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Technology

Overview of Technologies Used in the Nostr Assets Protocol

What is Bitcoin?

Bitcoin is a form of digital currency that eliminates the need for central authorities such as banks or governments or any central authority. Transactions occur directly between sender and receiver, with no third-party control.
Ownership and control of Bitcoin are distributed, allowing anyone to participate and ensuring transaction immutability. No entity can impede, prohibit, or erase Bitcoin transactions, granting individuals full sovereignty over their funds.
Bitcoin has a fixed supply capped at 21 million Bitcoins. New Bitcoins are generated approximately every 10 minutes, contributing to a total of nearly 18 million Bitcoins presently in circulation. This limited supply and predictable issuance rate enhance Bitcoin's scarcity and long-term value proposition.
By offering decentralization, self-sovereignty, and a fixed supply of 21 million, Bitcoin revolutionizes the concept of digital currency, empowering individuals with control over their financial transactions and holdings.

What is the Lighting network?

Bitcoin's blockchain has a limited capacity to process approximately 7 transactions per second. Increasing the number of transactions stored on the blockchain every 10 minutes would be impractical due to the associated costs.
For instance, if Bitcoin were to handle 150 million daily transactions like Visa does, the storage expenses would be exorbitant.
To address this limitation, the Lightning Network was developed as a second-layer protocol for Bitcoin. It enables off-chain transactions that do not need to be recorded on the blockchain, eliminating the need for mining and significantly enhancing transaction speed and affordability.
For siblings Alice, Bob, and Carole who frequently reimburse each other for expenses such as restaurant bills, gifts, and loans, using Bitcoin directly would result in high fees for each transaction. The Lightning Network was designed precisely for such cases.
Here's a simplified explanation of how it works:
  • Let's say the siblings bought a present for their parents and Carole is the one who paid for it.
  • Alice, Bob, and Carole will create a Bitcoin transaction to lock some bitcoins.
  • Alice creates a transaction to reimburse Carole for the present and transfers the amount to Carole.
  • Bob also creates a transaction to reimburse Carole for the present and transfers the amount to Carole.
  • And in another scenario, Alice & Bob bought a present for Carole and Bob is the one who paid for it. Alice can also create a transaction to reimburse Bob for the present.
These transactions occur off-chain, meaning they are not directly sent to the blockchain. Through the Lightning Network, the balances of Alice, Bob, and Carole are privately updated with each transaction. At any point, anyone can publish a closing transaction to record the final balances of Alice, Bob, and Carole on the blockchain.

What is Taproot?

Taproot (BIP 340) is an upgrade to Bitcoin which brought several new features (Schnorr Signatures, Taproot & Tapscript).
Schnorr Signatures enables key aggregation. When multiple parties want to sign the same message, they must each include their public key and signature. Schnorr public keys and signatures can be aggregated such that, if three parties want to sign a transaction, they can combine their three public keys to form a single public key. They can combine their three signatures to form a single signature which is valid for the aggregated public key.
A verifier only needs to verify a single signature and public key to confirm that all three parties signed the message.
Taproot (BIP 341) defines how Bitcoin’s protocol integrates Schnorr signatures. It also introduces Merkelized Alternative Script Trees (MAST) which allow users to lock transaction outputs to multiple scripts. Rather than having multiple scripts to lock a transaction, the transaction is locked to the Merkle root of these scripts. To unlock the transaction, the spender must reveal the script which they are using to unlock the bitcoins, as well as proof that this script is included in the Merkle root of the previous transaction.
Tapscript (BIP 342) introduces and updates several opcodes. These new scripts are used to verify Taproot spends and Schnorr signatures and are collectively known as Tapscript.

What are Taproot Assets?

Taproot Assets is a protocol that enables the issuance of digital assets on the Bitcoin blockchain, such as stablecoins or non-fungible tokens (NFTs). These assets can be transferred through traditional Bitcoin transactions or off-chain transactions using the Lightning Network.
Since the introduction of Taproot, it is possible to lock an unspent transaction output (UTXO) within a tree structure known as the "TapScript branch." This tree structure is not stored directly in the transaction but is represented by its Merkle root hash.
This allows for the creation of complex scripts without the need to expose them on the blockchain!
With Taproot Assets, developers can utilize this tree structure to embed arbitrary asset metadata, including asset script hash, amount, and additional information. Only the Merkle root hash of the tree structure needs to be stored in an existing transaction output, making the asset data readily available.
Assets issued using Taproot Assets can be deposited into Lightning Network channels, where nodes can offer atomic conversions from Bitcoin to Taproot Assets.

What is Nostr Protocol?

Nostr stands for “Notes and Other Stuff Transmitted by Relays”. Like HTTP or TCP-IP, Nostr is a protocol; an open standard upon which anyone can build. Nostr itself is not an app or service that you sign up for.
Nostr is designed for simplicity and enables censorship-resistant and globally decentralized publishing on the web.

Simple

The protocol is based on very simple & flexible Event objects (which are passed around as plain JSON) and uses standard public-key cryptography for keys & signing. This makes it easy to run relays and build clients and ensures that the protocol can be extended over time.

Resilient

Because Nostr doesn’t rely on a small number of trusted servers for moving or storing data, it’s very resilient. The protocol assumes that relays will disappear and allows users to connect & publish to an arbitrary number of relays that they can change over time

Verifiable

Because Nostr accounts are based on public-key cryptography, it’s easy to verify messages were really sent by the user in question.