Raretoshi: Bitcoin NFTs on the Liquid Sidechain

Raretoshi is an NFT marketplace which makes use of Blockstream’s Liquid sidechain to deliver private, inexpensive, and scalable transactions. The platform is the spiritual successor of Counterparty (the Bitcoin protocol which first started the NFT craze with trading cards and memes) and aims to enable seamless bids for scarce digital art.

As of 2021, every blockchain in existence is trying to capitalize on the NFT mania. And while Ethereum is struggling with scalability and high fees while retaining a questionable monetary policy (EIP 1559 being the latest demonstration of arbitrary unpredictability), other networks make use of their capabilities to allow for convenient and accessible NFT market places.

There are two very important reasons why Raretoshi is better than Opensea, Rarible and all the other competing platforms: first of all, it uses the hardest, most decentralized, and most liquid cryptocurrency in the world. And while some may argue that pegged bitcoins are not actual bitcoins because they don’t get transacted on the Bitcoin network, it’s worth noting that there’s a provable 1 to 1 peg between BTC and L-BTC. So any amount that you transact exists somewhere in a locked Bitcoin contract.

Secondly, Raretoshi enables deposits via Confidential Transactions. This means that you can top up your account without revealing to the rest of the world how many bitcoins you put into the platform. Personally, I like to think of Ethereum as an Orwellian nightmare due to its “one address per wallet” design which makes all transactions very easy to track. And since the world of art includes auctions where bidders can remain anonymous, Liquid is better suited for handling this type of transactions.

However, there is some criticism to be addressed about the anonymity provided by Liquid transactions: due to the current state of almost-empty blocks, it’s pretty easy to narrow down the suspects. A social media analyst can scrutinize Twitter to see which known Liquid users are privacy fans, while a blockchain analyst can check how many bitcoins have pegged in for sidechain use and from which UTXOs they originate. And since privacy is not the default setting, most transactions don’t use it (either out of ignorance, or to reduce costs and block space used).

Why Raretoshi is good for Bitcoin’s Liquid sidechain

No matter what you think about NFTs and how you choose to approach the existing tokenized digital art bubble, you can’t deny the fact that these cryptographic assets increase economic activity. This is great news for Liquid, as more users will peg their bitcoins to get L-BTC, make transactions, and pay fees to the federated block producers.

It might be a coincidence, but from July to August 2021, the amount of bitcoins pegged to the Liquid sidechain has increased from 2940 to 3213. While the extra 273 L-BTC might exist due to the continuation of the bull market (Liquid federation members might have decided to prevent themselves from paying high transaction fees during moments of peaking demand for block space), we can’t rule out the popularization of the NFT phenomenon either.

Definitely, Liquid needs more users and more transactions from regular users. Exchanges don’t need to make settlements very often, and this leaves lots of empty blocks in between transfers. On the other hand, why shouldn’t this extra block space get used to mint NFTs and make related transactions? It’s not like the burden of storing more data is going to affect the members of the federation so badly that they’ll become unable to run a node – after all, they’re exchanges and companies that can afford to upgrade their storage.

But if Liquid succeeds as a federated sidechain, then it’s likely to popularize other projects and accelerate their development. RSK (formerly known as Rootstok) is the perfect example of an excellent project which attempts to bring Ethereum smart contracts to Bitcoin, but doesn’t have much of a network effect yet and needs a little more publicity. Likewise, Paul Sztorc‘s Drivechain (BIP 300 & 301) proposal and Ruben Somsen’s Statechains can also benefit from the success of Liquid, by having their development accelerated to meet demand.

All in all, Raretoshi is an attempt to bring a Bitcoin future back to Bitcoin – but in a scalable, private, and economical way that can keep up with market demand in a more elegant fashion. If it succeeds, it will also popularize sidechains for individual user economic activity. And if Liquid gets popular, then it’s likely that Confidential Transactions (or a more scalable approach to them) will receive more user support and demand for Bitcoin’s base layer. No pressure there, but this NFT marketplace can really be a game changer.

What’s the deal with NFTs?

As of August 2021, we find ourselves in the middle of a digital art and NFT bubble which closely resembles the ICO craze of 2017-2018. It’s very likely that the works on display are overvalued and receive so much attention only for speculative purposes. Because at their core, NFTs are nothing but cryptographic hashes that get mined in on-chain transactions and are supposed to have an associated digital or physical item.

For example, I’m currently selling a BTCTKVR magazine NFT which comes with a physical delivery. Whoever turns out to be the highest bidder for issue 1 of 21 will in fact claim ownership of the Liquid network asset no. 9f35eec7884174b2f338763d827192966b6a680704c0553f865e30e2994a60e0, included in block 1447855, on August 17th 2021. It doesn’t sound very exciting because it really isn’t – but there’s a magic in the numbers and some collectors will appreciate the provable uniqueness of the cryptographic hash. It’s just like trading cards, but for geeks. Also, in my case I include a physical magazine delivery in the deal so bidder will ever feel ripped off or fooled by an overhyped phenomenon.

And yet the interesting part in NFTs is the fact that the art creator receives an arbitrarily-set percentage of all subsequent transactions. So if the artists sells his work for 0.01 L-BTC and sets a 10% royalty level, and then the collector later sells it for 1 L-BTC, the artist will also receive 0.1 L-BTC from the transaction. It’s a pretty neat design which partially fixes the issue of the starving artist – if one creates something truly timeless and worthwhile, then it’s possible to live off that particular piece of art which gets transacted.

Naturally, this environment attracts speculators who scout interesting pieces of digital art only to later sell them for profit. And while there’s nothing wrong with the dynamics of the free market, it feels a bit hollow to know that artists mostly auction their works in hopes of recurring profits and influencers make use of their status to essentially play the same pump and dump game that we’ve seen in other bull market cycles.

Furthermore, many artworks feel lazy and rushed to market – an indicator of the same kind of high-time preference which Bitcoin is sometimes fixing. But it’s very likely that the market will become less exuberant and more rational after the NFT bubble bursts and everybody receives a painful reminder about the fundamentals and the reasons why we’re building these technologies.

How to Set Up Your Account on Raretoshi

To register on Raretoshi, you need to provide an e-mail address, a username, and a password. This old school authentication mechanism is not ideal and maybe that it would have been cooler if users could utilize their Lightning nodes to prove their identity. But this design is more common and shouldn’t represent a roadblock for any internet user.

After you input your credentials and click the “Register” button, you’re going to have to confirm your registration from your e-mail account. Once you do, you’re one click away from browsing Bitcoin NFTs and supporting some of the finest digital (and even physical) art projects in the space.

After this onboarding part, we can distinguish between two sections of the site: the NFT marketplace that you navigate with a straight-forward menu that isn’t much different from eBay and other auction sites, and the L-BTC wallet. While the website is centralized, your Liquid wallet is non-custodial and actually generates a 12-word BIP 39 seed phrase to help you be in charge of your money.

Therefore, it’s safe to say that Raretoshi is merely an interface which facilitates the purchase of digital art in the NFT format. It isn’t also a service which keeps custody of your sidechain-pegged bitcoins. So if you ever want to recover and spend your funds in another Liquid wallet such as Blockstream’s AQUA, you can do it without any issues.

The top menu offers a search box, a marketplace section where artworks get displayed according to criteria of novelty, price and popularity, as well as a tab which displays the most recent market activity (latest bids and closed auctions). For those willing to learn more, there is a blog which highlights some of the most interesting artworks, and also a FAQ section which provides useful explanations.

Initially, all accounts can only purchase NFTs from the marketplace. Artists will have to go through an individual vetting process in which they must submit some of their works. In my experience, the verification process has been pretty quick and the administrators are friendly and helpful. Yet it’s going to be interesting to see how this changes once the platform becomes more popular and the requests to publish artworks start flooding in.

From their account interface, users can see their collections, browse offers, and also keep an eye on their favorite artworks. It’s a simple and minimalistic design which requires no explanations and no learning curve.

Now let’s talk about the wallet side. Thanks to Raretoshi, NFTs can be minted and traded with the hardest money known to man. And by virtue of intermediaries which allow you to quickly swap BTC for L-BTC (and vice versa) in exchange for a small fee, the onboarding experience doesn’t require running an L-BTC node and waiting for 100 network confirmations to complete the peg-in.

Raretoshi allows you to deposit BTC either via the base layer or via Lightning – there is some counterparty (pun intended) risk involved when you use Coinos (the default intermediary of choice), but if you prefer another service such as Liquiditi, SideShift AI, Bisq, Flip.me, and SideSwap. Alternatively, you can purchase L-BTC with your credit card directly from Blockstream’s AQUA mobile wallet.

Keep in mind that you should protect your BIP39 seed phrase, as the wallet Raretoshi generates for you can get accessed by any other Liquid network-compatible software wallet (including Blockstream’s AQUA). In my experience, I was not able to recover the wallet in Blockstream Green due to the fact that the wallet makes use of a proprietary 2 of 2 multisig setup that Raretoshi doesn’t support (at least not yet).

If you make a lot of L-BTC from selling NFTs and want to store it as such, it’s recommended that you get a Blockstream Jade hardware wallet to better secure it. To find out more about it, listen to my interview with Green Address creator Lawrence Nahum (Bitcoin Takeover S8 E4).

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