Cryptocurrency

Bitcoin layer 2 Statechains gaining recognition as the reality of privacy erosion sets in

Zegex

On August 8, the US Treasury Department added Tornado Cash to the Office of Foreign Assets Control (OFAC) list. The official claimed that the cryptomixer has been used to launder more than $7 billion in crypto tokens since its inception in 2019.

This includes over $455 million in tokens stolen from the Axie Infinity Ronin bridge hack, with the North Korean-linked Lazarus Group claiming responsibility. and the Harmony Bridge robbery, which netted the hackers a total of $96 million.

Since then, several third-party vendors have moved to cut ties with Tornado Cash, including Circle, which blacklisted the company’s USDC wallet. Due to the final result of sanctions compliance, the platform has ceased its operations.

There are concerns that the US government is deliberately targeting privacy-focused crypto projects by stepping up its regulatory efforts. Doing so can further erode individual liberty and privacy rights.

However, various Bitcoin developers, including Mercury Wallet developer Nicholas Gregory, have been working on transaction privacy for some time. Their work has gone relatively unnoticed, but the US Treasury Department’s authorization of Tornado Cash has inadvertently put the spotlight on the field.

Bitcoin is a public ledger

Bitcoin transactions are public and permanently stored in the ledger. Bitcoin addresses are pseudo-anonymous. In other words, the only information tagged to the address is the transaction flow.

However, when an address is used, it “carries” the history of all transactions with that address.

While this setup does not directly reveal an individual’s identity or personal information, offramps, which typically take place on centralized exchanges with KYC requirements, link transactions to individuals. Non-KYC P2P marketplaces exist, but exchange rates are generally unfavorable compared to his CEX.

Privacy experts often recommend using Bitcoin addresses only once. However, most wallets do not offer permanent address functionality, so using a single burn address per transaction is not practical for most average users.

Crypto mixers provide a degree of privacy and obfuscate direct transaction flows by mixing traceability between users. However, there is a great deal of trust in mixing services that do not defraud users or keep transaction records.

privacy is invaded

As cryptocurrency adoption increases over time, little consideration is given to monitoring and censoring personal transactions. Since the Tornado Cash sanctions, people have started to reassess the potential surveillance of blockchain transactions and the threat this poses to personal privacy.

Removing a person’s ability to trade could be considered dystopian nightmare content. But this is not science his fiction, but what is happening now. The recent Canadian protests are a classic example of discontent.

In February, a Canadian truck driver who protested mandatory vaccines had his GoFundMe account frozen by a law enforcement order. At the time, the truck driver had raised a total of C$10 million.

Shortly after, Prime Minister Justin Trudeau enacted emergency measures giving authorities the power to freeze or suspend bank accounts without a court order, as cryptocurrencies were used as a way to circumvent GoFundMe bans.

Pierre Polivre’s decisive victory in the Conservative leadership election signaled a heightened awareness of the problem in Canada. Poylyvale Campaign It focuses on reducing the size and scope of government, expanding individual liberty, and supporting cryptocurrencies. He also voiced his support for truck drivers and attacked the World Economic Forum.

Increase in privacy solutions

In the weeks since Tornado Cash was sanctioned, interest in privacy solutions such as CoinJoin and Mercury Wallet has gained momentum.

talk crypto slate, Gregory discussed the importance of blockchain privacy. In particular, Mercury offers users transactional privacy, but I thought it was important to point out that first and foremost, the protocol is Layer 2 running on the statechain. This technique works by exchanging outputs between unknown participants.

The advantage of this method is that transactions cannot be traced by blockchain analysts as no swaps occur on Bitcoin’s open ledger. Additionally, Statechain has a base layer capacity with a larger block size, making the system much more scalable than the main chain.

Using Bitcoin UTXO, this technology allows the collection of different transition states. In essence, UTXOs, or secret keys for accessing transaction outputs, can be sent between users. That is, the ownership changes, but the funds “do not flow.”

Gregory believes that technologies such as the Mercury Wallet can help bridge the current fungibility gap when Bitcoin is used as money. On top of that, he hopes his Statechains value proposition will draw more users to his Mercury platform.

“I hope Statechain, the technology behind Mercury, will become one of Bitcoin’s scaling layers. It solves a lot of problems…”

As an additional pull, and to combat issues with privacy platforms that keep transaction records, Gregory said developers are working to “completely blind” Mercury. By doing so, the protocol does not collect user data.

With additional efforts centered around selling Statechains to bring in more liquidity, Gregory is optimistic that incentives will be put in place to encourage a flood of new users to the platform.

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