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The controversial Taro protocol is ready to be tested. The first version of the code is available on GitHub, and it “allows developers to mint, send, and receive assets on the bitcoin blockchain.” Note that the company is not yet talking about the Lightning Network. In a blog post detailing the Taro . is announced launch, Lightning Labs promised, “Once the on-chain functionality is complete, we will work on integrating the Taro protocol into lnd, bringing Taro resources to the Lightning Network.”
This is the first step of many and is mainly aimed at developers. According to Lightning Labs, “this initial release is designed for testnet use only as a way for developers to start using the code.” That means no real value is flowing through Taro right now. But… what exactly is Taro? The blog post defines it as a “Taproot-powered protocol for issuing assets that can be transferred via bitcoin and in the future, the Lightning Network for high-volume, low-cost instant transactions.”
Taro will enable stablecoins to travel through lightning
This is a versatile protocol that enables many things, but the feature that everyone is excited about is the merger of stablecoins with the Lightning Network. It is controversial because you have to trust the issuer of stablecoins, which means that they carry a counterparty risk. Bitcoin does not have that problem. Anyway, in the subsection titled “The First Step to Bitcoinizing the Dollar”, Lightning Labs tries to convince us that stablecoins over Lightning are a good idea:
“With Taro and the incredible developer community, we can build a world where users have USD-denominated balances and BTC-denominated balances (or other assets) in the same wallet, sending trivial value over the Lightning Network, just like they do now. This leap forward will accelerate the path to take bitcoin to billions.
If that looks too much like Galoy’s stables, it’s because both implementations try to solve the same problem. However, they use vastly different methods. And place the counterparty risk in different places.
BTC price chart for 09/29/2022 on Fx | Source: BTC/USD on TradingView.com
How does Taro work and what else does it do?
Don’t worry, these brand new protocols are hard to master or even understand. Luckily for us, Lightning Labs gave us a technical, yet easy-to-follow, explanation as a refresher:
“Taro assets are embedded in existing bitcoin outputs or UTXOs. Think of these assets as ‘UTXOs within a UTXO’. A developer creates a new Taro asset by executing an on-chain transaction that commits to special metadata in a Tapoot output When minting a new asset, the Taro daemon generates the relevant witness data, assigns the asset to a private key held by the minter, and broadcasts the newly created bitcoin UTXO to the bitcoin network This new point becomes the origination point of the newly minted asset and acts as its unique identifier.
When lightning speed tackled the Taro topic firstwe explained what a Taro asset can be:
“What is a “Taro asset”? Whatever you prefer, your BTC can be “converted to various assets, such as USD to EUR or USD to BTC.” Or, like Bitrefil’s Sergei Kotliar says:, “Pay in a currency of the sender’s choice, receive in a currency of the recipient’s choice. This means that any wallet can now have native Strike-type “USD balance” functionality, for example. Without the need to trust the wallet, the only trust lies in the issuer of the token.
Getting started with the new protocol
As mentioned before, this Alpha release is mainly for developers. If you are or know one, here are the protocol coordinates:
“To start exploring Taro, download the daemon, view the API documentationand read the Getting started guide. And for a more in-depth explanation of how Taro works, take a deep dive into the Taro BIPs and our documentation.”
Have fun, developers. And please report to us with your findings.
Featured Image by Jennyrang from Pixabay | Charts by TradingView