Privacy coins offer a lot of benefits to cryptocurrency users. Here, we take a look at the BEAM coin, which incorporates a version of the Mimblewimble protocol.
Mimblewimble technology aims to address several key areas within the cryptosphere, including reducing the size of blockchains to improve scalability, which is a common issue in many cryptocurrency networks.
Another reason developers are attracted to the Mimblewimble protocol is their focus on privacy. To drastically enhance privacy, transactions are blended together into one. To do so, intermediary information such as addresses are removed, enabling complete fungibility.
The white paper for Mimblewimble was released by Tom Elvis Jedusor (Voldemort’s real name in the French Harry Potter novels), and fans of Harry Potter may well realise that ‘Mimblewimble’ is a spell from the franchise. The white paper proposed a drastic slimming of the Bitcoin protocol in 2016. Now, in 2019, two cryptocurrencies derived from the Mimblewimble protocol currently exist: BEAM and Grin.
For an introduction to Mimblewimble, click here, and for a more in-depth discussion of the technology behind Mimblewimble, click here.
BEAM and confidential transactions
BEAM combines elements of the Mimblewimble protocol with additional features to allow ‘true’ privacy for its users. Like other cryptocurrencies, BEAM has its own blockchain that remains decentralised and distributed.
Transactions can be verified, but Mimblewimble’s method of verification ensures that no outside observer can obtain any sensitive information about the sender or receiver, or the amount being transacted.
This method is known as ‘Confidential Transactions’ (CT). CT functions so that only the sender and receiver can know how much money is being transacted. To enable verification, there is a process known as ‘Pedersen commitment.’ This process allows others to perform the mathematical calculations on the transactions without the total being revealed.
BEAM and transaction cut-through
Mimblewimble has a feature known as ‘Transaction Cut-through,’ which enables the blockchain to be significantly smaller than the Bitcoin blockchain. This feature functions by eliminating old and redundant transactions on the blockchain. It voids spent inputs by aggregating intermediary transactions together, consequently shrinking the blockchain. This was based on a method known as ‘CoinJoin,’ except it voids the need for private and public keys as well as addresses.
Traditionally, keys and addresses are very important for cryptocurrency, but with BEAM’s focus on privacy, they are removed to ensure sensitive information leaks are limited. The only elements left are the inputs and outputs.
BEAM also enables its users to opt in or out of audits. This is useful for tax and accounting purposes, since you can audit your account and transactions.
BEAM isn’t decentralised, yet
The BEAM privacy coin is being run by a start-up company, but it has the intention of giving operational control over to a dedicated non-profit foundation in the future.
It launched on January 3rd 2019, the same day as Bitcoin’s 10th anniversary, and is expected to be governed for around two years. In doing so, it is hoped that the coin can achieve growth before being given to the non-profit foundation.
Unusually, no Initial Coin Offering (ICO) was held. In recent memory, many start-up cryptocurrencies have held an ICO to raise funds for their upcoming project. Furthermore, it is believed that everyone has an equal chance to mine/invest in the project.
However, there is a founders’ reward which will see the BEAM company and foundation receive 20% of all freshly minted tokens for the first five years.
BEAM isn’t perfect, and it knows it
If you look at the BEAM GitHub, there is a section that outlines a flaw within the system. Specifically, one malicious node could record all individual transactions. This is because the nodes receive and forward a lot of individual transactions. They are prepared by participants and then broadcast. It is important they are broadcast so the rest of the network can validate them.
However, if an attacker can see the original transaction graph, the obfuscation of all later transactions in that block no longer matters. This is not necessarily an issue that cannot be solved, as BEAM have suggested remedies. But, it is important to be mindful that whilst the BEAM privacy coin looks promising, it isn’t necessarily a perfect system just yet.
For more information and guides from Coin Rivet, click here.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.