Litecoin is adding new privacy features through the use of ‘confidential transactions’

Litecoin founder Charlie Lee has claimed he is focused on making Litecoin more fungible with the introduction of ‘confidential transactions’ to the 7-year-old network.

In a tweet pinned to the top of his profile, he goes on to describe how “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 on fungibility and privacy.”

According to Lee, the addition of confidential transactions “can be implemented as a soft fork” in the network. If this is the case, then the Litecoin blockchain will not have any potential chain split risks or consensus building challenges that are often associated with hard forks on the network. He also mentioned that the change should be taking place sometime in 2019.

The Litecoin founder is in the process of doing his homework for the new “battleground” feature. Lee tweeted that he has some “light crypto reading” to do on confidential transactions.

A recent community poll saw overwhelming support for the plan to add confidential transaction capability into the Litecoin protocol. From the 7,000 people who voted, only 8% thought it was a bad idea.

How confidential transactions solve fungibility

Confidential transactions solve the issue of fungibility by encrypting input and output values. Due to the fact that the history of outputs cannot be traced, it is impossible to determine their origin, making it difficult to differentiate tainted coins from untainted ones.

After incorporating this feature, it then becomes significantly harder to track the transaction history of a particular user, even if their public address is freely available. This provides an increased level of security for those conducting confidential transactions on the network.

Any issues?

One of the issues with confidential transactions on the main Bitcoin blockchain was the fact that they would have required roughly 16 times the data size of a regular Bitcoin transaction.

This larger size makes confidential transactions difficult to implement into a Bitcoin protocol already experiencing scaling issues. However, with the increased capacity (and lower demand) in the Litecoin network, users may accept the trade-offs with higher transactions fees or longer confirmation times that may come along with the addition of this new feature.

Not rolled out on Bitcoin

The technology behind confidential transactions was originally conceived for use on the original Bitcoin blockchain by Blockstream CEO and cryptographer Adam Back.

Although never rolled out on the layer-one BTC blockchain, Blockstream’s Bitcoin-backed sidechain Liquid has incorporated the use of confidential transactions into their network features list.

The attention to privacy in confidential transactions could be bad news for other privacy and anonymity focused tokens like ZCash, Dash, and Monero. It will be interesting to watch how the privacy tokens fair once Litecoin introduces Lee’s vision into its blockchain.