MimbleWimble adds new features for Litecoin, but some exchanges balk
Litecoin is one of the earliest alternative coins (altcoins) that came to light after Bitcoin (BTC). Created in October 2011, it is now the 20th most valuable cryptocurrency, boasting a market capitalization of over $4 billion, according to CoinMarketCap data.
The MimbleWimble upgrade was first conceived more than two years ago as part of the Litecoin Improvement Proposal. That was in November 2019, as the network started planning on enhancing anonymity between senders and receivers of a transaction on its network.
And now, the MWEB is finally out following approval from the majority of nodes. The upgrade was done at Litecoin’s block height of 2,257,920 and came with significant privacy feature changes to the Litecoin network.
But, there’s more to the MWEB than just the newly-added privacy features for LTC users. The MWEB also brings key improvements to activities on the blockchain. For instance, it helps reduce needless transaction data from the blocks to the barest minimum using its cut-through feature.
The cut-through feature ensures that long transactions are broken down into a single one. That is, instead of recording each input and output separately, the block would only record one input-output pair, thereby removing excess data.
Following long years of development and anticipation by its community, Litecoin (LTC) finally activated its MimbleWimble Extension Blocks (MWEB) upgrade on May 19. But, with the blockchain upgrade mainly focused on carrying out private transactions on the network, global regulations could undoubtedly be flouted.
South Korean regulations undermined
Despite the buzz around the transactional confidentiality that has now been launched by Litecoin, there seem to be issues on the regulatory front, particularly with regard to Anti-Money Laundering (AML) and Know Your Customer (KYC) laws. In fact, it was for this reason that leading exchanges in South Korea delisted the coin from their platforms.
On June 8, 2022, Upbit, alongside four other leading crypto exchanges in South Korea, removed support for Litecoin. The other exchanges include Bithumb, Coinone, Korbit and Gopax. However, each of the exchanges has cited similarly worded reasons, claiming that the MWEB upgrade does not align with the provisions of the Act on the Reporting and Use of Specific Financial Transaction Information. According to the provisions of the law, all Korean crypto exchanges are expected to meet KYC and AML standards. Upbit wrote in part:
“The optional function that does not expose transaction information included in this network upgrade corresponds to an anonymous transmission technology under the Specific Financial Information Act.”
Upbit has always reiterated its resolution to mitigate money laundering and illicit activities of all sorts. Therefore, it is no wonder that it, alongside other top exchanges, is not ready to be caught on the wrong side of the law, especially with the recent privacy-focused MimbleWimble upgrade on the Litecoin blockchain.
Bithumb and Upbit collectively account for most trading volume in South Korea and with their recent delisting, more South Korean exchanges are expected to follow suit.
South Korean exchanges have avoided privacy-related cryptocurrencies after regulators introduced stringent and explicitly prohibited darkcoins in 2020.
How exchanges may stay compliant
Meanwhile, all hopes may not be lost just yet regarding Litecoin in South Korea. On June 3, blockchain analytics and crypto compliance firm Elliptic announced what it claims will be a solution to the curious situation brought about by the MWEB upgrade.
The firm insists that it doesn’t intend to trace whoever is behind any masked LTC transactions. However, it believes it can help regulated businesses to continue supporting Litecoin transactions, all while being in compliance with standing AML regulations.
According to Elliptic, its solutions will help enable merchants to figure out when a Litecoin transaction or wallet holds funds that have passed through an MWEB transaction. With such information, businesses may then decide against proceeding with such activities that will be analyzed as “high risk.”
Essentially, this means that businesses, including South Korean crypto exchanges, can keep on supporting Litecoin as long as they are in the know at every point in time the privacy feature is activated by users.
According to Tom Robinson, chief scientist and co-founder at Elliptic:
“By providing visibility of Mimblewimble activity, Elliptic’s transaction and wallet screening solutions provide businesses with the risk insights they need to continue to support Litecoin while meeting their legal obligations.”
Robinson, in fact, spoke specifically about exchanges and the possibility of having to delist Litecoin. He claims that the exchanges do not have to, as they can carry out their businesses perfectly well without necessarily flouting any AML regulations in support of Litecoin. Furthermore, he added that at some point, one has to realize that virtually all cryptocurrencies have some way to hide their transaction flows, including conjoins on Bitcoin or Tornado Cash (TORN) on Ethereum.
Interestingly, this is not the first time Elliptic will be lending solutions to privacy-protecting technologies such as the MWEB. In 2020, the crypto compliance firm also added support for the Zcash (ZEC) and Horizen (ZEN) privacy coins.
Growing adoption of Mimblewimble
Without a doubt, the introduction of Mimblewimble has been a remarkable achievement in the blockchain industry. Especially with its cut-through feature and other benefits attached to the upgrade.
In light of this, a few other blockchain projects like Beam and Grin might already be exploring the potential of implementing the MimbleWimble design, albeit in technically different ways. While Beam uses the Mimblewimble protocol to reduce blockchain bloating and also improve scalability, Grin uses it to remove past transaction data that might weigh on its platform if such data is kept on-chain.
For now, however, there is still an air of uncertainty regarding the possibility of Mimblewimble seeing a significant level of adoption, especially considering its tendency to bring about regulation compliance issues. Nonetheless, the idea is very young and undoubtedly very promising as well.