Part 4 of 4: Mimblewimble
Upon MWC’s launch, I began writing a 4 part series on Mimblewimble. The first three installments were on scalability, privacy, and fungibility. Other priorities emerged and we were not able to release part 4. After being away from the project for a while, I had some time so I decided to work on part 4 of 4 in the series. Here it is….
Now that we’ve covered Mimblewimble’s advantages over legacy blockchains, we will tie it all together in this, our final article in the four part series. We saw that Mimblewimble is more scalable, private, and fungible than legacy blockchains in the past three parts of this four part series. So, now we will attempt to address the question: what does it all mean?
To answer that, we first have to understand the history of money and understand that a better money, over time, displaces a worse money. The way to judge the different monies is not by what is currently popular. If it were, no new money could displace an old one and we know that what is considered money changes all the time throughout history. Liquidity doesn’t matter when trying to determine which money will win out. The liquidity will flow to the best form of money. That is why Aristotle described these six properties to determine what the “money” is as: scarcity (which is most important), recognizability, fungibility, portability, durability, and divisibility. Before Europeans came to the Americas, wampum was widely used as money in North America, but Gold displaced it. Gold was a better technology and even though wampum was much more widely used, the black swan event (introduction of gold to the Americas) caused a new form of money to be discovered in the region.
So, what happens to the crypto space as a new form of crypto technology like Mimblewimble is introduced? In the past, the claim of superiority has been made so many times that market participants are leery of such claims. Take, for instance, Ethereum. ETH was touted as the “world computer”, but what its founders didn’t mention is that since every ETH node would have to process the same instructions, it would never scale to be the “world computer”. Turns out that it’s really just an inferior form of money than Bitcoin and thus it’s not really a competitive threat to Bitcoin at all. After the DAO incident it’s clear that the ledger is not immutable, there’s no supply cap, and the initial block download is so gigantic that very few people run fully validating nodes. It’s just a pretty bad form of money actually. Ripple similarly has centralization issues and supply issues as well. It’s hard to even tell how it works but we know that validators can overturn transactions. So the top competitive blockchains have major issues and it’s clear that they try to address issues other than being a better money. The only coins that actually attempt to address the right issues are the privacy coins. That’s why they are the most interesting. If amounts and/or addresses are not known, by definition, you have better fungibility because no transactions can be traced or blacklisted. In the privacy and fungibility section, we already covered these topics in detail so here we’ll only say in conclusion that Monero is the best privacy coin and while it has superior Fungibility to Bitcoin, it has a downside in terms of scalability. The added expense which will be associated with Monero transactions, should it be used at capacity, would make it much less portable than Bitcoin (in terms of transaction expense). In addition due to its unlimited supply, it is less scarce than Bitcoin. It seems the market has decided that while Monero has some value, due to these tradeoffs, it is not going to disrupt Bitcoin. The market thinks portability and scarcity are more important than fungibility. Since Bitcoiners have never seen an altcoin like MWC, they understandably don’t know how to react. That is because MWC (and potentially other Mimblewimble chains) represent a “black swan event”. Just as the dutch explorers were shocked to see a black swan in the late 17th century, Bitcoiners will be and are shocked when they see a blockchain that has superior properties of money than Bitcoin because in the past, nothing competitive had come along. All we can do now is try to explain it to people and prepare them. That is what we are doing with MWC. The goal is to work on the technology for incorporation into Bitcoin and to give Bitcoin holders who registered some upside when the market starts to discount the inherent value in the protocol.
We can look though history in other industries at the many examples of technological disruption. As an example, Eastman Kodak had the very best chemical processing technology for photographic film. No one could touch them. They were actually the first company to develop a digital camera in 1975, but didn’t want to pursue the technology because they feared it might take profits away from their mature photographic film business. Over time, it has become clear that it was a bad decision, even though at the time, it might have made sense. Nothing can overcome the power of technological disruption.
Probably an even better example and lens to view Mimblewimble through can be achieved by looking at the search engine industry. If you were using the internet in the late 90’s, you probably had Yahoo.com as your homepage. That was because they were the biggest and best search engine at the time. In case you weren’t aware, according to the founders of Yahoo, “Yahoo” is a backronym for “Yet another hierarchical officious oracle”. That is referring to the fact that their search engine was hierarchical in nature. Basically at the time the only way to handle search was to have a group of people curate the results (i.e. hierarchical in nature). Also, if you remember using search back then, it wasn’t very good, especially if you were searching for something less common than the most popular search terms which had already been curated. That’s why when users first tried Google and its MASSIVE technological breakthrough of the “Page Rank algorithm” where links from other pages were used to “Rank” pages that Google employees had never even seen, they were delighted with the results. I remember using Google for the first time and it just worked. Still, if you told people back in the late 90s and early 2000s that this little dinky page called Google, that only a few people had heard of would disrupt the bigger Yahoo, they would have laughed you out of the room. It’s a good analogy to where we are today. The Mimblewimble protocol is objectively better at being money than Bitcoin’s legacy protocol and just like Page Rank disrupted Hierarchical searching, Mimblewimble technology will disrupt legacy blockchains. The only question is: will Bitcoin adopt it or will another alternative emerge and if so what is the alternative? History shows that usually the incumbent doesn’t react properly to an existential threat, but this is an open question in the case of Bitcoin because it is decentralized and any participant can propose and implement a change.
The big question is how would this change be implemented in Bitcoin? Bitcoin developer, Pieter Wuille discussed the complexities of implementing CT or Mimblewimble in Bitcoin here. However, the extension block approach would be a very difficult modification to Bitcoin and such a proposal might struggle to gain consensus due to the risks. In addition to the complexity, since it’s an extension block, it would actually make Bitcoin less scalable, unless practically all the transactions moved into the extension block. As we saw with Segwit adoption, this is unlikely to happen quickly, if ever. Finally, extension blocks are opt-in so it still does not offer the same anonymity of a native Mimblewimble chain where all transactions are private. There’s still hope that someone will come up with a better way to implement Mimblewimble in Bitcoin. It will be interesting to watch as these experiments progress.
MWC has become the biggest Mimblewimble coin by market cap since this series of articles was first authored. Due to MWC’s emission rate change, its stock to flow ratio is nearly 68 which is higher than even Bitcoin’s stock to flow ratio of 52. MWC will continue to be even more scarce than Bitcoin. So, the gauntlet has been thrown down and MWC has all the attributes of a good money. Will Bitcoiners sit back and watch idly while Mimblewimble eats their lunch? Or will they react? Popcorn anyone?
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“But you know, happiness can be found even in the darkest of times, if one only remembers to turn on the light.”
— Albus Dumbledore (J.K. Rowling)