Litecoin founder Charlie Lee has been researching and shown excitement about fungibility for quite some time now and finally announced yesterday that Litecoin will be made fungible by adding Confidential Transaction (CT) sometime in 2019 via soft fork.
Fungibility and Privacy are kind of intertwined to each other as no one apart from the people receiving and sending the currency would know the amount and what was its history of transactions, which will enable non-discriminated trading. By fungibility, it means that the good or asset can be interchanged with other individual goods or assets of the same type. Litecoin to support fungibility in 2019 is one of the biggest steps by LTC to walk towards success.
Confidential Transaction (CT) came into its origin in 2013 by Bitcoin core developer Gregory Maxwell, in case of LTC, which will help in hiding both the sender’s and the receiver’s address and the inputs and outputs must be equal. It was proposed by the HashCash creator Adam Cash, who is now the CEO of Blockstream. Confidential Transaction is a way of enhancing the privacy of a transaction by encrypting the outputs and the inputs homomorphically using a blinding factor (used to encrypt the BTC transaction).
Even though Litecoin is pseudo-anonymous like Bitcoin, it is not up to the mark when it comes to privacy. You can hence track the transactions due to its public nature, which in some way hinders its ability to become a censorship-resistant currency of exchange. Litecoin Confidential Transaction will help mitigate the issues like knowing the history of what the good or commodity has been put to use which has been inherent in public blockchains.
Litecoin has been known as the testnet of Bitcoin, now Litecoin will get its own identity and leave the nest after seven long years. Now that scalability problem has been solved by Bitcoin itself by its Lightning Network, its time for Litecoin to bag the next big problem: fungibility.
Confidential Transactions can prove to be a bit more costly due to the increased data flow and the requisition to create more confidential addresses which will lead to more block space occupation, with an increase of the output value to 33 bytes from 8 bytes.
The bugs can lead to secret inflation that mostly gets detected when it's too late. Even if the supply of Litecoin is fixed,i.e, 84 million, it wouldn’t be affected by the digital silver philosophy as much as it can be by a secret inflation bug.
Privacy coins like ZCash (ZEC) and Monero (XMR) has shown exponential growth in 2017 because people started ditching BTC because of it being pseudo-anonymous. Lee has been voicing his opinion about fungibility as he believes that has been the biggest hurdle which comes in the way of cryptocurrency liberty. Litecoin, private coins are supporting the Confidential transaction process.
By taking this big leap, Litecoin may pose a serious threat in the cryptosphere to the privacy coins like ZEC and XMR. Charlie Lee even confirmed that he will add on an additional feature-Taproot, which enables the flexibility of smart contracts.
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