? Actually, you can understand it this way:

CKB RGB++ Layer is a UTXO smart contract layer, just like Ethereum's smart contracts, where data processing and L2 transactions will be aggregated. Once this level is reached, any future UTXO chain will treat CKB RGB++ Layer as its smart contract layer, making BTC Layer2 more prosperous.

CKB RGB++ Layer operates under four important conditions:

• UTXO
• Smart contracts
• POW
• Account abstraction

On the RGB++ Layer, various RGB++ assets, such as Coin (FT) and DOB (NFT), are uniformly abstracted and possess Turing-complete programmability. At the same time, users only need to use their existing BTC wallets to seamlessly access various DeFi applications on the RGB++ layer.

(2) RGB++ Layer will gradually become the issuance layer for universal assets

In addition to being a smart contract layer, RGB++ Layer will also serve as the issuance layer for universal assets, enabling asset issuance based on smart contracts, allowing any asset on UTXO chains to seamlessly enter the RGB++ ecosystem.

Based on native UTXO + account abstraction, it can directly break asset silos, allowing various assets on chains like BTC, CKB, BSV, BCH to achieve interoperability and realize decentralized aggregation.

At the same time, RGB++ Layer possesses the parallel advantages of UTXO and the global state of account abstraction, enabling various DeFi protocols to achieve native efficient implementation within the BTC ecosystem.

(3) RGB++ Layer will provide an independent blockchain explorer

This update of the RGB++ Layer will provide an independent blockchain explorer for viewing all assets and transactions on the RGB++ Layer.

This feature may seem inconspicuous, but we can understand it this way: a powerful public chain will have its supporting system, where the retrieval system and DeFi system are core to the public chain's development.

• Existing centralized indexers pose various risks. Currently, RGB++ Layer uses CKB as its indexer, which is safer than centralized indexers and can call smart contracts, enhancing composability. RGB++ becomes a standard, clarifying how to write messages, combine, and use across various UTXO chains, providing unified management of states and interoperability. In the future, any chain can serve as its indexer based on the four conditions of RGB++ Layer.

From this fundamental technical perspective, the goal of RGB++ Layer is to create a universal, cross-chain interoperable UTXO DeFi infrastructure, becoming a "financial harbor" for UTXO.

It may not take a few months for UTXO chains to take off, as through RGB++, LTC, DOGE, and even BTC can issue tokens and interconnect, leading to many possibilities.

5. RGB++ Layer upgrade BTCFi use cases

The first asset based on the RGB++ protocol, Seal, has been trading on UTXOSwap for some time, benchmarking against PIZZA. Currently, its market cap is relatively low, and not many people are aware of it. With future empowerment and value discovery, it may not be impossible to benchmark against Orid.

What is the IBO model?

In this RGB++ Layer upgrade, the Seal community is developing and operating the IBO (Initial Bitcoin Offering) tool platform, which will become the first IBO tool in the Bitcoin ecosystem and serve as the launchpad for all RGB++ assets. It will directly create pools on UTXOSwap through smart contracts, and a series of asset issuance and DeFi activities will be based on smart contracts, something that the BTC ecosystem could not achieve before.

Users who have used launchpads know that launchpads typically empower platform tokens, locking Seal to mine project tokens.

The IBO model is a new attempt; it is not like VC tokens, which have low circulation, high valuation, and lack community support, nor is it like Fair Launch, which has 100% circulation but lacks motivation from the project team or has no team, leading to a lack of planning after issuance.

IBO attempts to use high circulation, low valuation, and community-led models, empowering community holders from the start, bridging the gap between VC models and FL models.

It will launch during the Bitcoin 2024 conference (July 25-27).

Conclusion

BTC Layer2 is a trillion-dollar market, with over 200 projects already issued or in operation, many of which are working on EVM. Although the development threshold is low and the start is quick, it is easy to experience a wave phenomenon; once airdrop users mine, withdraw, and sell, the project tends to die.

Therefore, many visionary project teams are trying on UTXO, and the most professional, longest-running, and most user-rich is Nervos Network (CKB). After this upgrade to RGB++ Layer, it will create a universal, cross-chain interoperable UTXO DeFi infrastructure, becoming a "financial harbor" for UTXO.

It may not take a few months for UTXO chains to take off, as through RGB++, LTC, DOGE, and even BTC can issue tokens and interconnect, leading to many possibilities.

References:

https://talk.nervos.org/t/utxo-account/2961

https://mp.weixin.qq.com/s/kUEY-OorWrUsHQw9zzdZAQ

https://www.wublock123.com/index.php?m=content\&c=index\&a=show\&catid=47\&id=24487

https://jackylhh.notion.site/10-RGB-3707284d8d874f8ab83bfc45aa19a406

https://medium.com/@ABCDE.com/cn-abcde-%E6%88%91%E4%BB%AC%E4%B8%BA%E4%BB%80%E4%B9%88%E8%A6%81%E6%8A%95%E8%B5%84utxo-stack-91c9d62fa74e