Litecoin is one of the earliest altcoins that appeared after Bitcoin (BTC). Created in October 2011, according to data from CoinMarketCap, it is now the 20th most valuable cryptocurrency, with a market capitalization of over $4 billion.
The MimbleWimble upgrade was first considered as part of a Litecoin Improvement Proposal more than two years ago. This was in November 2019, as the network started planning to increase anonymity between senders and recipients of transactions on its network.
And now, MWEB is finally out after approval from most of the nodes. The upgrade was done to Litecoin’s block height of 2,257,920 and came with significant privacy feature changes to the Litecoin network.
But, MWEB has more to offer than the newly added privacy features for LTC users. MWEB also brings significant improvements in activities on the blockchain. For example, it helps reduce unnecessary transaction data from blocks to the bare minimum by using its cut-through feature.
The cut-through feature ensures that long transactions are broken into a single one. That is, instead of recording each input and output separately, the block will only record one input-output pair, thereby discarding additional data.
After long years of development and anticipation by its community, Litecoin (LTC) finally activated its Mimblewimble Extension Block (MWEB) upgrade on May 19. But, with blockchain upgrades primarily focused on conducting private transactions over the network, global regulations can undoubtedly be disregarded.
South Korean rule violations
Despite discussions about transaction privacy, which has now been launched by Litecoin, there appear to be issues on the regulatory front, particularly with regard to anti-money laundering (AML) and Know Your Customer (KYC) laws. In. In fact, this is the reason why major exchanges in South Korea removed the coin from their platforms.
On June 8, 2022, Upbit removed support for Litecoin, along with four other major crypto exchanges in South Korea. Other exchanges include Bithumb, Coinone, Korbit and GoPax. However, each exchange has claimed, citing similarly worded reasons, that the MWEB upgrade is not compliant with the provisions of the Act on reporting and use of specific financial transaction information. As per the provisions of the law, all Korean crypto exchanges are expected to meet KYC and AML standards. Upbit wrote in part:
“The optional function that does not expose transaction information included in this network upgrade corresponds to an anonymous transmission technology under the Specific Financial Information Act.”
Upbit has always reiterated its resolve to reduce money laundering and illegal activities of all kinds. Therefore, it is no surprise that it, along with other top exchanges, is unwilling to be caught on the wrong side of the law, especially with the recent privacy-focused Mimblewimble upgrade to the Litecoin blockchain.
Bithumb and Upbit collectively account for the majority of trading volume in South Korea and with their recent delisting, more South Korean exchanges are expected to follow suit.
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South Korean exchanges have avoided privacy-related cryptocurrencies after regulators introduced a strict and explicitly banned darkcoin in 2020.
How Exchanges Can Stay Compliant
Meanwhile, all hopes regarding Litecoin in South Korea are not over yet. On June 3, blockchain analytics and crypto compliance firm Elliptic announced what it claims will be a solution to a curious situation brought on by the MWEB upgrade.
The firm insists that it does not intend to trace anyone behind any masked LTC transactions. However, it believes that it can help regulated businesses continue to support Litecoin transactions, all while being in compliance with the permanent AML regulations.
According to Elliptic, its solution will help merchants to track when funds are in Litecoin transactions or wallets going through MWEB transactions. With such information, businesses can then decide to proceed with activities that would be analyzed as “high risk”.
Essentially, this means that businesses, including South Korean crypto exchanges, can continue to support Litecoin, as long as they are aware of the privacy feature being activated by users at all times.
According to Tom Robinson, chief scientist and co-founder of Elliptic:
“By providing visibility to Mimblewimble activity, Elliptic’s transaction and wallet screening solutions provide businesses with the risk insights they need to continue supporting Litecoin while meeting their legal obligations.”
In fact, Robinson spoke specifically about exchanges and the possibility of delisting Litecoin. They claim that exchanges are not required to do so, as they can do their business perfectly well without violating any AML rules backing Litecoin. Furthermore, he added that at some point, one has to realize that almost all cryptocurrencies have some way of hiding their transaction flows, including bitcoin on Ethereum or combinations on Tornado Cash (TORN).
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Interestingly, this is not the first time Elliptic will offer lending solutions for privacy-protecting technologies like MWEB. In 2020, cryptocurrency compliance company Zcash[ZEC]and Horizen[ZEN]Also added support for privacy tokens.
Growing Adoption of Mimblewimble
Undoubtedly, the introduction of Mimblewimble has been a remarkable achievement in the blockchain industry. Especially with its cut-through feature and other benefits associated with the upgrade.
In light of this, some other blockchain projects such as Beam and Grin are already exploring the potential of implementing the Mimblewimble design in technologically different ways. Whereas the Beam blockchain uses the Mimblewimble protocol to reduce bloating and improve scalability, Grin uses it to remove past transaction data that such data is kept on-chain.
For now, however, there is still an air of uncertainty about the prospect of seeing a significant level of adoption of Mimblewimble, especially given its tendency to bring about regulation compliance issues. However, the idea is very small and undoubtedly very promising.