All (full) Bitcoin nodes verify all transactions on the network. This allows the system to be entirely trustless and decentralized, but also presents significant drawbacks. Privacy and fungibility are at odds, because public transactions allow anyone to trace the flow of bitcoins over the blockchain. Meanwhile, verifying a growing number of transactions adds to the cost of running a node, which could be a centralizing force.
But perhaps these drawbacks can be tackled. Last week, a new white paper was somewhat mysteriously dropped on a Bitcoin research channel, written by the pseudonymous author “Tom Elvis Jedusor” (Voldemort’s real name in the French edition of the Harry Potter novels). His proposal “Mimblewimble” — a reference to a Harry Potter spell — presents a radical slimming-down of the Bitcoin protocol that could not only dramatically increase privacy and fungibility, but also present significantly more scalability than Bitcoin’s current blockchain architecture.
Mimblewimble may just hit two giant birds with one stone. Here’s how.
Mimblewimble is based on some of Bitcoin’s familiar privacy features. One of these is Confidential Transactions, which was mostly developed by Bitcoin Core and Blockstream developer Gregory Maxwell and is currently deployed on Blockstream’s Elements