ADSactly Crypto: Fungibility And Confidential Transactions
Governments around the world are starting to feel threatened by what cryptocurrency can bring to the world and how it could loosen their ability to control the masses or influence where currency and value should be driven. The drive to disrupt Bitcoin has always been focused on the ability to perform an illicit activity with the currency such as crime operations or terrorism.
But as we know Governments in different parts of the world can move the goalposts and declare things illegal. Since cryptocurrency has no third-party risk, it is censorship-free, and no government can shut it down.
One way to disrupt the appeal of Bitcoin to the masses is to make it seem as it is not safe to use as governments want to clamp down and seize coins they believe have been used for criminal activity. Being able to taint Bitcoin or any other cryptocurrency will make it harder for people to use and distribute and many investors could lose faith in the projects.
This is why there has been a surge in the price of Virgin Bitcoin and why privacy coins have been so stable over the last few months.
If we allow Bitcoin to be tainted, we lose a fundamental part of good money which is fungibility. Fungibility means that any individual units are virtually interchangeable, and each of its parts is indistinguishable from another part so any Bitcoin or piece of Bitcoin would be the same as any other.
Having tainted Bitcoin would ensure that it is not the case. So how would we be able to ensure that Bitcoin does remain fungible? When is it used on an open and decentralized blockchain where all transactions can be tracked and stored for life?
Through something called confidential transactions.
Currently, all Bitcoin transactions are open for all to see and if you wanted to do a private transaction you would need to exchange it for a privacy coin and then perform transactions but with confidential transactions, it could have you the hassle.
Confidential transactions or CT as it is sometimes called is a cryptographic protocol that results in the amount value of a transaction being encrypted.
The encryption is special because it is still possible to verify that no bitcoins can be created or destroyed within a transaction but without revealing the exact transaction amounts.
This essentially means the network takes a bunch of transactions of similar value and jumbles them up so you don't know which was which and then sends it to the correct recipient.
Doing this will make it harder to track to a specific purchase and keep Bitcoin from being labelled differently from one another.
Bringing CT to the Bitcoin network
To have confidential transactions added to the Bitcoin network it will require a soft fork consensus change to be added to bitcoin, although they could be added to a sidechain too.
It has been announced that Litecoin will be looking to add it very soon and if that is done correctly it will make it easy for the Bitcoin Network to adopt it in future.
Authored by @chekohler
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