On Feb 7, 2019, Director of the Litecoin (LTC) Foundation Franklyn Richards announced that Litecoin Core Developers were investigating the possibility of integrating the Mimblewimble protocol into LTC.

Richards discussed how integration could be accomplished without a hard fork. He also implied that such a change would create two types of LTC which are convertible between each other: regular LTC and Mimblewimble LTC.

Charlie Lee, the creator of LTC, announced that he wanted to add confidential transactions to LTC on Jan 28, 2019. The purpose of this proposed change was to increase the fungibility of LTC by increasing the privacy of peer-to-peer (P2P) transactions across the network. A confidential transaction hides the amounts of a transaction by encrypting the input and output values. Mimblewimble is a protocol which integrates confidential transactions with another blockchain innovation called Coinjoin to increase fungibility and privacy.

Fungibility and Privacy

Every unit of a fungible asset is identical to every other unit of the same amount. For example, a kilogram of gold is identical to every other kilogram of gold, as long as there are no impurities within either. Because of this, gold is interchangeable with gold of the same quantity. Thus, gold or other fungible assets can be credited from one person to another without leaving a paper trail.

If Jack loans Jill a kilogram of gold, then Jill can repay Jack with another kilogram of gold at a later date without any trace of the transaction. The only trace that would exist is if Jack, Jill, or a third party intermediary recorded it.

Litecoin, however, is only partially fungible. While one litecoin appears identical to every other litecoin, no two litecoins are the same. This is because every transaction made with LTC is recorded on the blockchain. If Jack loaned Jill one LTC, then that would be recorded on the blockchain, forever giving the smallest amount of every litecoin a unique paper trail. Thus, no litecoin can be the same as another because the record of each is inherently distinct.

Furthermore, when Jill repays Jack with a different litecoin, she is giving him an asset connected to a series of transactions from which it can never be separated. As long as each LTC, or portion of an LTC, contains a unique paper trail, full fungibility is impossible.

Mimblewimble and Fungibility

Mimblewimble was first introduced by Grin (GRIN) in Nov 2017 when the coin’s first testnet was launched.

Beam (BEAM), however, was the first Mimblewimble coin to launch a mainnet on Jan 3, 2019. Mimblewimble is a privacy coin which creates greater fungibility in coins and tokens which integrate it, compared to those which do not.

Confidential transactions alone do not create fungibility because the encrypted inputs and outputs will remain unique to each transaction. While the exact amounts transferred can only be known by the two parties involved in the transaction, these amounts remain unique to the transaction at hand.

By using CoinJoin in conjunction with confidential transactions, however, fungibility can be increased. CoinJoin takes multiple confidential transactions from several sources and combines them into a single transaction.

This makes the amounts sent and received as well as their sources more difficult to trace. Still, while this increases privacy, it does not create full fungibility. Simply encrypting and hiding the source of data does not erase the unique paper trail which belongs to that data.

Extended Blocks and Soft Forks

Nonetheless, while full fungibility may not be possible given the nature of blockchain technology, it can be increased using Mimblewimble.

To avoid the contentiousness of a hard fork, Richards announced the intention to use extended blocks to allow the protocol to be integrated into the LTC network. Extended blocks were proposed in 2013 as a means to increase block size. By creating auxiliary blocks for every main block created, a soft fork could be used.

The new auxiliary blocks would not be backward compatible and, thus, could be indefinitely large. Nonetheless, despite not being able to see these new blocks, the old blocks would still remain valid.

Do you think that Mimblewimble will be successfully integrated into LTC? Let us know your thoughts in the comments below!