3 years ago

SHOW NOTES:
https://www.whatbitcoindid.com/podcast/bitcoin-privacy-through-statechains

Nicholas Gregory is the CEO of Commerce Block, the company behind Mercury Wallet. In this interview, we discuss how they have used statechains to develop a virtual version of Opendime, the balance of trust and privacy on layer 2 protocols, and onboarding Lightning users.

THIS EPISODE’S SPONSORS:
Gemini - https://www.gemini.com/
Wasabi- https://www.wasabiwallet.io/
Ledn - https://www.ledn.io/
Pacific Bitcoin - http://pacificbitcoin.la/
Ledger - https://www.ledger.com/
Texas Blockchain Summit - https://www.texasblockchainsummit.org/
BCB Group - https://hubs.ly/Q011cb730

TIMESTAMPS:
00:00:00 Introduction
00:00:50 New York Fight Club
00:06:19 Statechains on Mercury Wallet
00:17:01 Swaps on Mercury Wallet; layer 2 trust tradeoffs
00:29:10 Regulatory concerns: state attacks on privacy tools
00:40:54 Contrast to Fedimint; protection against DDoS
00:45:43 Mercury Wallet use cases & onboarding Lightning users

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“We send around UTXOs, at the moment those UTXOs are Bitcoin, they could be lightning channels. Now, there’s a lot of complexity there, but I think that’s where we’re gonna go where you’d be able to move around lightning channels, and that’s like swapping around your checking account.”
— Nicholas Gregory

- - - -

One of the most novel innovations to come out of the Bitcoin ecosystem in recent years has been Opendime. The aim was to turn Bitcoin into a version of physical cash. An Opendime, is essentially a USB stick, that can be traded between individuals without the need to confirm such transactions on the bitcoin base chain. The USB can be verified but is only redeemed by the last user, by breaking the device and accessing its private key.

Opendime enables people to use Bitcoin as anonymous, untraceable cash. The limitation is that it requires a physical transfer. That was until Mercury Wallet was launched. Mercury Wallet is essentially a layer 2 protocol based on statechains. Statechains enable the offchain transfer of UTXOs (turned into a bearer asset referred to as a “statecoin”) between parties.

The limitation of statechains is the requirement for a trusted third party, in this case, Mercury Wallet. The third party is non-custodial; they collaborate as a blind partner in the cryptographic transfer of keys. Whilst there are theoretical security issues, they have been mitigated by Mercury Wallet. The issue to overcome is what tradeoffs people are willing to make between ease of use, value transfer and security requirements.

But, this is just the first of a number of growing use cases for Mecury Wallet. It enables unlimited free swaps of Bitcoin UTXOs providing privacy benefits. Through the conversion of underlying assets into statecoins, the transfer of assets using Discreet Log Contracts can be facilitated. Further, by layering the Lightning network on top of statechains, it could even enable the transfer of Lightning channels.

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