Litecoin was one of the first altcoins to emerge after Bitcoin (BTC). It was created in October 2011 and is now the 20th most valuable cryptocurrency with a market cap of over $4 billion, according to CoinMarketCap.
The MimbleWimble upgrade was originally conceived more than two years ago as part of the Litecoin Improvement Proposal. That was in November 2019, when the network began planning to enhance anonymity between senders and receivers of transactions on its network.
And now, MWEB has finally come out after being recognized by most nodes. The upgrade was done at Litecoin’s block height of 2,257,920 and made significant changes to the Litecoin network’s privacy features.
However, MWEB is more than just an added privacy feature for LTC users. MWEB also brings key improvements to activities on the blockchain. For example, it helps to minimize unnecessary transaction data in blocks using its pass-through feature.
The pass-through feature ensures that long transactions are broken down into individual transactions. That is, instead of recording each input and output individually, the block records only one input-output pair, thereby removing redundant data.
After years of development and anticipation by the community, Litecoin (LTC) finally launched the MimbleWimble Extension Blocks (MWEB) upgrade on May 19th. But with blockchain upgrades largely focused on private transactions on the network, global regulations can undoubtedly be flouted.
South Korean regulations are undermined
Although Litecoin has now introduced transaction confidentiality, there appear to be issues with regulation, especially with regard to anti-money laundering (AML) and know-your-customer (KYC) laws. In fact, it was for this very reason that South Korea’s leading exchange delisted the token from its platform.
On June 8, 2022, Upbit removed support for Litecoin along with four other leading cryptocurrency exchanges in South Korea. Other exchanges include Bithumb, Coinone, Korbit and Gopax. However, exchanges have cited similarly worded reasons, claiming that the MWEB upgrade is not in compliance with the Reporting and Use of Certain Financial Transaction Information Act. By law, all South Korean cryptocurrency exchanges are expected to comply with KYC and AML standards. The Upbit section reads:
“The optional feature of non-disclosure of transaction information included in this network upgrade corresponds to an anonymous transmission technology under certain financial information laws.”
Upbit has been reaffirming its determination to reduce money laundering and various illegal activities. So, it’s no wonder that it, like other top exchanges, is not ready to break the law, especially with the recent privacy-focused MimbleWimble upgrade on the Litecoin blockchain.
Bithumb and Upbit together account for the majority of South Korea’s trading volume, and with their recent delistings, more South Korean exchanges are expected to follow suit.
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South Korean exchanges have eschewed privacy-related cryptocurrencies after regulators introduced strict and explicitly banned dark coins in 2020.
How exchanges stay compliant
Meanwhile, all hopes for Litecoin in South Korea may not have been lost. On June 3, blockchain analytics and crypto compliance firm Elliptic announced that it claimed to be addressing the oddities brought on by the MWEB upgrade.
The company insists that it does not intend to track down anyone behind any hidden LTC transactions. However, it believes it can help regulated businesses continue to support Litecoin trading while complying with existing anti-money laundering regulations.
According to Elliptic, its solution will help merchants determine when a Litecoin transaction or wallet holds funds traded through MWEB. Armed with this information, a business may decide not to proceed with these activities that would be analyzed as “high risk”.
Essentially, this means that businesses including South Korean cryptocurrency exchanges can continue to support Litecoin as long as they are aware of users activating privacy features at every point in time.
Tom Robinson, chief scientist and co-founder of Elliptic, said:
“By providing visibility into Mimblewimble activity, Elliptic’s transaction and wallet screening solutions provide businesses with the risk insight they need to continue supporting Litecoin while meeting their legal obligations.”
In fact, Robinson spoke specifically about the exchange and the possibility of having to delist Litecoin. He claims that exchanges don’t have to because they can do business well without ignoring any of the anti-money laundering regulations that underpin Litecoin. Furthermore, he added that at some point, one has to realize that almost all cryptocurrencies have some way of hiding their transaction flow, including federation on Bitcoin or Tornado Cash (TORN) on Ethereum.
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Interestingly, this isn’t the first time Elliptic has provided solutions for privacy-preserving technologies like MWEB. In 2020, the crypto-compliant firm also added support for Zcash (ZEC) and Horizen (ZEN) privacy coins.
Growing adoption of Mimblewimble
There is no doubt that the launch of Mimblewimble is a remarkable achievement in the blockchain industry. Especially its pass-through capabilities and other benefits that come with the upgrade.
In light of this, some other blockchain projects such as Beam and Grin may already be exploring the potential to implement the MimbleWimble design, albeit technically in different ways. While Beam uses the Mimblewimble protocol to reduce blockchain bloat and improve scalability, Grin uses it to delete past transaction data that could affect its platform if it remained on-chain.
For now, however, there is still uncertainty as to whether Mimblewimble is likely to gain significant adoption, especially given that it tends to pose regulatory compliance issues. Still, the idea is young and undoubtedly promising.