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MimbleWimble, named after the tongue-binding spell in Harry Potter, is a privacy and scalability upgrade that was deployed on the Litecoin network on May 19, 2022. In this article, we explain how it works in practice and what it means for crypto market participants.
First proposed in 2016 by a developer under the pseudonym Tom Elvis the Riddler (the French-language version of Voldemort from the books), MimbleWimble’s primary purpose is to provide transaction privacy. Blockchains like Litecoin are highly transparent by default, as the sender and receiver addresses, as well as the amount being sent, are revealed in every transaction. This has long been a privacy concern.
A standard Litecoin transaction with two sending addresses, two receiving addresses and clearly displayed amounts involved (Source: blockchair.com).
To take advantage of MimbleWimble’s optional privacy technology, Litecoin users can move their Litecoins to “Extension Blocks”. Conceptually, this can be thought of as forming a parallel blockchain of the main Litecoin chain (technically, however, these extension blocks exist within each Litecoin block).
Any transaction conducted within these blocks will hide the addresses and amounts involved from all but those involved in the transaction, allowing users more transaction privacy than they could easily achieve on the main blockchain. Users can then move their Litecoins out of the extension blocks and back into the main chain to make transparent transactions again.
Importantly, the use of extension blocks is completely optional for users and so far the vast majority of Litecoin activity remains on the transparent ledger. At the time of writing, only about 0.00001% of the circulating supply of litecoin is within the expansion block, however this volume is expected to increase as more wallet providers and exchanges build support for this feature.
How do users move funds in and out of Extension Blocks?
Moving funds to the extension block is called “committing” and removing funds back to the main transparent chain is called “committing”.
To send funds to privacy-preserving extension blocks, a user must create a specific commit transaction or send to a special MimbleWimble Extension Blocks (MWEB) address prefixed with ltcwmeb1in which case the miner will then create a bind transaction on their behalf.
Linked transaction for just over 84 LTC.
These connection transactions are handled by a transaction in the same block called HogEx (short for The Hogwarts Express), which then allows the user to transact these litecoins within the next expansion block.
To remove funds from the expansion block, the user creates a commit transaction by sending funds to a non-privacy Litecoin address. They can then move funds after six block confirmations – six blocks are processed above the block where their transaction resides. These binding transactions are also processed in the block’s HogEx.
The final component within a HogEx transaction is the movement of the “balance” of the extension block from one block to another. As such, HogEx moves the balance, replenishes it with any new transaction links, and reduces it for any link transactions.
An example of a HogEx transaction, with the balance movement outlined in red, one binding transaction to this block in green, and one binding transaction in yellow.
While it is not possible to track Litecoin transactions via extension blocks, it is possible to see when this feature is being used. Elliptic’s solutions provide visibility into whether a transaction or wallet contains funds that have used extension blocks. This facility can be used by regulated companies to ensure regulatory compliance when engaging in Litecoin transactions.
How is privacy achieved through MimbleWimble?
The implementation of Mimblewimble embedded in Litecoin uses a number of technologies to ensure privacy:
- Confidential transactions it keeps the transferred amount visible only to the participants in the transaction, while still cryptographically guaranteeing that no more coins than available can be spent.
- CoinJoin acts as a mixer to disguise the sender of certain transactionsby combining multiple inputs from different parties into one transaction.
- Stealth Addresses hide the recipient of the transaction through disposable addresses that cannot be seen on the blockchain without the appropriate viewing key. In Litecoin these hidden addresses start with “ltcmweb1“.
Is Bitcoin Next?
Historically, Litecoin has acted as a testbed for innovative new features later adopted by Bitcoin. For example, the SegWit scalability upgrade was added to Litecoin in May 2017, before being incorporated into Bitcoin a few months later. The Layer-2 Lightning Network launched on Litecoin in May 2017, before the Bitcoin version went live in March 2018.
Bitcoin core developers will no doubt be watching closely to see how this new Litecoin feature works and whether users embrace its privacy benefits. As privacy becomes an increasingly important topic throughout the blockchain space, Bitcoin and other blockchains may look to adopt MimbleWimble or other technologies to help preserve the privacy of their users.
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