Litecoin to introduce Confidential Transactions in 2019 soft fork

Posted: 30 January 2019 5:29 pm

The move is aimed at introducing fungibility to Litecoin.

Litecoin creator Charlie Lee announced on Twitter that he's decided to introduce Confidential Transactions to Litecoin. It "should be sometime in 2019," he explained.

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

It's a secret

Fungibility is the property where two things of the same type are functionally identical.

A cash dollar is fungible because a dollar is worth a dollar regardless of whether it's fresh from the mint or if it just got seized from a drug dealer. You can swap one for another without anyone caring. A bitcoin is arguably not fungible because you can tell one bitcoin apart from another based on its transaction history, and a dirty stolen bitcoin might be worth less than a shiny honest bitcoin.

As the theory of sound money goes, fungibility is a highly desirable property of money to better protect its value. Beyond that, it also makes it more usable for people who want to conduct illicit transactions.

As Greg Maxwell, the bitcoin developer who originally proposed the concept of Confidential Transactions said:

"Insufficient privacy can also result in a loss of fungibility – where some coins are treated as more acceptable than others – which would further undermine bitcoin's utility as money."

According to at least one Twitter comment, this is already happening to bitcoin.

How do Confidential Transactions work?

Confidential Transactions were proposed for bitcoin, but never implemented. They've since been implemented elsewhere, most notably in the Mimblewimble protocol used by the recent Grin and Beam cryptocurrencies.

It works by basically breaking individual transactions into multiple pieces and then concealing its values with a screen of white noise numbers. The end result is to conceal the values of each transaction and to cover up the histories of the individual coins used in a transaction, thereby instilling fungibility. With Confidential Transactions, it becomes almost impossible to prove that someone was sending or receiving dirty cryptocurrency or which coins are ostensibly dirty.

The move was widely welcomed by at least 72% of the people who voted on a Twitter poll.

Disclosure: At the time of writing, the author holds ETH.

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