Litecoin, one of the earliest alternative cryptocurrencies to emerge following Bitcoin, was launched in October 2011 and currently ranks as the 20th most valuable cryptocurrency, with a market capitalization exceeding $4 billion, as per CoinMarketCap data. The MimbleWimble Extension Blocks (MWEB) upgrade was first proposed over two years ago as part of the Litecoin Improvement Proposal initiated in November 2019. This upgrade aimed to enhance the anonymity of transactions between senders and receivers within the network. Recently, the MWEB has been successfully implemented following approval from a majority of nodes, marking a significant milestone in Litecoin’s evolution. The upgrade was activated at block height 2,257,920, introducing substantial privacy enhancements to the Litecoin network.
### MWEB’s Impact Beyond Privacy Features
However, the MWEB upgrade offers more than just increased privacy for LTC users. It also introduces important improvements to blockchain operations. Notably, it minimizes unnecessary transaction data within blocks through its cut-through functionality. This feature simplifies lengthy transactions by consolidating them into a single entry. Instead of separately recording each input and output, the blockchain now logs only one input-output pair, effectively reducing excess data storage.
### Regulatory Challenges in South Korea
Despite the excitement surrounding the new privacy features introduced by the MWEB upgrade, regulatory challenges are emerging, particularly in relation to Anti-Money Laundering (AML) and Know Your Customer (KYC) laws. Major exchanges in South Korea have responded to these regulatory concerns by delisting Litecoin from their platforms. On June 8, 2022, Upbit and four other prominent crypto exchanges, including Bithumb, Coinone, Korbit, and Gopax, ceased support for Litecoin. Each exchange cited similar reasons, indicating that the MWEB upgrade does not comply with the requirements established under the Act on the Reporting and Use of Specific Financial Transaction Information, which mandates that all Korean crypto exchanges adhere to KYC and AML standards.
Upbit emphasized its commitment to combating money laundering and illicit activities, stating that the upgrade’s optional feature that conceals transaction information falls under the category of anonymous transaction technologies prohibited by the Specific Financial Information Act. Given this stance, it is not surprising that Upbit and other leading exchanges are wary of potential legal repercussions linked to the privacy-centric MWEB upgrade.
### Possible Solutions for Compliance
Nevertheless, there may still be hope for Litecoin in South Korea. On June 3, blockchain analytics and compliance firm Elliptic announced a potential solution to the complexities introduced by the MWEB upgrade. The firm claims it does not intend to trace masked LTC transactions but aims to assist regulated businesses in maintaining compliance with AML regulations while continuing to support Litecoin transactions. Elliptic asserts that its solutions will enable merchants to identify when a Litecoin transaction or wallet contains funds that have undergone an MWEB transaction, allowing them to mitigate risks associated with high-risk activities.
According to Tom Robinson, chief scientist and co-founder at Elliptic, the firm’s transaction and wallet screening solutions provide businesses with the necessary risk insights to support Litecoin while adhering to legal obligations. Robinson addressed concerns regarding the possibility of exchanges delisting Litecoin, suggesting that proper compliance measures can allow them to operate without violating AML regulations. He further noted that most cryptocurrencies have mechanisms for obscuring transaction flows, similar to features found in Bitcoin or Tornado Cash (TORN) on Ethereum.
### Growing Interest in MimbleWimble
The introduction of MimbleWimble represents a significant development within the blockchain sector, particularly due to its cut-through feature and associated benefits. Several other blockchain projects, such as Beam and Grin, are also exploring ways to incorporate the MimbleWimble design, albeit with different technical implementations. Beam utilizes the protocol to reduce blockchain congestion and enhance scalability, while Grin focuses on eliminating historical transaction data that could burden its platform. Despite the promising potential of MimbleWimble, there remains uncertainty regarding its widespread adoption, especially due to regulatory compliance challenges. However, the concept is still in its infancy and holds significant promise for the future of blockchain technology.
