Litecoin is one of the oldest altcoins that emerged after Bitcoin (BTC). Founded in October 2011, it is now the 20th most valuable cryptocurrency, with a market capitalization of over $ 4 billion, according to CoinMarketCap.
The MimbleWimble update was first conceived more than two years ago as part of the Litecoin Improvement Proposal. That was in November 2019, when the network began planning to increase anonymity between senders and recipients of a post on its network.
And now MWEB has finally come out with the approval of the majority of nodes. The update was performed at the Litecoin block height of 2,257,920 and was accompanied by significant changes to the privacy features of the Litecoin network.
But there’s more to MWEB than just the newly enhanced privacy features for LTC users. MWEB also brings major improvements to blockchain operations. For example, it helps to reduce unnecessary transaction data from the blocks to a minimum by using the cut-through function.
The surgery ensures that long trades are broken down into one. That is, instead of recording each input and output separately, the block would only record one input-output pair and thus remove excess data.
After years of development and community anticipation, Litecoin (LTC) finally activated its MimbleWimble Extension Blocks (MWEB) update on May 19th. But since the blockchain update focused primarily on conducting private business online, international rules could undoubtedly be overturned.
South Korean rules undermined
Despite the buzz surrounding the business confidentiality that Litecoin has now launched, there seem to be problems in the regulatory area, especially with regard to anti-money laundering (AML) and Know Your Customer (KYC) laws. In fact, it was for this reason that South Korea’s leading stock exchanges deregistered their currency.
On June 8, 2022, Upbit removed support for Litecoin, along with four other leading cryptocurrencies in South Korea. The other exchanges are Bithumb, Coinone, Korbit and Gopax. However, each exchange has mentioned similarly worded reasons and asserted that the MWEB update does not comply with the provisions of the Reporting Act and the use of certain information on financial transactions. According to the law, all Korean cryptocurrencies are required to meet KYC and AML standards. Upbit wrote in part:
“The optional action that does not disclose business information included in this online update corresponds to anonymous transfer technology under the Special Financial Information Act.”
Upbit has always reiterated its determination to reduce money laundering and any illegal activity. Therefore, it is no wonder that it, along with other top exchanges, is not ready to be caught on the wrong side of the law, especially with the recent MimbleWimble privacy update on the Litecoin blockchain.
Bithumb and Upbit together represent the largest trading volume in South Korea, and with their recent delisting, more South Korean stock exchanges are expected to follow.
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South Korean stock exchanges have avoided cryptocurrency-related cryptocurrencies after regulators introduced strict and outright banned denominations in 2020.
How exchanges can stay consistent
At the same time, not all hopes are lit for Litecoin in South Korea. On June 3, blockchain analytics and cryptographic compliance firm Elliptic announced what it claims will be a solution to the intriguing situation of the MWEB update.
The company states that it does not intend to track anyone behind the masked LTC business. However, it believes it can help regulated companies continue to support Litecoin trading, as long as it complies with local AML regulations.
According to Elliptic, its solutions will help traders find out when Litecoin trades or wallets store funds that have gone through MWEB trades. With such information, companies can then decide to continue with such activities, which will be identified as “high risk”.
In essence, this means that companies, including the South Korean cryptocurrency exchange, can continue to support Litecoin as long as they know at any point that the privacy feature is being activated by users.
According to Tom Robinson, senior scientist and co-founder of Elliptic:
“By providing the visibility of Mimblewimble operations, Elliptic’s business and wallet screening solutions provide companies with the insight they need to continue to support Litecoin while fulfilling their legal obligations.”
Robinson actually talked specifically about stock exchanges and the possibility of having to delist Litecoin. He argues that stock exchanges do not have to do this, as they can conduct their business perfectly well without having to ignore any AML regulations in support of Litecoin. He further added that at some point, people will have to realize that almost all cryptocurrencies have some way of hiding their business flow, including interconnections on Bitcoin or Tornado Cash (TORN) on Ethereum.
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Interestingly, this is not the first time that Elliptic will lend solutions for privacy protection technologies such as MWEB. In 2020, the cryptocurrency company also added support for Zcash (ZEC) and Horizen (ZEN) privacy currencies.
Growing adoption of Mimblewimble
Undoubtedly, the introduction of Mimblewimble has been a remarkable achievement in the blockchain industry. Especially with the breakthrough feature and other benefits that come with the update.
In light of this, several other blockchain projects such as Beam and Grin may already be exploring the possibilities of implementing the MimbleWimble design, albeit in technically different ways. While Beam uses the Mimblewimble protocol to reduce blockchain bloating and also improve flexibility, Grin uses it to remove previous business data that could weigh on its platform if such data is stored in the chain.
At the moment, however, there is still uncertainty about the possibility of Mimblewimble seeing significant adoption, especially given its tendency to avoid compliance. Nevertheless, the idea is very young and no doubt very promising as well.
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