Just about everyone has heard of Litecoin, surely? OK, if not, then here is a quick outline of its history.
To understand the difference between Litecoin and Bitcoin, we really need to first talk about mining and hashing algorithms. Bitcoin uses SHA-256 for its hashing process. SHA or Secure Hashing Algorithm, are a family of cryptographic hashing functions. The functions were developed by the NSA and first published by the National Institute of Standards and Technology (NIST) as a US Federal Information Processing Standard (FIPS).
The Secure Hashing algorithm is highly efficient using any computational microchip technology, whether that be CPUs, GPUs or ASICs. In the early days of Bitcoin mining was mainly achieved using CPUs, before long however GPUs were utilized to gain faster hashrates and thus win more blocks than CPU miners, then came specifically designed microchips that’s only job were to hash the bitcoin network, ASICs soon dominated the bitcoin mining network, making CPU and GPU mining obsolete from a profit perspective.
A project called Tenebrix attempted to thwart this issue with their cryptocurrency by swapping out the SHA-256 algorithm with the scrypt algorithm. Scrypt, designed in 2009 by Colin Percival as the cryptoprotection of the online service to keep backup copies of Unix-like operating systems. The algorithm intentionally complicates the selection of options used to solve a cryptographic task by filling the data with noise. This noise is made up of randomly generated numbers to which the scrypt function refers to, and thus increasing the time it takes to hash. It intentionally less efficient.
Tenebrix however had a whole other set of issues, like a 7.7 million token lockup for founders, which could be pulled from the supply and sold at any time. A Google employee by the name of Charlie Lee liked what he saw with Tenebrix, with the exception of its founder vault and cloned the project, removed the 7.7million TBX pay-out for founders and published the new project named Litecoin on Github in 2011. The network went live within a week.
CPU Miners flooded to the project, and it quickly gained a lot of market share within the relatively small crypto space at the time. Of course, it wouldn’t be too long before once again technology found a way around the scrypt function and created efficient ASIC technology to monopolize the Litecoin mining network, but that’s a whole other discussion. Litecoin was born from the desire to give hashing power back to the little man and his CPU.
Litecoin has since become a testing ground for potential Bitcoin protocol implementations.
For example, we first saw the segregated witness (SegWit) upgrade roll out on the Litecoin network, once tried, and tested it was later rolled out on the Bitcoin network.
Litecoin is one of the few long-standing cryptocurrencies that have stood the test of time, it has continued to remain at the near top of the table for many years with a current market capital of just over $3 Billion and wide acceptance by just about every single crypto exchange in the World, it is a quiet force to be reckoned with!
The Magic of MimbleWimble is Unleashed!
Sounds all a little Harry Potter don’t you think? Well, that is because it was meant too. MimbleWimble was in fact taken from the Harry Potter story, it was a tongue-tying spell.
First proposed in 2016 by a developer under the pen name Tom Elvis Jedusor (the French-language version of Voldemort from the books), the primary purpose of MimbleWimble is to provide transaction privacy.
On May 19th 2022 this piece of Hogwarts inspired magic was implemented onto the Litecoin network. So, how does it work?
To make use of MimbleWimble’s optional privacy-preserving technology, Litecoin users can move their litecoins into “Extension Blocks”. Any transaction performed within these ‘extension blocks’ will have their transactions concealed. Litecoin can be moved freely back to the mainchain to conduct transparent transactions again. So, it isn’t privacy by default, but it is a perfectly functionable privacy option for those using Litecoin.
While these extension blocks are often referred to as being separate to the mainchain, they are in fact held within the mainchain, so this isn’t a second-layer option, it’s all on-chain.
To send funds into the privacy-preserving Extension Blocks, a user must create a specific pegging-in transaction, or send to a special MimbleWimble Extension Blocks (MWEB) address which has a prefix of ltcwmeb1, in which case the miner will then create the pegging-in transaction on their behalf.
Continuing the Harry Potter theme, these pegging-in transactions are processed by a transaction in the same block called the HogEx (Hogwarts Express, yes, I kid you not!).
The MimbleWimble function used the following privacy technologies:
- Confidential Transactions keeps the amount transferred visible only to participants in the transaction, while still cryptographically guaranteeing that no more coins can be spent than are available.
- CoinJoin acts like a mixer to conceal the sender of particular transactions, by combining multiple inputs from different parties into a single transaction.
- Stealth Addresses conceal the recipient of a transaction, through single-use addresses that cannot be seen on the blockchain without the corresponding viewing key. In Litecoin, these stealth addresses begin “ltcmweb1”.
MimbleWimble was first implemented on the Grin Cryptocurrency back in 2019. Before long however an article surfaced claiming that MimbleWimbles privacy model had been broken for as little as $60 per week.
‘Researchers have found that they can bust Mimblewimble’s privacy system with one simple trick. It essentially involves catching transactions before they even reach the bundle by keeping a close eye on the entire network.
This is possible because Mimblewimble needs to wait until it has enough transactions to make a sufficiently large bundle and because transactions can’t cross the blockchain instantly.
Picture each user as a hole on a pegboard. When someone sends a transaction, it comes out of a hole. For the blockchain to work, all the other holes need to be able to see and verify all the transactions that are flying around.’ – Source
However, the researchers fail to provide any evidence of such an exploitation, and several years later no such example has been provided. After a thorough read of the explanations given by the researchers in how the MimbleWimble function can be broken, I’d tend to agree with this article, that the researchers have provided misleading information.
That said, I’m no expert on cryptography and just how private the MW function is compared to alternatives like zkSnarks as used by ZCash & PirateChain or Ring-Signatures as seen in the Monero project, I couldn’t say with certainty.
Each has their own set of potential flaws and likely none are perfect, but all are a step in the right direction and offer us increased protection from transaction sniffing.
MimbleWimble Scalability Benefits
MimbleWimble has more than just privacy benefits under its belt, it also offers scalability improvements to the network.
According to the blockchain basics, each node adds information regarding the transaction to the ledger to increase block size. Large block sizes cause scalability issues that refer to the limited capability of the blockchain network to handle large amounts of transaction data in a short span of time. By implementing CoinJoin and Cut-Through to eliminate unnecessary transaction information and reduce block sizes, Mimblewimble achieves superior scalability due to compact blockchain size.
So, where does this leave Monero, PirateChain and other privacy coins, are they obsolete?
Well, certainly Litecoin’s new privacy feature is significant for the privacy community. But it isn’t all good for Litecoin, within hours of the MimbleWimble implementation two Korean exchanges have announced they are dropping Litecoin due to violations against the country’s rules on privacy coins. Further exchanges are likely to follow.
But, Litecoin does still have the advantage over all other privacy coins, it is an established name, it has a large pool of developers working on the project, it has the largest number of active wallets and the largest market capital out of all the privacy coins.
That said, cryptocurrency is very tribal, and none more so than the privacy sector. Many don’t simply flock to the best and most useable product when it comes along, no, they stick to their privacy coin of choice through thick and thin. We see this with both the Monero community and the PirateChain community. Both communities are driven by tribalism, rather than fundamentals. This tribalism can often be seen through propaganda warfare between the groups, each making often false claims about each others projects privacy mechanism.