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Deep Dive: Litecoin Founder Charlie Lee Explores Tech to Tackle Crypto Privacy

February 05, 2019

Litecoin founder Charlie Lee is exploring how to implement Confidential Transactions (CT) to improve the world’s sixth largest cryptocurrency. Lee is also exploring MimbleWimble.

Confidential Transactions (CT) is a specific method that increases the privacy of a transaction by using blinding keys that can blur Bitcoin addresses and amounts.

MimbleWimble is a protocol that enhances privacy and scalability. It was created by an anonymous figure who goes by the alias “Tom Elvis Jedusor”, the fictional Harry Potter villain in the French edition of the novel series.

Lee says he’s now focused on making Litecoin more fungible. Fungibility allows for a medium of exchange to be interchangeable, and it also allows one unit to be divided into smaller denominations and still retain the same value. Fiat money, for example, is fungible as $20 notes are interchangeable with other $20 notes. One $20 note can also be divided into two $10 notes without losing value.

Litecoin dev team spent hours discussing how to add Confidential Transactions. The way to do a softfork CT is very similar to doing extension blocks and extension blk may be simpler and can do a lot more. We are now also exploring doing bulletproof MimbleWimble w/ extension blks. pic.twitter.com/ePBh8PKNu8

— Charlie Lee ???? (@SatoshiLite) February 3, 2019

Bitcoin’s fungibility is a topic of debate since the history of one Bitcoin can be traced, for example, to an illicit transaction. A recipient may not want to be connected, even on the blockchain, to a Bitcoin that has a sketchy past. An exchange may also not want to trade crypto that’s linked to a bad actor or a notorious history if exposure to such assets creates a degree of regulatory concern or risk.

“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.”

Litecoin’s community manager Illir Gash says,

“Whilst the focus is on bringing fungibility and privacy to Litecoin, nothing has been set in stone yet. The technical aspects are still being researched. We’re investigating solutions that work best for the people, exchanges and regulators.”

Last year Lee tweeted a poll which showed 44% of respondents support using CT, 21% support ZK-Snarks/SK-Starks and 13% support MimbleWimble to add a privacy feature to Litecoin.

Fungibility is the one and only feature of sound money missing from Bitcoin and Litecoin. Do you support adding a privacy feature to Litecoin? If so, which do you prefer and why?

— Charlie Lee ???? (@SatoshiLite) August 29, 2018

Since MimbleWimble and Litecoin differ significantly, an implementation of MimbleWimble would require a hard fork – a brand new version of Litecoin to reflect the updates and radical changes.

It will be a hardfork for sure. Can do it as an upgrade where 2 blockchains run side by side with a one-way send from current blockchain to new MW blockchain. Once you go private, you stay private.

— Charlie Lee ???? (@SatoshiLite) August 29, 2018

If MimbleWimble is adopted, it would make Litecoin the third cryptocurrency to use it. Currently, the protocol is implemented for privacy cryptocurrencies Beam and Grin. 

As cryptocurrency developers explore privacy features, the US Securities and Exchange Commission is ramping up efforts to read blockchain data in order to determine detailed information on transactions, including identifying wallet addresses on the largest blockchains.

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