Mimblewimble Protocol - Crypto Academy / S4W2 - Homework Post for @fredquantum

Question 1 - In detail, explain your understanding of the mimblewimble protocol

In blockchain technology, the mimblewimble protocol is one of the popular terms when it comes to privacy in the blockchain and cryptocurrency world. The mimblewimble protocol is basically a new method of structuring and storing transactions. Similar to how Bitcoin was created and introduced, the mimblewimble blockchain protocol was introduced was back in 2016 by Tom Elvis Jedusor which is a pseudonymous name, and since then, the mimblewimble protocol has undergone a lot of improvements on its core concept.

It is a type of blockchain protocol that utilizes a different application of a PoW blockchain for improved and better privacy and scalability. In the Mimblewimble blockchain protocol, the transactions are completely private by utilizing a new type of security framework that differs from that of Bitcoin. What makes the Mimblewimble blockchain protocol unique is that there are no addresses and fully allows for complete private transactions. Also, the mimblewimble blockchain has a more compact distributed ledger compared to other blockchain.

In the world of blockchain and cryptocurrency, privacy is as also an important aspect and is very useful and beneficial. Unlike a lot of non-privacy cryptocurrencies that exposes the transactions and a lot of details and information of both the sender and receiver. However, with privacy coins is different because it keeps all the details like addresses of both sender and receiver, amount and other information about the transaction fully private.

One of the stand out characteristics of Mimblewimble is that there are no addresses. This is key to its privacy capabilities. Unlike every other blockchain that uses addresses to send and receive transactions, those addresses can be used to get all the details and information about the transaction, howevever, in mimblewimble, there are no addresses which means that it is impossible to get transaction details and information. Also, another benefit of mimblewimble protocol is that of improved network scalability. This is one of the drawbacks of a lot of blockchains and with mimblewimble, it improves scalability because it is a lot more compact, thereby making the blockchain lighter and more scalable.

Question 2 - Discuss in detail how the mimblewimble blockchain protocol works

The mimblewimble blockchain protocol works in a very unique way. The transaction structure of the mimblewimble blockchain protocol is gotten from what is known as confidential transactions which is a method that is also used by other privacy cryptocurrencies. This method is very different from the usual model of other blockchain transactions and it allows for a more compact distributed ledger, making is lighter. Mimblewimble doesn’t make use of addresses and as such, all the transactions data on the mimblewimble network appear to be a collection of random data and cannot be identified by a third parties outside the network and only visible to the transaction participants.

It all starts from a private transaction. “User A” wants to send an amount of coins to “User D”, it will first of all get encrypted by blinding factors which is basically random values that the “User A” chooses and “User D” has to choose from. The transaction becomes valid when “User D” selects a similar value. The reason why “User A” or the sender chooses the blinding factors is so that it becomes more like a proof of ownership for “User D” or the receiver and it authorizes the receiver to make use of the coins received.

To further explain how the Mimblewimble blockchain work, let’s take for instance, “User A” receives 20 tokens on Mimblewimble from “User B” and 20 coins from “User C”. “User A” sends all the 40 coins received from “User B” and “User C” respectively to “User D”. On Mimblewimble blockchain, the transactions will be verified, however, the details of the transactions will not be fully private. The only thing that will be made public to the last receiver is the amount of coins amount of coins he/she received. This means that “User D” will only know that “User A” sent 40 coins and will not know the other transaction details of “User A” from “User B” and “User C”. This is what makes Mimblewimble blockchain fully private.

In the Mimblewimble blockchain, instead of a combination of many block like in most blockchains, it is one large block that can be verified and confirmed by the network, however, there is no way for any third party to find out the details for the transactions in the block and is impossible to know which inputs corresponds with which outputs. A cut-through is a feature that is utilized so as to remove redundant transactions in other to decrease the block data. This is very important in making it faster to synchronize and verify. From my earlier instance above, Mimblewimble blockchain, doesn’t record each of the inputs and outputs of all the “Users” involved in the transaction, instead, it only records a single input-output pair.

Question 3 - Discuss in detail your understanding of Confidential Transactions (CTs)

Confidential Transactions is one of the terms associated with privacy in blockchain. It is what keeps the amount of coins transferred private and only visible to the transaction participants and those who they choose to share the binding key with. This is important and useful because in non-private blockchains where transaction details are public, it can become a huge security risk and tool for malicious actions. However, with confidential transactions, only the amount of coins transferred are visible to the sender and receiver.

The main aim of the Confidential Transactions is to keep transactions private, an idea that was proposed by Adam Back in 2013. This is very important because the amount of coins sent and received is a very useful information that can be used by bad actors for malicious activities, that is why confidential transactions helps to prevent this by making the transactions private and only visible to the transaction participant, which means that outside observers cannot know the details of the transaction. Confidential Transactions keeps the receiver’s address and the amount of coins transferred private and only the transaction participants can know the amount of coins sent and received.

This works by Pedersen commitment which is a cryptographic technique utilized. It is basically a homomorphic encryption that allows a third party carryout operations on encrypted data. Once a transaction is carried out, only the transaction participants can see the amount sent and received. This is not visible to outside observers as they can only see the data that is encrypted. However, outsiders can only verify the encrypted data but cannot see the content of the transaction. Pedersen commitment is used to perform operations like verification of the encrypted data by a third party without knowing the transaction content.

Question 4 - How do you think Mimblewimble Protocol can be utilized on the Bitcoin Network to enable anonymity of transactions and improve scalability?

Bitcoin remains the king of all blockchains, however, it also has its flaws. Scalability issues is one of the drawbacks of the bitcoin network hence why the Mimblewimble Protocol can be utilized to improve scalability. The two main benefits of the Mimblewimble Protocol on the bitcoin network is privacy and scalability.

Transaction Privacy

Mimblewimble Protocol can be used on the bitcoin network to improve privacy and anonymity of transactions. This is done by Confidential Transactions which keeps the address and the amount of coins transferred private and only the transaction participants can know the amount of coins sent and received. When a user sends a transaction on the bitcoin network, the transaction details is public and anyone can see the amount and address of the transaction. This can be become a huge risk and this vital information can be used by bad actors to carry out malicious activities.

With Confidential Transactions used on the bitcoin network, the address and amount of coins sent and received becomes private to the transaction participants. This works by Pedersen commitment which is a cryptographic technique utilized. When a sender wants to send a BTC transaction, it will first of all get encrypted through blinding factors which is basically random values that the sender chooses and receiver has to choose from. Simply put, the transactions contains the details that is used to decrypt the amount of BTC received by the receiver. The blinding factors becomes more like a proof of ownership for the receiver and it authorizes the receiver to make use of the BTC received.

Reduced Block Size

This is also another benefit that the Mimblewimble Protocol can bring when used on the bitcoin network. On Mimblewimble, block data are eliminated to enhance and increase privacy and scalability. The effect of this is that the block will be a lot lighter and it becomes faster for transactions to get validated by nodes. Also, nodes will use less resources and the speed of which it synchronizes with the network increases drastically. Another benefit of having a lower block size is that it encourages more users to become part of the network due to the low cost of resources needed to validate blocks, thereby having more diverse miners and increasing decentralization.

Enhanced Scalability

This is another benefit that Mimblewimble can bring when used on the bitcoin network. Mimblewimble can help improve the scalability concerns of the bitcoin network since the block size on Mimblewimble are much lower, this is done by removing redundant transactions in other to decrease the block data, thereby improving scalability of the network.

Question 5 - State the Pros and Cons of the Mimblewimble protocol

Pros of Mimblewimble protocol

• Improved privacy is one of the pros and benefits of the Mimblewimble protocol. Transactions contents are kept private such as the address and the amount of coins transferred and only the transaction participants can know the amount of coins sent and received.

• The block size is small which helps to improve speed, efficiency and scalability.

• The use of addresses are eliminated, hence increasing privacy and anonymity of transactions.

• Doesn’t require very large node capacity.

• It is more cost effective and makes it possible for anyone to become a miner on the network.

• Fungibility is also another pros of the Mimblewimble protocol because it preserves the value of the coin since there is no way for the origin of the coin to be tracked. Also it allows the any coin to be substituted while still retaining its value.

• Another pros of the Mimblewimble protocol is that is faster to download. Also because of its smaller block size, there is a higher speed of synchronization and verification on the network.

• Another pros of the Mimblewimble protocol is that it eliminates redundancy in the network through the cut-through feature. This helps to decrease block data.

Cons of Mimblewimble protocol

• One of the cons of the Mimblewimble protocol is that the rate of adoption is very slow. While it has shown to be a viable solution to some of blockchains problems, it is still not widely used.

• Another cons or drawback of the Mimblewimble protocol is that it can be vulnerable to malicious attack. This is because of the digital signatures that it relies on. Quantum computers can be used by the bad actors to carry out the malicious attack.

• Slow transaction output is another cons of the Mimblewimble protocol. This is caused by the confidential transactions.

Question 6 - Discuss in detail at least a Crypto that uses the Mimblewimble protocol

Beam (BEAM)

Beam is one of the crypto projects that makes use of the Mimblewimble protocol. It is a private and scalable private cryptocurrency that utilizes the Mimblewimble protocol and LelantusMW. One of the main aims of Beam is to explore the world of confidential DeFi. Beam was created to solve the privacy issue that is associated with public blockchains like bitcoin. Back in the early years of bitcoin and other public blockchains, it was said that it is impossible to trace transactions on the bitcoin network. This has proven to be false because it is actually possible to trace a transaction back to the sender. This is a huge privacy risk because back actors can use the information for malicious activities. This is where Beam comes in to help solve the privacy problems by making transactions, address balances private which in turn keeps the identities of the sender and receiver private.

The Beam blockchain operates on the proof of work consensus mechanism and was created to improve privacy and scalability of blockchain. The Beam project was launched in March 2018 and the project was said to have held a private sale which about raised $5.2 million. One of the stand out features of beam is that is allows anyone to make transactions that are safe, stable and reliable. This is important in ensuring that user data is managed properly and more secure. On Beam, addresses are kept fully private and there is no way for outsiders or third parties to know the addresses of user, thereby giving users full control over their privacy, and can only decide who they decide to share their information with.

Beam Features

• Privacy by default
• Confidential Assets
• Atomic Swaps
• Decentralized Exchange
• Superior usability
• Smart Contracts
• Confidential DeFi

BEAM Statistics

At the moment, BEAM has a market capitalization of $70,759,070 and a fully diluted market capitalization of $191,990,875. It has a the current price is 0.7303 with a circulating supply of 96,945,320.00 BEAM. The total supply of BEAM is 96,945,320 BEAM and a max supply of 262,800,000 BEAM.

BEAM rankings

Currently, BEAM is ranked 473th on the coinmarketcap. With a current marketcap of $70,759,070 which is still not up to a billion, there is a lot of room for BEAM coin to grow. With the features of BEAM and the solution that it provides, there is a higher chance for it to grow and find its way into the top 100 coins in the nearest future when it begins to gain adoption.

BEAM wallet and Exchanges

Beam wallet is supported on a variety of devices such as desktop and mobile. BEAM is listed on a number of the big crypto exchanges such as Binance, Hotbit, Gate, CoinEx and a number of other exchanges.

Conclusion

The mimblewimble protocol has proven to be a solution that provides privacy and scalability in blockchain. It has a lot of benefits that when used in the bitcoin network, it can help solve some of the problems in the bitcoin network such as privacy issues and scalability issues. BEAM is one of the blockchains that utilizes the mimblewimble protocol to solve the privacy issues that is associated with public blockchains. While there are not that many blockchains that are making use of the mimblewimble protocol, it is a technology that has proven to bring solution to some of the problems of blockchain and as it continues to grow and gain adoption, many blockchain will utilize it to provide enhanced privacy and scalability.