A Decade of Blockchains: Looking Back on SegWit’s Historical Significance | Hacker Noon

@golubevGolubev_Od_UA

Crynet.io (project manager), EU structural funds, ICO/STO/IEO, NGO & venture, marketing projects

Results and perspectives from a decade of blockchain disruptive revolution:

More than 10 years, the blockchain and bitcoin itself are the core of the technohype. What is the state of the things and what are the prospects for this technology? All this we will gradually consider in a series of small posts. Let’s start with SegWit.

Segregated Witness

The SegWit protocol appeared in August 2017 and is considered the largest upgrade in the Bitcoin network today. In addition to solving the problem of adaptability of transactions and the removal of the limit on the block size of 1 MB, SegWit also became the basis for easier implementation of other second-level protocols. At the beginning of 2018, the share of SegWit transactions was only 10% of the total, but quite quickly this figure rose to about 30% — this was possible due to the fact that SegWit implemented such large platforms and service providers, as LocalBitcoins, Coinbase and Bitfinex. At the same time, another big players, like Blockchain.com, Binance, BitMEX, Gemini and Bittrex, have not still done it. The implementation of the protocol in Bitcoin Core became an important step on the path of a wider adoption of SegWit. It was happened in February 2018 with the release of version 0.16.0. By the end of the same month, almost a third of all transactions in Bitcoin were performed by using SegWit, and major exchanges such as Bitfinex and Kraken confirmed that adopting the protocol in combination with batching allowed them to significantly reduce commissions. Another important achievement was the practical use case of the addresses of bech32 — the native format of SegWit. Today, it used by such providers as Electrum, Samourai Wallet and Trust Wallet, and among exchanges — Kraken. Despite marketing, the adoption of SegWit still remains at about 40% of all transactions. According to experts, the most likely reason for this can be the fact that many companies do not see an urgent need for the implementation of SegWit, which is also complemented by a general tendency to optimize costs in a bear market. In addition, since 2018, the mempool is empty, and the size of transaction fees rarely exceeds $ 0.20. Experts believe that a small reduction in transaction fees simply does not justify the monetary or time costs for upgrading all wallets. Replacing all legacy addresses and migrating them to SegWit is quite a laborious and expensive process. Moreover, some exchanges that already support SegWit charge customers a higher commission than, for example, Binance, which does not have this support. Therefore, until a special stimulus appears, for example, pressure from the community, or if the mempool does not begin to fill up again, it is unlikely that the situation will change anytime soon. The greatest role in reducing transaction commissions (up to 80%) was not even due to SegWit, but the above-mentioned batching. Statistics show that most of the leading stock exchanges use exactly the batching technique.

Lightning Network

The Lightning Network microtransaction protocol appeared in March 2018. In April, the Eclair wallet from the French startup ACINQ was released, and another two months later, the beta release of c-lightning, the implementation of the Lightning Network from Blockstream, took place. Another important event was the release of Casa Node — the physical Lightning node from the American startup Casa, which reduces the technology access threshold, making use of the protocol extremely simple for users who do not have extensive technical skills. Although the Lightning Network is a young technology, it is increasingly used to pay for real goods and services. Startup Bitrefill also in March 2018 announced the possibility of using the protocol to pay telephone bills and purchase gift vouchers and certificates. In addition, at the beginning of 2019, Bitrefill introduced Thor, a service for opening an empty channel in the Lightning Network from its own startup node. This solution can be truly breakthrough, as it allows anyone to receive Bitcoins through Lightning channels, having only a link and a wallet application. The problem with Lightning Network is that if a user does not have Bitcoins, he needs to convince someone to open a channel for him. This means that the other party must reserve the funds there, and this can be expensive. This is exactly what Thor does — for a certain commission, the tool allows you to reserve part of our funds in the channel. Who and how will pay this commission, the problem to be solved. This is only the first step in a completely new category of services.

Other industry representatives who adopted Lightning Network technology last year were Blockstream, which launched its own online store with protocol support in January 2018, the Living Bill of Satoshi billing service, BTCPay and CoinGate payment processing services, the manufacturer of Bitcoin ATMs Lamassu and many other players. Also in this list is Vaultoro, which became the first cryptocurrency exchange that began using Lightning payments for accepting deposits. There are many efforts of the community of developers, who not only present new Lightning-applications (Lapps) to the public, such as Submarine Swaps or Satoshis.place web graffiti, but also organize various hackathons and events where participants share with each other skills and help in creating new products. Among them is the third program of the New York company Chaincode Labs called Bitcoin Residency, which in 2018 was focused on the Lightning Network, as well as Hackdays from the Berlin startup Fulmo. According to the established tradition, all this activity was processed into analytical data, including visual ones. Despite the fact that some aspects of the network are still difficult or impossible to assess and not all available statistics can be considered completely reliable for public analysis, various resources indicate that several thousand Lightning nodes with almost 20 thousand payment channels are currently running daily with almost 600 BTC. Therefore, this trend has all the chances for future development.

Sidechain

Sidechains are alternative blockchains which tokens are tied to bitcoin. This allows users to move Bitcoins between platforms with different protocols, thereby providing faster confirmation of transactions or a higher level of privacy. Thus, sidechains offer all the technical advantages of Altcoins, while maintaining Bitcoin emissions of 21 million coins. The first company, that in 2015 announced the beginning of work on the concept of sidechains, was the Canadian Blockstream. Its opensource-project Elements, designed to give developers the opportunity to experiment with sidechain functionality, at the initial level, allowing them to create and transfer digital values. In parallel, Blockstream led the development of Liquid, the first commercial project in the field of sidechains, based on the “federations” model. The technology is intended for servicing Bitcoin exchanges, processing services and traders, reducing the time required to carry out large volumes of transactions between different accounts. There are more than 20 exchanges among Liquid partners, including Bitfinex, BitMEX, Xapo, and Korbit, however, judging by publicly available statistics, the use of technology remains at a fairly modest level — about 35 BTC are reserved, and the total number of processed transactions was slightly less than 3,500. One of the functions implemented in Liquid is Confidential Transactions. This is a cryptographic method of masking the amount of funds sent and received, in which all Liquid users can verify that the amounts received do not exceed the amounts sent. In other words, not knowing exactly what amounts were sent, they can verify that the coins were not created from the air. In the context of Liquid, this means, among other things, that funds can be moved between exchanges and no one will know exactly what amounts are involved. Competitors will not be able to know what amounts are stored on the stock exchanges, and traders will not be able to use such information when bidding, which they often do today: the public nature of the blockchain allows those who have information about the upcoming major operation to conclude a deal for profit from future possible price changes.

Another well-known project of federated sidechains with a turing-complete virtual machine that is compatible with the Ethereum decentralized application interface is implemented by the RSK Labs startup (Argentina). The RSK federation includes well-known industry representatives such as Bitstamp, Bitfinex, Bitpay, Xapo and BitGo, and mining pools that support the combined R-BTC token mining included BTC.com, AntPool, Slush Pool and F2pool at the end of 2018 — the cumulative share of these pools is more than 50% of the total bitcoin network hashrate. At the moment, about 50 projects are already working on the sidechain of RSK, some of which are led by the Argentine startup as well as RIF Labs. Among the most significant of these projects are the Lumino payment network, OakNode hosting service, supply chain management services (Temco and Dexfreight), and BitGive, a philanthropic initiative that has a certain similarity with the Lightning Network. In addition, RSK Labs recently launched a RIF OS project, which combined several opensource protocols and libraries for developing Dapps, a payment network, p2p data storage and RSK Name Service. The main motivation in developing the RSK smart contract network was the creation of the “Internet of Values”, a network of several networks that goes one step further in the vision and values ​​of Bitcoin. This is an open network where users can move values ​​from point A to point B without mediation, which is the main cause of inequality in the business world.

Schnorr signatures/ Taproot

Schnorr signatures (inventor is Klaus-Peter Schnorr) are considered to be one of the best cryptographic solutions available today. Their practical advantage for Bitcoin is the ability to combine multiple signatures as the one, that is, a transaction requires only one signature, regardless of how many sending addresses are included in it. Schnorr signatures help to reduce the total size of blockchain data by at least 25%, that is, can be considered a direct solution for network scaling in perspective. It is not surprising that the possibility of their implementation in the Bitcoin protocol has been discussed for a long time. The activation of SegWit made the integration of Schnorr signatures a simpler task, and although it was not fully implemented, progress was made in this direction during 2018. Therefore, back in January 2018, the developers of Bitcoin Core published a white paper describing the process of transition from the current implementation of ECDSA digital signatures to Schnorr signatures.

It is noteworthy that the work on the implementation of the Schnorr signatures is being conducted simultaneously with another important technical upgrade, known as Taproot. This solution was first proposed in January 2018 by Bitcoin Core developer Gregory Maxwell and, using some cryptographic techniques based on Schnorr signatures, can help implement the concept of MAST (Merkelized Abstract Syntax Trees), which in turn is aimed at increasing functionality smart contracts in bitcoin. Moreover, thanks to Taproot, these smart contracts will be indistinguishable from ordinary transactions. In practice, this means that users can, for example, open or close payment channels in the Lightning Network or make payments that require the cooperation of several participants, without revealing the details of what is happening to third parties. However, the activation of such functions will probably take place at a later stage — initially it is expected that the Schnorr signatures will be implemented in their original form.

What about privacy?

This direction continues its development. Today, technologies such as TumbleBit, CoinJoin, Zerolink and Dandelion are trying to solve and secure the issue of anonymity and privacy of information in the blockchain. Some experts believe that the most significant achievement in this direction were made by Wasabi Wallet, which is based on the interchangeability of Bitcoin, that is, the same value of all the coins, regardless of their previous use and circulation. The mixing of coins performed with the help of CoinJoin makes them all the same and thus ensures the anonymity of transactions. About the activity of the developers says that for two and a half months from the release of the first full-featured version today, the Wasabi Wallet is not only available in version 1.1.0, but is also ready for its own hardforks. The upcoming major upgrade of the wallet will implement, in particular, the Schnorr signatures and therefore will provide greater anonymity and the possibility of faster mixing of larger amounts. Another noteworthy technology is called Mimblewimble. First introduced in 2016, the project was initially focused on scaling Bitcoin and increasing user privacy. After some time, the developers, however, came to the conclusion about the need for their own cryptocurrency. Grin was considered the most famous project all this time, but the first implementation of the protocol was successfully implemented by the Beam project, the official launch of which took place on January 3, 2019 by the way.

The technological development of Bitcoin, of course, is not limited to the projects described above in the examples; in fact, there are much more such examples. There is no doubt in one thing: technologically, Bitcoin is developing, and although it seems to many that this is not happening fast enough, it must be remembered that the key task of developers is to ensure network security. The decision-making process in this way may not be fast. Anyway, over the past year, the most popular Bitcoin Core client has evolved to version 0.17.0, and already in early 2019, the release of version 0.17.1 followed. There is no doubt that in 2019 there will be other releases, as well as the emergence of new ideas and concepts. On the way a lot of interesting technical solutions. This was facilitated not only by the Lightning Network, but also by other off-tech solutions, altcoins with more spacious blocks, better optimization of exchanges, everything that helped solve problems with payments. Now it is the turn of a truly challenging job of creating demand and a cyclical ecosystem, where people pay with Bitcoin and get paid in it, rather than looking in the direction of comparative quotations with the US dollar. The time has come for the consumer to think in categories of bitcoin and other cryptocurrencies.

Join chat

Sergiy Golubyev (Сергей Голубев)

Tags

Join Hacker Noon

Create your free account to unlock your custom reading experience.

read original article here