S11 E5: Charlie Lee on Mimble Wimble Extension Blocks (MWEB)

Mimble Wimble and Extension Blocks are two interesting Bitcoin proposals that were heavily discussed by Core developers, but haven’t been used for their intended purpose. First presented as a soft fork scaling solution by Johnson Lau in August 2013, Extension Blocks are essentially sidechains that get secured by the same miners and validated by the same nodes. They enable easy transfers from one chain to the other, effectively increase the available the block size without compromising the incentive structure, but come at the expense of adding more complexity and becoming an extra burden for the validators’ hardware.

On the other hand, Mimble Wimble is the new kid on the privacy block. The protocol, which was first introduced by pseudonymous creator Tom Elvis Jedusor on a Bitcoin research IRC channel during the summer of 2016, offers scalable confidential transactions. The proposal was formalized and developed by Blockstream researcher Andrew Poelstra, who proceeded to present his findings at Scaling Bitcoin 2016 in Milan.

In a nutshell, every new MimbleWimble block performs a big CoinJoin where all transactions are equal. Later on, the transaction data structure gets pruned to only leave information about the first and the last transaction from that block. It’s a major improvement that can effectively turn gigabytes of transaction data into only a few kilobytes, while protecting the privacy of the parties involved. In comparison, Confidential Transactions are about 10 times bigger than the average Bitcoin transaction.

With help from Grin++ developer David Burkett, Charlie Lee decided to marry the two Bitcoin proposals into a soft fork for Litecoin. The result adds both scalability and privacy to the Litecoin chain – with the great advantage that everything is compatible with Bitcoin, and this bold experimentation may also serve as an example that the bigger network can follow.

Fungibility is the only quality of sound money that Bitcoin lacks. Since everything is public and the origins of all coins are visible, discrimination between UTXOs is part of the game theory. In order for this discrimination and censorship to get eliminated, we need to make it technically impossible to happen. And for that, Bitcoin requires base layer privacy.

In this interview with Charlie Lee, you will hear us talk about some of the most significant design choices of the Mimble Wimble Extension Block (MWEB) implementation. It’s an all-encompassing dialogue that dares to question the fabric of our transparent on-chain transactions while also presenting something that might just get added to Bitcoin in a few years. It’s the perfect example of BTC proposals being tested on a more centralized and change-friendly chain (as was the case with SegWit and the Lightning Network), and something that has the potential to make Bitcoin more fungible.

“If something is not private, then it’s not fungible.” – Charlie Lee, 2022

The Quest for Fungibility in Litecoin

Charlie Lee has been working tirelessly on a privacy implementation for Litecoin, a feature that could potentially be adopted by Bitcoin as well. His primary goal was to enhance the fungibility of Litecoin, a crucial property of sound money that is currently lacking in both Bitcoin and Litecoin.

Initially, Charlie considered implementing confidential transactions, a feature that would conceal the amounts being transferred. However, he found this approach to be unscalable due to the increased transaction sizes. Instead, he opted for Mimble Wimble (MW) and its extension block implementation. MW offers both fungibility and privacy while addressing scalability through cut-through technology.

Mimblewimble: Striking a Balance between Scalability and Fungibility

There have been concerns about the scalability of privacy in general, especially considering the use of ring signatures in Monero. However, Charlie clarified that MW has been tested and used in other cryptocurrencies like Grin and Beam. He compared MW to Zcash, which offers perfect privacy and fungibility but struggles with scalability. In Charlie’s view, MW strikes a good balance between scalability and fungibility.

Extension Blocks: A Solution for Implementing MW in Litecoin

The choice of extension blocks for implementing MW in Litecoin was initially proposed by Johnson Lau. If users don’t upgrade their nodes, they won’t even know about the extension blocks and can continue using the chain as usual. However, if they want to use the features of the extension blocks, they will need to upgrade their nodes to validate both the main chain and the extension blocks. The storage requirements for the extension blocks depend on their usage, but they do increase the block space.

The Evolution of Privacy in Cryptocurrencies

Privacy in cryptocurrencies has evolved significantly over time. There has been a shift in focus from privacy coins like Zcash and Monero in 2017, as highlighted by the rise of decentralized finance (DeFi) and public ledgers in 2020 and 2021. However, I expressed my concern about the lack of privacy in these developments and emphasized that I do not want it to become the norm.

Charlie agreed and noted that the price of a coin is often detached from its functionality and fundamentals. He pointed out that more people are using privacy coins like Monero and Zcash now compared to four years ago, but the price has not reflected this increase in usage and adoption.

The Inflation Risks Associated with Privacy Technology

Our conversation also touched on the risks associated with privacy technology, such as hidden inflation. We discussed a past incident where a Core developer made a mistake that could have led to inflation but was fortunately caught and resolved. We also mentioned the risk of hidden inflation in privacy coins due to the inability to count the number.

The Future of Privacy in Cryptocurrencies

Looking ahead, Charlie believes that Mimblewimble is a valuable addition to Litecoin, allowing people to experiment with its functionality. He doesn’t expect Bitcoin to implement MWEB due to its conservative nature. However, he believes that MWEB is a valuable addition to Litecoin, allowing people to experiment with new ways to pay.

Listen to Charlie Lee on Apple Podcasts, Spotify, and more!

If you choose to listen to the episode on any of the big tech platform, please don’t forget to subscribe and leave feedback. The metrics aren’t only a mean to express vanity, but also a way for people to discover the content more easily. I generally think that Bitcoin privacy is the most important pursuit that we have in the space, so I’d be happy if more people learned about the various efforts to make it happen.

On the other hand, there is also a registration-free option which allows you to download the episode for offline listening on your old Zune or iPod Nano. Open this link and you’ll get to a native player that won’t discriminate you for using the Tor browser for extra privacy.

If you’d like to also watch me and Charlie discuss, then open the YouTube video below.

00:00:48 Vlad introduces Charlie Lee, the creator of Litecoin. They discuss the compatibility between Litecoin and Bitcoin and the implementation of extension blocks and confidential transactions (Mimble Wimble).

00:02:01 Vlad asks Charlie why he chose Mimble Wimble over other proposals like zero knowledge proofs or ring signatures for implementing confidential transactions in Litecoin. Charlie explains that Mimble Wimble provides fungibility and privacy while maintaining scalability.

Extension Blocks for Implementing MWEB (00:06:50) Vlad asks Charlie about the choice of extension blocks for implementing MWEB (Mimble Wimble extension block) in Litecoin. Charlie explains that extension blocks offer simplicity and allow for confidential transactions without adding complexity to each transaction.

00:14:10 CoinJoin and Confidential Transactions Discussion on the potential benefits of implementing confidential transactions for CoinJoin in Bitcoin and the performance of privacy coins in recent years.

00:15:44 Privacy Concerns and Inflation Risks: Concerns about privacy on Bitcoin and the potential risk of hidden inflation due to the inability to verify every transaction and amount.

00:21:01 Bug Exploitation and Testing: The discussion revolves around the possibility of bugs in privacy technology and the importance of thorough testing to ensure the safety of the implementation.

00:29:36 Storing and Validating Extension Blocks: Discussion on the storage and validation requirements for extension blocks and the impact on node operators.

00:32:13 Fees and Inflation in Extension Blocks: Exploration of how fees work in extension blocks and the dynamics between Litecoin and Dogecoin mining.

00:36:26 Miner Activation and Potential Censorship Consideration of potential censorship by miners and the relationship between Litecoin and Bitcoin mining pools.

00:41:00 Acceptance of Bitcoin by nation states and the delicate topic of privacy on the base layer.

00:43:34 Difference in size between regular transactions and private transactions using confidential transactions.

00:49:58 Pruning of data in Mimble Wimble extension blocks and the privacy benefit it provides.

00:54:26 Improvements to MWEB and Bitcoin’s Conservatism: Charlie Lee discusses the potential improvements to MWEB and why he doesn’t expect Bitcoin to implement it due to its conservative nature.

00:55:57 – Torch Passing and Payment Proofs: Vlad shares his experience with the MWEB Torch and the lack of transaction data visibility. They also discuss the importance of adding payment proofs and other upcoming features.

00:57:44 – Transaction Capacity and Future Block Size: Charlie explains how MWEB currently increases Litecoin’s block size by one megabyte and the potential for a tenfold increase in block size without a fork.

01:08:10 Vaultoro Exchange and Diversification into Gold or Silver

01:10:17 Privacy Benefits and Limitations of CoinJoin, Wasabi wallet ad

This Episode Is Sponsored By Vaultoro And Wasabi Wallet

Joshua from Vaultoro is a big fan of the show and I’m happy that he sees potential in my work and supports it without caring about numbers and growth statistics. So I must thank him for his generosity and invite you to check out Vaultoro – the exchange where you can trade with honest money (bitcoin, gold, and silver). 

None of this is financial advice from me, but I’m pretty sure that the shiny rock is a better store of value than any fiat currency or “stablecoin”, so maybe it would be wise to use this commodity to preserve your purchasing power during bear markets and get back into bitcoin as soon as you’re convinced that the downwards movement are over. You can also have the gold bars delivered to your house… because you know, if it’s not in your safe then it’s stored somewhere in Switzerland where you can’t touch it whenever you please. For more information, check out Vaultoro’s website.

Also, Joshua from Vaultoro is sponsoring a Lightning Network faucet – he hopes that Bitcoin’s second layer will one day become potent and popular enough to replace the smart contract and tokenization features of Ethereum. And he also supported Giacomo Zucco’s layer 3 RGB Spectrum experimentation from 2019. 

If you would like to increase your network-level and transaction privacy, you should download Wasabi Wallet on your computer. It routes your connection through the Tor network to hide your IP, it downloads block filters so you validate your own transactions locally without appealing to a trusted third party, and it also connects to your own full node to boost your financial sovereignty. Extra features include advanced hardware wallet integrations, easy UTXO management (press CTRL+C+D in Wasabi 2.0), address reuse prevention, and even a lurker wife mode.

Wasabi is best known for its link-breaking CoinJoins, which are giving a hard time even to the EuroPol. Use the wallet to increase your financial sovereignty, but don’t do any illegal stuff – use your financial sovereignty with responsibility (also read the Wasabi terms of service).