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Craig Wright wrote an early (2001) version of the Bitcoin white paper – in 2019

The self-proclaimed Satoshi Nakamoto has tried again, with no more success than last time.

 

Popcorn time again. In the absence of a bull trend, the crypto community seeks entertainment wherever it can get it. Fortunately, there’s a willing source close at hand.

 

First, a little background.

 

Back in 2016, early bitcoiner Craig Wright claimed he was Satoshi Nakamoto, the protocol’s creator. He ‘proved’ this by means of some very convoluted evidence involving a cryptographic signature. The internet – including a number of security and cryptography experts – was quick to point out that it was fake. Wright was thoroughly disgraced and, after some mumbled excuses, went quiet for a while.

 

He later arose as one of the architects of Bitcoin Cash and then Bitcoin Cash Satoshi Vision, which he claims is closer to the original Bitcoin than Bitcoin Core is now. He never retracted his claim to be Satoshi.

 

Now, he has apparently published further evidence in the form of an R&D paper he says he wrote for the Australian government in 2001 – seven years before the Bitcoin white paper was published. Certain extracts of the Black Net shown are very similar to the Bitcoin white paper – very similar. Almost word for word.

 

Now, Wikileaks was impressed enough to retweet CryptoPotato’s story about this. Because here’s the thing.

 

The extracts are almost identical to the October 2008 version of the Bitcoin white paper. But Satoshi published an earlier draft back in August 2008. The ‘2001’ Black Net document shows updates and edits that were only made in the October version.

 

This is highly suspicious, to say the least. And we were highly suspicious of Craig already, because he has a bit of a reputation for making outlandish claims and then not backing them up. To put it charitably.

 

Right now, it almost looks as if Craig tried to convince the public he was Satoshi, again – probably to give legitimacy to the failing Bitcoin SV project – but overlooked the fact that there was an earlier version of the Bitcoin white paper he should have copied to make it look more convincing.

 

Wikileaks and Wright have opened up this debate on Twitter, with Wikileaks providing evidence of previous Satoshi-related fabrications and Wright calling them names. It’s worth a read, for the lulz.

We’ll let Wikileaks have the last say. ‘The Bernie Madoff of #Bitcoin, Craig S. Wright, who keeps forging documents to make it seem that he is Bitcoin’s pseudonymous inventor Satoshi Nakamoto, caught again, this time forging a “2001” antecedent to Nakamoto’s first Bitcoin paper.’

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Inferno picks: MimbleWimble in action – Grin

This new grassroots initiative implements some amazing new tech, and has already gained a huge amount of interest from the community.

 

Two weeks ago we gave an overview of MimbleWimble, the new blockchain protocol that we believe is one of the most exciting things to come out of the crypto space in the last year or more. As a brief summary, MimbleWimble manages to combine both privacy and scalability – a tricky circle to square – and does so in a completely new and very powerful way. Some impressive cryptography ensures that no addresses or transaction amounts are stored on the blockchain, while simultaneously guaranteeing the integrity of the system (i.e. that no new coins have been created). Transaction cut-through, which prunes unnecessary transactions from the record, both reduces bloat and improves privacy. Where other privacy-focused blockchain solutions obscure transactions in various ways, MimbleWimble goes a step beyond this by ensuring privacy by not recording sensitive information at all. It is, in short, extremely impressive and very promising.

 

Last week, we looked at one of two implementations of MW, called Beam. You can read more about our thoughts on it here. This week we’re looking at the other implementation, a grassroots initiative called Grin.

 

Firstly, we need to say that much about Grin and Beam is very similar, because they’re both building on MimbleWimble. The biggest differences are not tech, but economics and culture. And in those two things, they couldn’t be more different.

 

Coin emission

We’ll get it out of the way now because it’s a big one for the crypto faithful: Grin has infinite supply. Yes, that’s right. Each block sees 60 new Grin created, so on average there will be another Grin every second. Forever.

 

This means massive early inflation. The early months will see a huge increase in supply (as is fairly normal with a PoW coin). But year 2 will see 100% inflation, year 3 50%, year 4 33%, and so on. Basically, there are going to be a lot of Grin.

 

This inflation is intentional, since the creators did not want to unduly benefit early adopters or disadvantage later ones. Economically, we might see Grin more as a transactional currency than a store of value. And after a couple of decades, inflation as a percentage drops to a minimal level since the proportion of supply represented by those new coins gets less and less over time. Ultimately, lost coins will offset new supply and it may even prove to be deflationary – maybe. But to begin with, you’re looking at significant downward pressure on coin price simply through new coins being mined.

 

Culture

Grin looks to replicate the cypherpunk culture of early Bitcoin – a grassroots effort, without external funding. Its sole full-time dev is funded by donations, which is not ideal and necessitates a slower pace of development, but means there’s less chance of corporate interference, and therefore greater appeal to the crypto-libertarian crowd.

 

So Grin has more of an indie feel to it that surfaces in various ways. It’s more experimental; for example, it uses Cuckoo Cycle for its consensus algo, rather than a better-established algo like Equihash (used by Beam). But it also means its software is far rougher round the edges; its wallet is a lot harder to install and use, and is only available for Linux or MacOS. Using a Grin wallet means running a node of your own and using the commandline wallet as a separate piece of software – and probably sending transaction files between sender and recipient. Accessible and intuitive, it is not. There’s plenty of room for improvement and no doubt that will come, but right now Grin is not exactly a beginner-friendly crypto.

 

For all that, Grin has captured a lot of interest. There are die-hard bitcoin maximalists who are saying it’s the only altcoin they think is worth a look.

 

Next week, we’ll wind up our MimbleWimble series by make a more detailed comparison of the coins that currently use it – Grin, Beam and possibly soon Litecoin too.

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Dorsey endorses Lightning

The Twitter CEO just gave Bitcoin’s #1 scaling solution a huge morale and publicity boost.

 

If you know much about the Bitcoin blockchain, you’ll know it’s not capable of supporting the kind of throughput that would enable it to operate as a true payments network – digital cash for everyday purchases. That’s why the ‘digital gold’ narrative and use case has arisen: Bitcoin is more popular for infrequent, high-value transfers and storage.

 

The Lightning Network is a so-called Second Tier solution that is built on top of the Bitcoin network and enables low-cost, fast microtransactions. It’s up and running and growing fast. And while Bitcoin ended its last boom with questions about how sustainable the network really was – with $20 transaction fees at the end of 2017 – it looks like it will be starting its next cycle with some real buzz around the potential.

 

Now, Jack Dorsey, CEO of Twitter, has given the tech a boost by playing a game on the Lightning Network. The Torch game is a simple demonstration of the power of the Lightning Network: one user passes the torch to the next by making a microtransaction. It’s all done over Twitter. Dorsey joined in and passed the torch on to Elizabeth Stark, and so on.

 

Dorsey has always been a fan of Bitcoin, but this is a great endorsement for the tech that will help power the next phase of decentralised money. The pieces are starting to come together, as they do in a bear market, when tech and commitment are tested and infrastructure is built. While we’re not out of the woods, the mood is starting to change at last.

 

Perhaps that’s why Mark Jeffrey, an early adopter who wrote Bitcoin Explained Simply way back in 2013 – before most of the world had even heard about Bitcoin – has just gone on record predicting a significant ‘Third Act’ for Bitcoin, with prices heading for $250,000. Comparing the current crypto winter to the dotcom bust, Jeffrey uses the analogy of Star Wars to show where we are in the overall arc of crypto history:

 

‘This is not the end of the story. This is the middle part. This is the second act. The third act is return of the Jedi and we’re not there yet.’

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(Don’t) Show me the money! LTC looks to Beam for confidential txs

The two teams are working together to explore whether MimbleWimble is the right fit for Litecoin.

 

Here at Inferno we’ve made no secret about our interest in MimbleWimble, the exciting new blockchain protocol that manages to combine both privacy and scalability thanks to its approach of avoiding storing any sensitive information on the blockchain at all. Earlier this week, we looked at Beam, an Israeli project that implements MW in a standalone blockchain.

 

As it happens, Charlie Lee, known as ‘Satoshi Lite’ recently expressed his intention to improve the privacy and fungibility of Litecoin by adding confidential transactions:

Fungibility is the only property of sound money that is missing from Bitcoin & Litecoin. Now that the scaling debate is behind us, the next battleground will be on fungibility and privacy.
I am now focused on making Litecoin more fungible by adding Confidential Transactions.

 

He stated at the time that his dev team was exploring MimbleWimble, and now a new development has arisen. Team Litecoin and Team Beam are working together to figure out whether Litecoin should use MW to improve Litecoin’s privacy – essentially by removing the transaction path, amounts and addresses from the blockchain where confidentiality is desired.

 

Beam recently posted a Medium blog to this effect, writing, ‘We have started exploration towards adding privacy and fungibility to Litecoin by allowing on-chain conversion of regular LTC into a Mimblewimble variant of LTC and vice versa. Upon such conversion, it will be possible to transact with Mimblewimble LTC in complete confidentiality.’

 

This would be a fantastic development, because we believe that MimbleWimble is hands down the best privacy solution out there. But it’s not for the faint-hearted, and Charlie Lee knows there are challenges involved. On a technical level, it would involve moving coins from the Litecoin main chain into a MW sidechain, or another similar solution. And, when you’re dealing with a $2 billion network, there’s little room for error. Plus the quirks of MW mean that you can’t just send money to an address; both sender and recipient have to be online at some point to arrange the terms of the transaction, which may cause some inconvenience – especially where cold storage is concerned.

 

Nonetheless, it’s a great move and shows real vision on the part of Litecoin and a commitment not to stand still. The market responded positively to the news, with LTC rising 10%.

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‘Bubbles’ or bumps in the road?

Perhaps we need to start thinking differently about bitcoin’s market movements.

 

2017 saw a speculative bubble for bitcoin. The price soared over 100x from its lows at the end of the last cycle, when it fell to $155 in January 2015. 2017 alone saw a 2,000% rise to $20,000. And it was a bubble. Everyone said so, and even if they didn’t grasp it at the time, it has become painfully evident over the course of 2018. The price now stands at $3,400 – down over 80% but still up 340% on the start of 2017.

 

It has been a lot like the 2013 bubble, say those who have been in bitcoin for years, when BTC rocketed over 1,100%, from $100 at the start of October to around $1,200 at the end of November – followed by a painful bear market of over a year.

 

In fact, they say, bitcoin has bubbled many times. There was the bubble of April 2013, which saw bitcoin spike to $266 before rapidly deflating back to $60 by July – followed, of course, by the massive winter bubble. Then there was the 2011 bubble, which saw the price rise from around $1 in April to $32 in June, retracing to $2 by the end of the year. For the real old timers, there was a bubble that resulted from bitcoin starting trading on the open market in July 2010; some publicity from Slashdot saw the price shift from $0.008 to $0.08, before settling to $0.06.

 

Overlaid on this, we have bitcoin’s halving schedule, which apparently drives some speculative and fundamental activity – as you would expect from a marked drop in supply. Analysts have noted that bitcoin’s price has began moving upwards about a year before the peak of both of the last two bubbles.

 

Not all bubbles are equal

However, we have to distinguish between a ‘bubble’ and something rather different. Some of bitcoin’s ‘bubbles’ have retraced almost entirely; others have barely retraced at all; a couple have ended with significant growth measured from the start of the bubble, let alone the low from the last cycle. This isn’t a precise science, but we can offer these thoughts:

  • 2010 was simply price discovery. BTC stabilised not far from its peak
  • 2011 was a blip. Price retraced almost fully.
  • April 2013 was a blip. Price retraced almost fully.
  • November 2013 can be considered a conventional bubble, but would be better characterised as an overheated phase of exponential growth on the back of greater awareness.
  • The same is true for 2017.

 

In short, ‘bubble’ is not a helpful term for bitcoin’s growth curve, and misses even the medium-term picture of what’s going on here: exponential growth with a few speed bumps along the way.

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Inferno picks: MimbleWimble in action – Beam

This project implements some exceptional new technology, and is doubtless destined for big things.

 

Last week we gave an overview of MimbleWimble, the new blockchain protocol that we believe is one of the most exciting things to come out of the crypto space in the last year or more. As a brief summary, MimbleWimble manages to combine both privacy and scalability – a tricky circle to square – and does so in a completely new and very powerful way. Some impressive cryptography ensures that no addresses or transaction amounts are stored on the blockchain, while simultaneously guaranteeing the integrity of the system (i.e. that no new coins have been created). Transaction cut-through, which prunes unnecessary transactions from the record, both reduces bloat and improves privacy. Where other privacy-focused blockchain solutions obscure transactions in various ways, MimbleWimble goes a step beyond this by ensuring privacy by not recording sensitive information at all. It is, in short, extremely impressive and very promising.

 

Beam is one of two projects that have implemented MimbleWimble, launching a network and blockchain. The other is Grin, which we’ll be looking at next week. Both of these use MimbleWimble, and the tech is similar in each case. Consequently, we will focus on the major differences between the two, which broadly come down to economics and culture.

 

Beam is a VC-funded Israel-based project. Thanks to its backers, it’s well capitalised, well organised, and is making rapid headway in its roadmap – which is ambitious. It’s a Proof-of-Work mined coin that employs the known and well-tested Equihash algorithm.

 

One of the biggest differentiators for Beam when compared to Grin is its emission schedule. ‘Beam emission schedule is largely inspired by Bitcoin’s. The main differences are that there are 10 times more blocks and that Beam’s first-year emission is 100 Beam coins per block. The first halving occurs after 1 year, and then halvings occur every 4 years, 33 times in total.’

 

Beam therefore has limited supply, with a total of 262,800,000 Beam. 52,560,000 of these will be mined in the first year, or 20%. Then there’s an early halving, and a four-year period at the next emission frequency. After year 5, 60% of all Beam will have been mined. Beam is therefore designed very much as a ‘store of value’ coin, though the high inflation of the first year may have short-term price implications. There was no pre-mine, but there is a significant treasury share – 20% of each block for the early period – that will be used to fund development. A share is also distributed to the VC backers. Again, this theoretically has implications for the market, though in the grand scheme of things it shouldn’t be overly problematic.

 

Beam is actively mined, but currently has few exchanges. The places you can buy Beam tend to be small, less well-established exchanges, where liquidity – and, frankly, trust – are lower. This is likely because Beam has plenty of funding, and therefore could choose to buy exchange listings if it wanted. Paradoxically, this has meant it has not been listed by larger and more reliable exchanges; no doubt that will come in time, when Team Beam are ready. For now, price is between $1 and $2. Given Beam’s emission schedule, that would mean a $50-100 million market cap by December and $250-500 million by December 2023. Such is the promise of Beam that this seems like quite a good deal at this point – though as ever, this is not trading advice and readers should do their own due diligence.

For further background, see Beam’s position paper.

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Quadrigacx sees 26,000 BTC go AWOL, perhaps forever

The CEO of the Canadian exchange is reported to have died, taking the private keys to its cold storage with him. Not everyone is convinced.

 

Back in January 2015, the bear market was a little over a year old. It had been a tough year, with existential questions asked of bitcoin and blockchain. Then, when hope was waning and the digital currency was on the ropes, in came the knockout blow. Bitstamp was hacked, with the loss of 19,000 BTC – then worth around $5 million. The exchange went offline, and the price data simply shows a gap for that period. When it came back online, it wasn’t long before traders threw up their hands and capitulated, driving the price down to a low of $155. Bitcoin swiftly met powerful buying pressure, bringing it back above $200, where it ultimately stabilised. Thus the 2014 bear market ended much as it had begun, with the hack of a major exchange (the first, for the uninitiated, being MtGox in February 2014).

 

History doesn’t repeat but it rhymes, and it’s interesting that we have just seen another major exchange shut its doors – probably for good. The story of Quadrigacx has attracted plenty of attention, for various reasons. The loss of the private keys to cold storage – containing the vast majority of the exchange’s funds – as well as the apparent loss of access to its fiat accounts (presumably temporary), has left its traders gnashing their teeth in anguish. $190 million is in the wind. How, in 2019, after all we have learned, could this have happened?

 

There are many twists in the story. Naturally, there is a conspiracy theory that the CEO, Gerald Cotten, did not die in India, as claimed. Presumably it is a trivial thing to purchase a death certificate from corrupt officials with the right connections and tens of millions of dollars in virtual currency. Then there is the report that uses blockchain analysis to evidence the likelihood that Quadrigacx never had the crypto it claimed; it was supposedly running a fractional reserve and paying withdrawals from new deposits. Then Jesse Powell, CEO of Kraken – who has noted how convenient were the timing of the death and the circumstances of the lost funds for a troubled exchange – tweeted that Quadrigacx had apparently been using Kraken to store crypto.

 

We have thousands of wallet addresses known to belong to @QuadrigaCoinEx and are investigating the bizarre and, frankly, unbelievable story of the founder’s death and lost keys. I’m not normally calling for subpoenas but if @rcmpgrcpolice are looking in to this, contact @krakenfx

 

There is now a petition for Kraken to take over the running of what remains of Quadrigacx. Needless to say, the weight of evidence is stacking up and this is looking more and more like an Exit Scam with every passing hour. If so, that crypto is not off the market, locked forever in a forgotten cold storage account.

So one of the wider questions this episode raises is: Is Quadrigacx to 2019 what Bitstamp was to 2015?

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Looking ahead: the Halvening 2020

In the grip of a deepening crypto winter, the Bitcoin Faithful are looking ahead to the next Halvening to inject new life into the market.

 

The Halvening is Bitcoin’s only adjustment in Monetary Policy. Unlike fiat currencies, where inflation targets and monetary supply are typically set by politicians and central banks respectively, bitcoin’s supply is algorithmically determined. Every block – on average 10 minutes – a new tranche of bitcoin’s are created. And every 210,000 blocks, or around 4 years, the size of that tranche is cut in half.

 

Thus decreasing new supply is built into the Bitcoin protocol. The laws of supply and demand suggest that this should have a significant effect on price, since – all things being equal – there are fewer new coins coming onto the market.

 

To date, history appears to have borne out that idea. The first Halvening took place on 28 November, 2012, when Bitcoin’s rewards dropped from 50 BTC per block to 25 BTC. At the time, bitcoin cost just $12. Looking at the log chart, price action was flat at the time but it’s clear that this was the point that the huge run-up to over $1,000 at the end of 2013 began, almost exactly a year later.

 

The second Halvening occurred on 9 July 2016. Once again, the chart suggests this was a key point in the next run-up, from around $620 at the time to almost $20,000, 17 months later.

 

Important though these events are, they’re not nearly enough on their own for making reliable predictions. The ecosystem was very different in 2012, when bitcoin was barely known. By 2016, the growing influx of retail money was making an enormous difference to price – the Halvening helped but did not fundamentally change that dynamic.

 

Still, basic economics points to the next Halvening as a major event for Bitcoin. Right now, it’s expected to happen in May 2020, and block rewards will drop from 12.5 BTC to 6.25 BTC. You can keep track of it at http://www.thehalvening.com. One factor noted elsewhere is that this Halvening will see Bitcoin’s inflation rate drop below that of the target rate for central banks: 900 BTC per day will put inflation at just 1.8% and falling.

 

We have to repeat that we don’t have enough data to know what will happen, as so much depends on the state of the market. So far, the price run-up in the year before each Halvening might just be a coincidence – though intuitively, it makes sense. The event is known in advance and expected, so traders factor it in. Nothing really happens for a while. But then the fundamental fact of reduced supply gradually takes effect, causing incremental changes and helping drive the market higher. In the context of increasing global demand, that’s powerful. Of course, the market gets overheated, the bubble pops and the cycle starts again.

 

We also have to look at the timeframe. The bubble tops do not coincide with the Halvenings, they take place between them, and the offset has been different – around 12 months and 17 months afterwards in each case. Looking at it a different way, the bull market seems to begin around a year before each Halvening. That would put the start of the new uptrend in May this year, which allows very little time for consolidation but could potentially fit with the bottoming of the market.

 

One last point, from the other side of the coin. The Bank of International Settlements recently published a report that falling block rewards would ultimately kill Bitcoin, as there would not be enough money to pay miners, impacting speed and security. ‘Whenever block rewards decrease, the security of payments decreases and transaction fees become more important to guarantee the finality of payments. However the economic design of the transaction market fails to generate high enough fees. A simple model suggests that ultimately, it could take nearly a year, or 50,000 blocks, before a payment could be considered “final”.’

 

So for various reasons, we await the 2020 Halvening with interest.

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‘Ex-chainers’: the personal price of the crypto crisis

While bitcoin lost 85% of its value over 2018, the real tragedy of the bear market has been the human cost. In this series of guest posts, Inferno publishes interviews with former members of the blockchain scene who left the crypto sector for the real world. Names have been changed to protect privacy.

 

I meet Karen at a diner on her way home from work. I’m already sat at one of the booths, watching the entrance, and it’s clear exactly who she is when she walks in. Late 20s, smartly but informally dressed. Pretty, but with a distance in her eyes that is obvious straight away. The sign says to wait until she is seated but she spots me and walks over – displaying evidence of independent thought not shared by 90% of the population. Crypto will do that to you, if you let it.

 

Over dessert, Karen tells me her story. She got into crypto three years ago during a temporary spell of unemployment. It turned into a two-and-a-half year career break as she carved out a niche for herself and worked hard to establish a reputation as a community moderator for a number of large ICOs. ‘I was one of the beneficiaries of that exponential rise in 2017,’ she explains. The ICOs were successful, she was successful – she picked up over $50,000 on each of them, she tells me, selling most of her tokens near the top.

 

‘I guess I learned to read people, to read markets, during the course of my work,’ she says. ‘Prices were rising in 2016, when I got started. Then they started to accelerate. And then the acceleration accelerated. The communities I was helping manage, they were full of people making incredible price predictions. Understanding some basic psychology, the nature of herd mentality, put me ahead of most of the competition – even if I didn’t have a financial background like I assume a lot of those traders did. They were all making money, all euphoric, but there was this little voice in the back of my head…’

 

Karen made a fortune out of selling her tokens, and then watched as the whole thing came crashing down. ‘It didn’t give me any pleasure to know I’d been right,’ she continues. ‘I’d have been happy to be proved wrong. After all, they were the experts. I was just there to help manage the community.’ But that task, it turned out, was about to get a lot harder.

 

As bitcoin topped out at $20k and the ICO scene imploded under the weight of the bear market and new regulation, her communities turned nasty. ‘These were smart, articulate people but they never saw it coming,’ she explains, shaking her head. ‘It hit them like the back of a bus.’

 

Not long after, Karen simply switched off her computer and left crypto for good. She hadn’t used a real identity online, there was nothing that could be used to track her. ‘I cashed out the remainder of my crypto, deleted whatever email and social accounts I could and shredded my hard drive. I was out of there like a ghost. That life never existed.’

 

Today, Karen works as a childcare specialist, returning to her previous career. After life as a community manager in crypto, she finds interacting with highly intelligent, rational adults too painful. ‘It’s easier to work with children. Sure, they have tantrums. Sure, they have totally unreasonable expectations. Sure, they don’t speak very good English and some of them have poor personal hygiene. Sure they can be really nasty to you sometimes, when things aren’t going their way. But you know what? For some reason, I don’t find that hard any more.’

 

The author is an experienced financial journalist whose opinions and interviews have been featured in The Guardian, Forbes and the Financial Times. He writes here under the pseudonym Marcus Aurelius.

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Inferno picks: MimbleWimble

This powerful tech underpins Grin and Beam – two of the most exciting crypto projects of the moment.

 

Bitcoin is incredible tech, but it has its limitations. It’s slow, and it’s a resource hog. This is due to the way the protocol works. When you send coins, you are not updating your balance or the recipient’s balance. Instead, you are cryptographically proving that you own coins in the sending address, and then registering the ‘output’ to the new owner using the recipient’s address.

 

In order to prove you own coins, your Bitcoin wallet has to plough through the entire blockchain, checking each output to see if you are the legitimate current owner – tracing that ownership right from when the coins were first mined into existence, through every previous owner to the present day and your address. That requires that full nodes hold the whole blockchain, and have the computational resources to trawl through it. It also means that every address and every amount transacted are stored on the blockchain, which is totally transparent. While bitcoin can be relatively private if used carefully, in practice information is almost always leaked and the public nature of the blockchain means anyone can get their hands on that data.

 

Mimblewimble was proposed back in 2016 as a new kind of blockchain solution that addressed these problems. It’s named after a tongue-tying spell in the Harry Potter books, because the blockchain doesn’t give up information about its users. Like Bitcoin, Mimblewimble was proposed by an anonymous developer – this one calling himself Tom Elvis Jedusor (the French version of Tom Marvolo Riddle, Lord Voldemort’s schoolboy name). It won’t surprise you to learn that they’re not the only Harry Potter references in the Mimblewimble (MW) world. You can find the MW white paper here – though it’s really just a text file, hardly as comprehensive and well-articulated as Satoshi’s Bitcoin paper. But it does the job, and it has caught a lot of interest, because the ideas within it are exceptional.

 

MW is a collection of technologies, much like Bitcoin itself built on existing ideas like Adam Back’s HashCash and public key cryptography but combined them in new ways. The white paper is dense, technical and frankly a little disorganised, so it’s not for the uninitiated. Some of the major features are as follows.

 

No addresses. Using MW, you prove ownership of outputs using a private key. However, those outputs are not registered to an address, like in Bitcoin, and when publicly verifying you own them, you do not have to leave sensitive information (like addresses) on the blockchain.

 

No amounts. MW takes a ‘zero sum’ approach, whereby you only have to prove that no new coins have been created (and that the transaction is therefore legitimate), not how much was sent. So long as outputs minus inputs equals zero, that’s all that matters. So neither addresses nor amounts of coins are stored on the blockchain at all.

 

Scalability. MW uses a neat feature called transaction cut-through, which essentially condenses all the transactions in the blockchain into one single, large transaction. This is a little like a central bank carrying out settlement for commercial banks at the end of the day. Money might move backwards and forwards many times between thousands of different recipients, but all that really matters is the net difference. If Alice sends Bob some coins, and Bob sends all of those coins on to Charles, Bob doesn’t need to be in the blockchain at all. This means there’s far less information stored on the blockchain than there is for Bitcoin, which improves privacy and reduces the storage space required.

 

Dandelion. This is an upgraded network protocol that also improves privacy. Instead of a node simply broadcasting a transaction to the network, that data first takes several steps from one randomly-selected node to another, until the last one in the ‘stem’ of the dandelion, at which point it’s dispersed more widely. The result is it’s very hard to know where that transaction has come from.

 

In short, Mimblewimble appears to offer the best of both worlds, combining both scalability and privacy – something that other privacy protocols have so far dismally failed at. There are drawbacks, or ‘features’, perhaps. Because there is a need for both parties to agree and sign a transaction (to confirm the ‘blinding factor’ that helps obscure the amount transferred), both wallets need to be online for the transaction to be finalised. You can’t just send coins to an address, like bitcoin – which also has implications for cold storage. And Bitcoin’s scripting language had to be removed, so different implementations will need to find workarounds for features like multi-sig and the Lightning Network – which will be needed if it is to be used as cash, because its throughput isn’t that much better than Bitcoin’s.

 

Overall, though, this is some incredibly exciting tech. We’ll be looking at two specific implementations, Grin and Beam, in the coming weeks, and it wouldn’t surprise us if Mimblewimble became a very popular approach for many more new blockchain platforms.

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