Overview of Beam and Mimblewimble
We caught up with Beam’s CEO Alexander Zaidelson and CMO Beni Issembert at Token 2049 in Hong Kong. They elaborated on Beam’s strategy in Japan, Atomic Swaps with Bitcoin, and more.
Beam, launched in January 2019, is a confidential cryptocurrency based on the Mimblewimble protocol. Instead of promoting full anonymity like other privacy coins do, Beam’s goal is to enable confidential financial transactions for individuals and businesses, with opt-in auditability features to ensure regulatory compliance.
You can read more about Mimblewimble here and in this detailed report from Circle Research. In short, Mimblewimble is a blockchain protocol that enables confidential transactions at a large scale. Without going into technical detail, Mimblewimble ensures scalable confidentiality by:
- Storing minimal transaction data on the blockchain: using Confidential Transactions with Pedersen Commitments, transaction amounts, account balances, and sender/receiver identifiers are not stored on the blockchain. Only unspent transaction outputs (UTXOs) and coinbase transaction info (that mints new coins) are stored on the blockchain. Privacy is guaranteed by default.
- Mixing transactions: instead of using a public address/private key method that Bitcoin uses, Mimblewimble users create transactions by communicating directly with each other. Private keys are not revealed. The Coinjoin mechanism is used to combine payments into a single transaction, making it hard for observers to determine which payment was intended for which recipient.
- Using the Cut-Through method: removes intermediate transaction data that is not required for the blockchain. This improves confidentiality and scalability by limiting the amount of data stored. Confidential Transactions are heavier than regular transactions and the Cut-Through method helps offset this.
As a result, Mimblewimble blockchains are much smaller in size and very effectively protect user confidentiality.
Most people have heard of established privacy coins like Monero and Zcash. Although Beam is a relative newcomer, it comes with several features that can be seen as improvements over other privacy coins in three key areas:
- Confidentiality: Privacy in Beam is enabled by default. All transactions are confidential. Beam has also implemented Dandelion, a new lightweight protocol that significantly reduces the probability of detecting the origin of transactions (IP addresses). Zcash’s privacy features are not enabled by default and most people don’t use them.
- Scalability: Beam’s blockchain size is very small since it hardly contains any transaction data. Its blockchain size will be 30% of Bitcoin’s when Beam reaches Bitcoin’s scale. Monero adds significant data to each transaction, which makes its blockchain very large, which could affect usability.
- Compliance: Beam is working on implementing an opt-in auditability feature that lets accountants, auditors and tax authorities can review and verify that transactions are complete. This compliance feature increases the potential for business adoption. It is not currently possible to verify the completeness of transactions on Monero and Zcash.
Beam hopes that this feature mix will spur widespread acceptance, adoption and usage for everyday transactions.
Beam was in Japan for Slush Tokyo and Blockchain Night along with your new strategic partner Recruit. How did you feel about the Japanese crypto market on your first visit?
Alexander Zaidelson (AZ): I was very interested to see Japan first-hand, which is one of the world’s biggest crypto markets. It’s an amazing country and it was great learning about how people use crypto there. I was surprised to find that many stores accept Bitcoin and that some electronics stores accept cryptocurrency. I also learned that crypto trading is one of the favorite pastimes in Japan.
I learned in greater detail that the Japanese regulator is keen on protecting the safety of users, which is why they banned the trading of privacy coins on exchanges. At the same time, the potential for crypto in Japan is huge. With Recruit’s help, we hope to bring serious awareness and teach people about Beam, and eventually convince the regulator that our vision of compliance with privacy is the way to go.
Beni Issembert (BI): I want to magnify the fact that the Japanese community is one of the most important assets for us, one that we want to invest time and money in. The community is already very advanced in terms of crypto and privacy literacy. We consider Japan a strategic market because of the quality of the Japanese community.
Beam is working on implementing Atomic Swaps with Bitcoin. How would this impact Beam’s ecosystem since we do not see a lot of exchange liquidity for Beam?
AZ: Beam is obviously very new, and the coin supply is still small. That’s one of the reasons for low liquidity. However, we hear from our exchange and OTC partners that the liquidity is not that bad – buyers can buy, and sellers can sell. Still, the volumes are not really high, partly because we’re not on the biggest exchanges yet and partly because there’s just not yet enough coins on the market to transact with.
Atomic Swaps will allow people to trade Beam for Bitcoin peer-to-peer without fees or having to register on exchanges. Although exchanges are becoming easier to use, people are still scared to trust their money to a third party. Atomic Swaps will allow two people to exchange Bitcoin for Beam without the need for third parties. Since only two people are involved, Atomic Swaps safeguard against cheating or fraud. Hopefully this will increase the amount of trading and allow people buy Beam more easily.
Mobile payments may soon become the norm and the Samsung Galaxy S10’s upcoming crypto storage feature could signal the beginning of mobile crypto payments. How far away are we from widespread mobile payments using privacy coins?
AZ: Samsung, the world’s biggest phone manufacturer, and HTC both have blockchain-enabled phones. The HTC Exodus is an amazing project. We’ll see how much sales these phones will generate, but it’s a great sign and I hope not just a gimmick. When Samsung and HTC are both involved, it’s a strong signal that blockchain-enabled phones are here to stay. Let’s wait until Apple does that as well!
Mobile payments with confidential currencies like Beam will be available soon. Just 10 minutes ago, Beni and I completed a mobile transaction from his Android Beam wallet to my iOS Beam wallet. The wallet is still in testnet and will be released several weeks from now. It is super easy to use. It is coming hopefully this year and faster than most people think.
Privacy by default and opt-in auditability are definitely some of Beam’s key features. As far as we know, users can store a hash generated by documents that prove the transactions in the kernel. How can auditors review these documents?
AZ: First, these features are still in the conceptualization stage. We don’t have all the details, but the general idea is that this additional transaction information is stored on the blockchain and encrypted.
The auditor will have a special key that can retrieve the transactions of a specific person, see all the hashes of all the documents, get approvals, then read the documents somewhere in an offline/online storage not on the blockchain, and finally get the approval that these are the same documents that were signed during the transaction.
This will be proven by the hash. When I come to my auditor, I can show the list of my transactions and the related paperwork. The auditor can make sure that everything is correct.
Project Lumini (aiming to connect Beam’s blockchain to other blockchains) has obvious implications for Beam’s growth. At the same time, confidential assets in Beam are useful since ETH-based assets don’t have strong privacy features, just like Bitcoin. What kind of use cases do you expect from Project Lumini and confidential assets?
AZ: Project Lumini is a cooperation with a company called Stable Unit. We’re looking at different options to achieve our goal, either as part of Project Lumini or separately. The idea basically is to build a bridge between Ethereum and Beam where you can lock assets, let’s say DAI, on Ethereum and then print a corresponding amount of a confidential assets on the Beam network. It will not be the Beam coin which is a new kind of confidential asset, but something like Beam DAI.
The eventual result will be a bridge where you can lock any kind of token in a smart contract on Ethereum and print & mint, the corresponding token on Beam, trade between people confidentially and then when they want to exit, their token is burned and the corresponding token on the Ethereum is released from the smart contract.
This is a significant feature because any value transfer, be it debt, stocks, even crypto collectibles, requires confidentiality in that people don’t want their holdings and dealings to be made public. It also might require compliance in certain cases. This need for confidentiality and compliance requires us to build an ecosystem of confidential assets on top of Beam. Lumini was the first step to start researching this.
We’ve heard that Beam is planning to be ASIC resistant and is planning a hard fork to ensure ‘fair distribution’. Why do you think the fair distribution is important? Did Beam learn from other cryptocurrencies that failed or succeeded in this regard?
AZ: Our idea is to be ASIC resistant in the first year and to make sure we give the currency time to grow, for enough Beam coins to be minted and for the project to reach a significant market cap.
Right now, the total number of coins is about 10 million, but by the end of the year it will be 50 million coins. One-fifth of the total supply will be issued in the first year.
We want this supply to distribute itself as democratically as possible, so we want people mine from home, and people are doing just that. We are planning two hard forks; one in June/July and another one in December, to signal to the ASIC manufacturers that they should not start working on an ASIC now, but wait for the second hard fork when the algorithm will be finalized.
ASICs have the advantage of higher loyalty. People mining with GPUs can be very opportunistic. Right now Beam has gotten its fair share of the market. People are mining it, but GPU miners can switch to other coins if the price goes down or if the price of electricity changes.
People will only start building ASICs if they see enough ROI potential. For that, the market cap needs to be significant and the price stable or growing. Miners who buy ASICs are very loyal and will continue operating regardless of what other coins are out there.
Beam mentions a Compliant Wallet on its Roadmap. What kind of features will this wallet have?
AZ: It will allow people to attach documents to transactions and encrypt this additional data with a special auditor key.
The wallet will target business users who want to comply with regulation and leave an audit trail. In no way will this wallet hurt your privacy. We will still have a regular wallet for regular users who want complete privacy, but for people who want comply there will be another compliant wallet which will have a lot of features allowing you to demand information or documents for each transaction and only complete the transaction if the other side wishes to comply and provide the info.
We’re talking to KYC companies that can integrate with us. We are working to specify the exact feature set and planning a Proof of Concept in the coming two or three months. It will be pretty basic, we’ll just show that you can attach some meaningful stuff to a transaction and you can reach an agreement between the two sides before the transactions are completed. In future, we’ll have an enterprise-grade product that supports all kinds of use cases and multiple transaction types.
Could you please share some details about Beam’s funding model? Do you think this will be the new model for blockchain companies to follow?
AZ: I hope it will be the new model. Beam’s model is as follows. We raised funds from investors and in the first five years of operation of the blockchain, 20% of all the minted coins go to something called Treasury. From the Treasury, the coins are distributed on a monthly basis to investors, the core team and the Beam foundation, which are now setting up.
Why this model is good? Several reasons. First, all of our investors are accredited investors (mostly venture capital funds). These people are knowledgeable and do their own research. We did not use the ICO model where you’re selling to non accredited investors. Our integrity is very important to us and we never misrepresented ourselves to our investors. They are obviously taking a risk [by investing in a startup] because who knows what will happen? However, it’s a calculated risk. They were capable of doing their own research.
Another good thing is that everyone is on a five-year token emission schedule, so no single party received a lot of tokens immediately after launch. Tokens are issued on a monthly basis, so if an investor received, say, 1% of the Treasury so they would receive actually 0.2% of all the minted coins every month, which is not that large.
Interests are aligned between the team, our investors, advisors, and the foundation. Everybody is in it for the long haul. Since everyone’s interests are aligned, I think our model is better than an ICO model.