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As Scaling Bitcoin Retargets in Milan, Focus Shifts to Fungibility

The Scaling Bitcoin conference, held at the Politecnico Milan, returned for its third iteration this weekend, with the focus throughout the speaking slots and workshops shifting away from scaling alone. Emphasizing that Bitcoin faces a more diverse set of challenges, this year’s edition of the technical conference included a broad range of topics. Chief among them was fungibility — the idea that each bitcoin should be as valuable as any other bitcoin, regardless of transaction history.

The tone for this third Scaling Bitcoin edition was set with the workshop’s first overview presentation by program chair and Blockstream developer Matt Corallo, and newly appointed Blockstream CEO Dr. Adam Back.

“If there are doubts about coins you receive, then people are going to go to taint services and check whether these coins are ‘blessed,’” Back explained. “And [if not], then people are going to refuse to trade them. What this does is it transitions bitcoin from a decentralized permissionless system into a centralized permissioned system where you have an ‘IOU’ from the blacklist providers.”

Following up on Corallo and Back’s opening presentation, the first half of the first conference day focused on fungibility exclusively. Speakers presented proposals that included JoinMarket, a marketplace for CoinJoin transactions to aggregate several transactions into one bigger transaction, and TumbleBit, a trustless mixing service.

A dedicated workshop continued the discussion that same afternoon. Fungibility remained on top of everyone’s mind throughout the weekend — optimistically — with topics including Schnorr signatures to incentivize CoinJoin transactions, coin-selection schemes for improved privacy, and BIP 151 for end-to-end encryption.

“Most of the [scalability improvements] have not been implemented or don't have heavy use,” said Corallo in the conclusion of his opening talk. “But we do know how to fix Bitcoin and make it act like what we want it to be, rather than the traceable asset it acts like today.”

Lightning Scaling

On the subject of scaling itself, the technical community seemed to broadly agree that optimizations and second-layer solutions are the preferred way forward for now. While segments of the Bitcoin community are still dedicated to increasing transaction throughput by increasing the block size limit — with some of them gathering at an alternative event on Saturday night — the Scaling Bitcoin workshops predominantly focused on alternative solutions.

The lightning network in particular claimed a significant chunk of presentation slots. Through clever use of Bitcoin’s programmable elements such as multi-signature and time locks, lightning users should be able to make a virtually unlimited number of off-chain transactions at low cost, potentially boosting Bitcoin’s micropayment ability and overall scalability. Given that most lightning transactions wouldn’t be recorded on the blockchain at all, it could offer other benefits, too.

“We're excited about lightning because the second layer could be an important opportunity to improve privacy and fungibility,” Lightning Labs’ Olaoluwa Osuntokun explained in the opening of his presentation.

While progress is being made on the highly anticipated solution, it also became clear in Milan that the lightning network is currently not quite ready for widespread deployment. It requires the yet-to-be-activated Segregated Witness solution on Bitcoin’s main chain, and another open topic for debate is the question of routing: how transactions find their path throughout the second-layer network.

As different ideas were discussed before, during and after the Scaling Bitcoin workshops, BitFury developer Pavel Prikhodko had to conclude his presentation on lightning routing by pointing out that “there is still no sensible topology and behavioral of network, and we need it for better experiments and fine tuning.”

Sidechain Scaling

The other big second-layer technology proposed was the use of sidechains: extra blockchains that could be made to be interoperable with Bitcoin’s main chain and currency unit. Sidechains were originally proposed as a solution to expand Bitcoin’s capabilities, but some believe that the technology could offer scaling solutions as well.

With perhaps the most explicit reference to the ongoing block-size debate, Bloq statistician Paul Sztorc argued that sidechain technology could offer benefits provided by larger blocks while containing the risk to those actually using the added chain. If something bad were to happen on a big-block sidechain, any damage would be limited to users of that chain without impacting the main network.

Using an analogy of the root of a weed and its leaves, Sztorc argued:

“There's a weed beneath ground. … But then you have this other part above, where the sunlight is. … You have to kill the whole thing; otherwise it regenerates the upper part from the lower part. You have a lot of hopelessness in removing weeds or killing the blockchain. … You can do a lot of fun stuff off-chain. That's the core of this idea.”


In one of the most ambitious proposals of the weekend, Blockstream mathematician Andrew Poelstra explained the potential of MimbleWimble. Mysteriously dropped on the “bitcoin-wizards” IRC-channel two months ago, a white paper by the pseudonymous “Tom Elvis Jedusor”— Voldemort’s real name in the French version of the Harry Potter novels — rethinks Bitcoin’s basic transaction structure. As a key benefit of MimbleWimble, matching inputs and outputs can be canceled out over time, drastically reducing the amount of data required to be stored by Bitcoin nodes.

Because all transactions included in a single block can effectively be merged and have amounts hidden, MimbleWimble could hugely increase fungibility as well. Taking MimbleWimble from a theoretical proposal to an attainable feature, Poelstra proposed that “we can actually make MimbleWimble as a sidechain.”

For a complete overview and videos of all speaker sessions, visit scalingbitcoin.com.

Aaron van Wirdum retouched


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