Bitcoin

Be Your Own Bank

What you should know about BTC (that no one is telling you)

A critical view from a libertarian perspective.

May 2024
Foreword

Introduction

What is money
Fiat money, Debt money, Sound money
Trust as the most important characteristic
Central Bank Digital Currencies (CBDCs)

Property and property rights

Satoshi's idea and what it became

Blockstream
Lightning Network
BTC as a bank reserve currency
Integration into the financial system

Independence from the state

Privacy

Fungibility
BTC mining and censorship resistance
BTC Mixer

Private Coins
Mimblewimble
Cut Through
Epic Cash
Polyphasic PoW

Summary and outlook

Closing remarks

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Foreword

Discussions about the pros and cons of Bitcoin Core (BTC) are often very emotional,
with facts usually taking a back seat. Anyone looking for information on the internet
will find almost exclusively positive portrayals and songs of praise for BTC. But there
are also objectively false statements in circulation, whether due to simple ignorance
or calculated self-interest.

Anyone embarking on the BTC venture should not only be aware of its advantages,
but also be informed about the dark sides.

To stick with the description of BTC as "digital gold":

Not all that glitters is gold.

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Introduction

What was set in motion in 2008 with the writing of the white paper "Bitcoin: A
Peer-to-Peer Electronic Cash System" by Satoshi Nakamoto could only be
recognized by very few at the time for what it actually was: the greatest invention in
finance since the invention of money itself.

A decentralized payment system that could not be controlled by third parties was
previously unimaginable. For the first time in history, assets could be transferred
online peer to peer without having to rely on a third party. Each participant in the
network was able to verify all transactions without having to rely on another member
of the network.

The idea that BTC could liberate us from the fraudulent state fiat money system took
hold very early on. Highly motivated and freedom-loving programmers came together
to form a community driven by libertarian ideals in order to further develop the
groundbreaking idea.

After Satoshi left the project in 2010, different ideas emerged about how BTC should
develop. The idea that Bitcoin could be used as a daily means of payment was
unfortunately abandoned over time. Today, it is mainly used as a store of value and
an object of speculation.

Saifedean Ammous, Professor of Economics and author of the book "The Bitcoin
Standard", does not see Bitcoin being used as a daily means of payment in the
future, but mainly as a settlement medium between banks. Bitcoin as a central
component of the banking system.

In his book "Hijacking Bitcoin, the hidden history of BTC", Roger Ver describes what
went on behind the scenes and why BTC is now largely unusable as a daily payment
system. In his opinion, the Bitcoin designed by Satoshi Nakamoto was intended as
daily digital money.

Both books mentioned are worth reading and present a different view of BTC. Even if
it appears that the development of BTC was deliberately undermined in order to
prevent it from becoming a threat to the existing system, BTC remains a milestone in
the development of a payment system that is independent of the state.

However, whether BTC in its current state can still be considered a meaningful way
out of the fraudulent fiat money system and the omnipresent surveillance by the
state is the subject of this paper.

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If you want to take a closer look at how BTC works technically, then you should read
the book "Mastering Bitcoin" by Bitcoin expert Andreas Antanopoulos.

What is money

Money is a generally accepted means of exchange and payment that is used to

settle economic transactions and fulfills the three functions as a medium of
exchange, a unit of account and a store of value. It is used to measure and transfer
the value of goods and services.

Money has an important function in the economy as it facilitates the exchange of

goods and services and serves as a measure of the value of assets. A modern
society with a high division of labor is unthinkable without money as a measure of
value.

Money and currency are often used synonymously, but have different meanings that
are no longer perceived and understood by everyone today. Money refers to the
actual medium of exchange (e.g. gold, silver), whereas currency is only a promise
(IOU) on this medium of exchange. A currency carries a counterparty risk, whereas
this is not the case with money.

When people talk about money today, they usually mean currency.

Fiat Money, Debt Money, Sound Money

Fiat money (from the Latin "fiat lux" - "let there be light" - Genesis 1.3) is a legal
tender that no longer has any intrinsic value and is only accepted as a means of
payment due to state regulation. It is created out of nothing by central banks and has
no direct equivalent value in the form of physical goods such as gold or silver.

Debt money, on the other hand, refers to money that is created through borrowing or
debt. Banks can create money out of thin air by granting loans, which then appear as
deposits in the accounts of borrowers. However, this money is secured by debt and
must be repaid.

Overall, it can be said that fiat money is issued by governments and has no intrinsic
value, while debt money is created by borrowing and is backed by debt. Both carry a

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counterparty risk and generally lose value through inflation due to the arbitrary
possibility of multiplying out of thin air.

This contrasts with sound money, which cannot be arbitrarily created and multiplied
out of nothing, carries no counterparty risk, generally retains its value and therefore
represents a genuine store of value. The best-known example of this is gold, which
has retained its value almost unchanged for over 5,000 years.

Trust as the most important characteristic

No currency can function without trust. Even with a gold-backed currency, trust is
placed in the fact that the currency (IOU) can actually be exchanged for physical
gold if demanded. The fact that such trust in the state is not justified was
demonstrated by President Nixon's abolition of the USD's gold peg in 1971.

All government-issued currencies are doomed to failure sooner or later, because

governments have the tendency to spend more money than they collect in taxes.
The only way out is either to raise taxes or to increase the money supply through
central banks, whereby both mechanisms are usually set in motion.

A basic distinction can be made between two forms of money. Cash, which is used
to make payments from person to person in direct physical contact, and electronic
money (bank money, Creditcards, PayPal, etc.), which is used to make payments via
the internet.

Central Bank Digital Currencies (CBDCs)

Any currency issued and multipliable by a central authority not only carries the risk of
inflation, but also the future risk of complete surveillance and arbitrary restrictions by
the state. The WEF boasts that 98% of all central banks will introduce digital central
bank money, so-called CBDCs.

With this individually programmable central bank money, the state will have the
ultimate tool to manipulate every citizen individually from a central location according
to its will and ideas (bonus-malus system), to tax them or to cut them off completely
from the financial system.

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With the abolition of cash, a digital prison can then be set up invisibly to outsiders for
individuals who do not comply. Pretty much everything is programmable. What can
be bought, when and where, in what quantity, expiration date, etc.

A dystopian vision that promises to prevent a decentralized currency that cannot be

controlled by the state.

Property and property rights

Property rights play a central role in a free society. With the right to own, use and
freely dispose of property, economic activities can unfold that contribute to the
creation of wealth, as it creates incentives for productivity and innovation.

Ludwig von Mises, one of the founding fathers of economic liberalism, was a major
proponent of property rights, which he believed were essential as they enable
individuals to make rational economic decisions, which in turn leads to sustainable
economic growth.

Property rights are closely linked to individual freedom. Only those who are free to
decide on their property can make their own decisions without state interference and
pursue their own interests.

Today, property rights only seem to be concessions tolerated by the state, which can
be restricted or completely revoked at any time. Any kind of tax is already an
expropriation that is tacitly tolerated by society.

Today, only that which the state has no knowledge of and cannot access can be
regarded as unrestricted property. Everything else is more or less at the mercy of the
state.

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It is no longer a secret that personal property is to be completely abolished according
to the will of the WEF. The first part of the well-known WEF slogan "You’ll own
nothing and you’ll be happy" should be taken literally.

Satoshi's idea and what became of it

The idea of Bitcoin was to liberate us from state-controlled and arbitrarily multipliable
fiat money. The decentralized structure prevents censorship and the strict limitation
to a maximum of 21 million coins adopts the principle of scarcity, which prevents
future dilution of value through arbitrary multiplication.

Each participant in the Bitcoin network can check all transactions with their own node
and is not reliant on trust in other parties. A previously unrealizable idea became
reality for the first time with Bitcoin.

Without going into technical details here, Satoshi set a temporary limit of 1 MB on
the maximum block size in order to avoid unnecessarily inflating the blockchain,
which should be increased before the maximum number of transactions was
reached. What became known as the "block size war" was a heated battle over
whether the temporary block size of 1 MB introduced by Satoshi should be
maintained or not.

Both sides had understandable arguments, which ultimately led to the hard fork of
Bitcoin Cash (BCH) in 2017. Although the blockchain can scale better with larger
blocks and the transaction costs remain low, the faster growing blockchain leads to
inevitable centralization in the long term, as not everyone can operate a full node
with simple hardware due to the high memory requirements for the complete
blockchain.

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BTC has retained the block size of 1 MB, which leads to a congestion with high
transaction costs when the maximum number of transactions is reached, which is
even welcomed by some Bitcoin maximalists. Transaction costs of US$ 20 and more
are not uncommon today. For this reason alone, the use of BTC as a daily means of
payment is completely out of the question. In addition, transaction times of at least
10 to 20 minutes are absolutely unacceptable for daily use.

Despite the block size of 1 MB, the BTC blockchain has already grown to over 400
GB. With a current block size of 32 MB, BCH already has the same block size as
BTC and will grow many times larger than BTC in the future. A centralization of the
full nodes at BCH is therefore inevitable. But BTC will also continue to centralize for
the same reason, just not quite as quickly.

Supporters of maintaining the block size of 1 MB are of the opinion that BTC should
not be used as a daily payment system at all, but only as a settlement medium within
the banking system or for transferring larger values where security is important and
high transaction fees are not an issue. Daily payment transactions should take place
off-chain, outside the BTC blockchain, so as not to overload it.

Blockstream

It is widely known that Blockstream plays a not insignificant role in the further
development of BTC. However, not much is known about Blockstream's actual
interests as a profit-oriented company in the further development of Bitcoin and the
interests of the investors behind the company.

Blockstream was founded in 2014 by Adam Back. Most Bitcoin Core developers
were recruited by Blockstream and now form the majority of Bitcoin Core developers
as Blockstream employees, giving this company a majority in decision-making and
thus virtually complete control over further Bitcoin Core development.

The question for a for-profit company is how to profit from the development of a
decentralized peer-to-peer cryptocurrency that is designed in such a way that there
is no intermediary organization to profit from. The solution for Blockstream is to
design the evolution of Bitcoin Core in such a way that certain functions are better
performed with sidechains and second layer solutions than on the BTC blockchain
itself.

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Sidechains are separate blockchains that are connected to Bitcoin Core. You send
Bitcoin to a smart contract and receive new coins on the sidechain. Coins on the
sidechain can differ from Bitcoin in almost every way. They can have better smart
contract features, offer instant transactions or anonymity features.

The main difference between sidechains and the Bitcoin blockchain now is that
transaction fees no longer go to the miners, but into the pockets of the sidechain
developers, in a centralized structure, which is diametrically opposed to the
decentralization that makes BTC so valuable.

These profitable side chains are now doing what BTC itself is unable to do. So the
less BTC can do, the more the side chains are used and vice versa. As a result,
Blockstream does not benefit from what BTC can do, but from what it cannot. As the
BTC development team with a decision-making majority, a conflict of interest is
unavoidable.

Maintaining the maximum block size of 1 MB leads to high and fluctuating

transaction fees as well as increased transaction times, depending on the
transaction volume. Confirmation times are unpredictable and very unreliable. All of
BTC's progress today is mainly focused on compatibility upgrades to integrate
second layers, which are very profitable for Blockstream.

Lightning Network

The Lightning Network (LN) developed by Blockstream, which promises cheap and
fast transactions, is referred to as a solution for daily payments with BTC. To
understand how large institutions have now gained control of the LN, it is necessary
to understand how the LN works.

Assuming two people conduct regular transactions and want to avoid the high
transaction fees of the BTC network, they open a channel between them. Each
person takes coins from the BTC blockchain and sends them to a multisignature
address where they are temporarily blocked. Now these coins can be moved back
and forth without fees as long as both parties sign each transaction.

This is because the actual coins were never moved on the BTC blockchain, only the
rights to the coins are traded off-chain, similar to an IOU. If a channel is closed, the
IOUs are redeemed and you receive your share of the real coins. The high
transaction fees are only incurred when a channel is opened and closed again.

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If you want to trade with someone with whom you have not opened a direct channel
and do not want to open a channel because of the high fees, the LN tries to reach
the target via a person with whom you have an open channel, who in turn has an
open channel with the person with whom you want to trade.

For example, if Alice wants to send a BTC to Charly, but only has an open channel
with Bob, who in turn has an open channel with Charly, the payment from Alice to
Charly is made via the open channel with Bob, who receives a small fee in return.

Ideally, this is exactly how the LN should work. You jump from person to person until
the goal is reached. Everyone gets a small fee for making their channel available
and everyone is happy. The problem now is that not every channel has been opened
with enough BTC, which is not enough for some payments, or the target cannot be
reached at all via existing open channels.

This is where the large LN hubs come into play, which keep many channels open
with sufficient liquidity. If you connect to such an LN hub via a channel, you have
solved this problem. The LN hubs, which are also connected to each other via
channels, usually have sufficient liquidity and enough open channels.

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Unlike BTC miners, which do not transfer value, these LN hubs must be considered
third party settlement organizations regulated by strict laws such as KYC/AML.
Unlike transactions on the BTC blockchain, there is a possibility of theft in the LN,
which is why these large LN hubs maintain fraud departments that constantly check
the open channels, which users must pay for with fees.

A payment channel can be closed at any time by either party, with the party closing
the channel also sending the final balance of that channel to the BTC blockchain. If
an older and not current balance is sent without the other party noticing and
complaining within the two-week blocking period, money can be stolen in this way.

Such theft should be prevented or made unattractive by the fact that if one party tries
to close a channel in an old state and is caught within the two-week blocking period,
all the money in this channel goes to the other party. It is easy to see that this is not
sufficient protection against attempted theft.

If the current balance for one side is close to zero, but an earlier balance is much
more advantageous for this side, a potential thief only runs the risk of losing the
balance, which is close to zero anyway. Trust in the other party is therefore important
when opening a channel if you cannot or do not want to constantly check the status
of the payment channel. However, trust in another person is exactly what BTC is
designed to avoid.

If you now replace the term "open channel" with "checking account", you will better
understand what is being played here. The LN hubs are often operated by the same
institutions that BTC is supposed to replace. This does not replace the existing
banking system, but rather integrates BTC into it with all its imponderables. This
includes the control of money flows, the possibility of blocking transactions, blocking
accounts, etc.

In this context, it should be noted that every user who wants to remain independent
with a self-hosted wallet in the LN must operate their own node, which must be
constantly online and monitored. Another special feature of transactions in the LN is
that the sender and recipient must be online at the same time. It is therefore
understandable that most LN users work with custodial wallets that are monitored
and controlled by companies. However, this is the perversion of "be your own bank"
par excellence.

The BTC network designed by Satoshi Nakamoto needed neither a middleman nor
fraud departments. Now a solution is offered by Blockstream that is provided and
maintained by the same institutions that run the fiat money system. Whether or not it
was all done with this exact objective in mind is secondary.

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Either you give up freedom and independence and use the LN, or you pay ever
higher fees in the double or triple digits for transactions on the BTC blockchain.

BTC as a bank reserve currency

If, as assumed by Saifedean Ammous, transactions on the BTC blockchain are only
used for large contributions and settlements between banks and daily smaller
payments are made outside the BTC-blockchain, BTC no longer fulfills the purpose
of a peer to peer payment system as described in Satoshi's whitepaper, but only that
of a settlement medium.

"Bitcoin can be seen as the new emerging reserve currency for online
transactions, where the online equivalent of banks will issue Bitcoin-backed
tokens to users while keeping their hoard of Bitcoins in cold storage, with
each individual being able to audit in real time the holdings of the
intermediary, and with online verification and reputation systems able to verify
that no inflation is taking place. This would allow an infinite number of
transactions to be carried out online without having to pay the high transaction
fees for on-chain transactions.
As Bitcoin continues to evolve in the direction of having a higher market value
with higher transaction fees, it starts to look more and more like a reserve
currency than a currency for everyday trading and transactions."
Saifedean Ammous, The Bitcoin Standard, page 214

For everyday use, BTC must either be used off-chain in the LN or exchanged for fiat
money. With both options, one once again becomes dependent on and controlled by
the same financial system that BTC was originally designed to avoid. Saifedean
Ammous idea of BTC being used as a bank reserve currency is conceivable, but it
does not free anyone from state supervision and control.

It would also not guarantee a stable currency, because just as the gold peg of the
USD was removed with the stroke of a pen, a BTC peg of a new currency could be
removed or changed at any time. Everything that comes from the state must be
viewed with suspicion. History teaches us that the state is not the friend of its citizens
and cannot be trusted.

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Integration into the financial system and fractional reserve

BTC is well on its way to being fully integrated into the current fraudulent financial
system and is no longer a serious alternative to state fiat currencies. This can be
seen from the fact that capital collectors such as BlackRock and Co. have launched
BTC-ETFs on the market, thereby degrading BTC to a pure speculative asset for all
to see.

The BTC community is cheering this and does not see that a poisoned pawn has
been placed on the chessboard in the battle between BTC and fiat currency. Large
amounts of BTC are being sucked up by BlackRock with investors' money and the
focus is being deliberately diverted away from the actual purpose of BTC and
towards quick profits.

Anyone who invests in a BTC-ETF has no interest in the function and purpose of
BTC, but is only interested in making a profit in fiat money that becomes more
worthless every day. These ETFs have perverted the purpose of BTC, which is
desired and promoted by the system, namely to be the unrestricted owner of one's
own money and thus independent of the state.

The sale of BTC-ETFs opens up the possibility for BlackRock and Co. to sell more
shares of BTC to investors through fractional reserves than they actually hold. ETF
buyers are not entitled to receive BTC, but only the equivalent value in fiat currency.
Manipulation of the BTC price is therefore almost guaranteed.

Independence from the state

What we need is one or even many competing cryptocurrencies that are

independent of the state and can actually be used as a daily payment system and
not just as a substitute for gold like BTC, which can serve as a central bank reserve
but not for daily payments.

Anyone who has understood the idea of BTC and the danger it poses to the existing
monetary system can more easily understand the direction in which BTC is headed
and why it has developed in the way it has today. A real alternative to state fiat
money and therefore a threat to the ruling class only exists as long as this
uncontrollable means of exchange for the state can also be used in everyday life.
With BTC, this is virtually impossible in a meaningful way.

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The hard fork Bitcoin Cash (BCH) also poses no real threat to the existing monetary
system. With its maximum block size of 32 MB, BCH currently scales very well in
order to keep transaction costs low. However, the most important feature that a
cryptocurrency that cannot be controlled by the state must possess is missing:
privacy

Privacy

What should be a given for money, namely privacy, is no longer a given today due to
the spread of electronic money such as credit cards, PayPal etc. to a large extent.
With the widespread introduction of CBDCs and the abolition of cash, the erosion of
privacy will reach its peak. With CBDCs, all money movements can then be recorded
down to the smallest detail for each person in real time and intervened immediately
from a central location.

BTC only offers sufficient privacy as long as a wallet address cannot be assigned to
a person. Without a KYC, buying BTC on an exchange is practically impossible
today and is also not recommended in order to avoid being sold "tainted coins" (see
below). As soon as a transaction is carried out with BTC, the trading partner has the
address and thus insight into all transactions linked to this wallet.

Knowing that Bitcoin's sore point is the lack of privacy, Satoshi suggests keeping the
public keys (wallet addresses) anonymous and
"as an additional firewall, a new key pair should be used for each transaction
to keep them from being linked to a common owner. Some linking is still
unavoidable with multi-input transactions, which necessarily reveal that their
inputs were owned by the same owner. The risk is that if the owner of a key is
revealed, linking could reveal other transactions that belonged to the same
owner." Bitcoin Whitepaper

The latest forensic techniques, as used by blockchain analysis companies such as

Chainalysis, CypherTrace, Palantir etc., reveal the connections between BTC
transactions down to the smallest detail despite this approach proposed by Satoshi,
thus making BTC completely transparent.

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Fungibility and "tainted coins"

However, privacy is not only important for one's own privacy, but is an indispensable
prerequisite for fungibility, which is not given for BTC and all cryptocurrencies based
on the BTC protocol, which do not offer any additional privacy protection.

Fungibility refers to the property of goods, currencies and securities to be

determinable by measure, number or weight and easily exchangeable. However, as
each Bitcoin and each wallet involved in an exchange are uniquely identifiable on the
BTC network, coins that have been involved in illegal activity can be identified and
blacklisted, commonly referred to as "tainted coins".

Crypto exchanges regularly scan incoming coins for such "tainted coins" and, in the
best case, either do not accept them at all or report them to the relevant authorities.
However, such scans are not only carried out at exchanges; special software can
also be used at the mining level to exclude tainted coins from being included in new
blocks.

Andreas Antonopoulos, author of the book "Mastering Bitcoin", claims that Bitcoin's
dominance is at risk in the coming years due to data protection concerns.

"Tainted coins are destructive. If you break fungibility and privacy, you break
the currency." Andreas Antonopoulos

BTC mining and censorship resistance

In addition to network security, the Proof of Work (PoW) consensus mechanism

introduced by BTC with the SHA-256 algorithm (Secure Hash Algorithm 256-bit)
developed by the NSA originally aimed to achieve both a high degree of
decentralization and a better distribution of mined coins by allowing anyone to
participate in the mining process with simple home computers.

However, the development of specialized hardware, so-called ASICs, used only for
Bitcoin mining has led to mining being concentrated in large mining farms of
financially strong companies and mining pools worldwide. With simple commodity
hardware, it is therefore practically impossible to participate meaningfully in the
mining process.

By law, large companies with mining pools can be forced much more easily and
effectively to filter out certain transactions with special software and no longer

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execute them than private individual miners. The three largest BTC mining pools
alone provide more than 60% of the BTC hashrate. Over 99.2% of the hashrate is
achieved with just 14 mining pools (see chart). This means that, on average, less
than one in every 100 blocks is generated by a miner who is not included in one of
these 14 pools and may be evading the legal requirements.

Distribution of Bitcoin's network hashrate May 2024

The EU's declared aim is to ban self-hosted wallets or to have the addresses of
these wallets registered with the authorities using KYC. All under the guise of fighting
crime and for our protection, of course. In this way, the state has precise control over

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who carries out transactions, with whom and for how much. Companies such as
Chainalysis and others have long specialized in creating such transaction profiles.

Just as there are blacklists for the exclusion of certain "tainted coins" and wallet
addresses from transactions with corresponding software, transactions from wallets
that have not been registered with the authorities using KYC can already be
excluded at the mining level in future. Most BTC proponents consider the argument
against such a possibility, that this would require a global agreement between all
BTC miners, to be unrealistic.

Since the vast majority of BTC mining is carried out by companies, often listed on the
stock exchange, and no longer by private individuals as in the early days, it is easier
for legislators to enforce such an agreement. The globally coordinated measures
taken during the 2020 plandemic have impressively demonstrated that such a
coordinated global approach is not unrealistic.

What was possible with a "deadly virus" is even more feasible with BTC, as it is not
the entire population that is affected, but only the BTC miners. On closer inspection,
BTC's resistance to censorship is therefore de facto only given as long as the state
or those coordinating the states in the background allow it.

Whether such a scenario will actually occur or not is of secondary importance. The
mere fact that this not unrealistic possibility exists should make every BTC investor
cautious. Anything that is necessary and feasible to maintain power will ultimately be
used by the ruling class. Laws and morals play no role for the "elites".

BTC mixing services

So-called BTC mixers are used to avoid the monitoring of BTC transactions. These
are online services designed to anonymize cryptocurrency transactions such as
Bitcoin. They offer the possibility of concealing transactions by mixing the coins of
different users. Although it becomes more difficult to trace the origin and
whereabouts of the coins, they cannot hide the fact that they have been run through
a mixer, which also turns them into "tainted coins" for many crypto exchanges, which
no longer accept them.

These online services are increasingly being targeted by state authorities and
banned under the pretext of fighting crime. The most recent example is the Samourai
wallet, whose developers are accused of "conspiracy to commit money laundering

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and conspiracy to operate an unlicensed money transmission business". Every BTC
transaction should remain traceable by the authorities forever.

Private coins

It was recognized early on that BTC, despite its pseudonymity and Satoshi's
proposed approach of using a new key pair for each transaction, does not offer any
real protection of privacy.

All of the aforementioned problems arising from tracking due to the open ledger that
can be viewed by everyone can be avoided with private cryptocurrencies. However,
the problem of scalability is exacerbated with most private cryptocurrencies, as they
require more space for each transaction on the blockchain in addition to the more
complex computing process compared to BTC.

When evaluating the various blockchain protocols, it is not just about data protection,
but also about decentralization and scalability. No current blockchain system can
hide the fact that a transaction has taken place. Therefore, information such as
relative activity can be derived fairly accurately for all blockchains. As a rule, each
blockchain records wallet addresses, amounts of money, linked inputs and outputs,
IP addresses and data embedded in the transactions.

There are different privacy-protecting blockchain protocols, which can be divided into
different types. Firstly, those that are derived from the original Bitcoin protocol and
use additional, different methods to create privacy (e.g. Dash, Firo). Then there are
proprietary protocols such as the Cryptonote protocol (e.g. Monero, Zano), the
Zero-Knowledge-Proof protocol (e.g. Zcash, Piratechain) and the Mimblewimble
protocol (EPIC Cash, GRIN, Beam).

Mimblewimble

By far the most efficient development in the field of privacy-protecting blockchain

protocols is Mimblewimble (MW). It impressively solves the constant challenge of
scalability for all blockchain networks, whereby privacy protection is provided in a
particularly good form as a by-product. MW can therefore rightly be described as a
paradigm shift in blockchain technology in general.

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In contrast to all other privacy-protecting protocols mentioned above, which only
store sensitive data in encrypted form on the blockchain to protect privacy and thus
significantly inflate the blockchain size, MW stores neither public wallet addresses
nor Transaction amounts on the blockchain.

This amazing way of processing transactions is only possible because a direct

contact is established between sender and recipient, in which necessary data is
exchanged outside the blockchain and only the result of this transaction is
transmitted to the blockchain, where it is further processed and stored.

The advantage for the protection of privacy compared to all other protocols is
obvious. If there are no public wallet addresses on the blockchain, transactions
cannot be assigned to a wallet and therefore to a person. Not even theoretically
possible quantum computers can subsequently extract private information from the
blockchain.

Cut through

But that's not all, because the blockchain is constantly cleaned of unnecessary and
redundant data with the "cut through" unique to MW, which keeps the blockchain
extremely lean. All other private blockchain protocols increase the size of their
blockchain in relation to BTC, while Mimblewimble makes it smaller, assuming the
same transaction volume in each case.

Mimblewimble uses a very efficient system that replaces the UTXO model used by
many blockchain protocols such as BTC by a multi-signature model for all inputs and
outputs, known as confidential transactions.

If Alice wants to send Bob a coin, a contact must be established between the two, as
both Alice and Bob must create a multi-signature key that is used to verify the
transaction.

Mimblewimble transactions are made up of 3 groups:

● a set of inputs that refer to a set of previous outputs

● a set of new outputs
● a transaction kernel that stores the signature of the transaction, the public key
with the associated "excess blinding factor", the transaction fee and the block
height of the transaction.

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 (If the transaction is a Coinbase transaction (mining reward), none of this is
available).

In the cut-through process, matching inputs and outputs are removed to create free
space in the block. This significantly reduces the amount of data that needs to be
stored in the blockchain. While the intermediate steps of the transaction disappear
from the ledger, the remaining surplus kernels permanently document that the
transactions have actually taken place. (A kernel is a very small piece of data of
about 100 bytes).

As more blocks are created, Mimblewimble applies the cut-through to all existing
blocks, leaving only the block header, the unexecuted transactions and the
transaction kernels in the long term. The more transactions are executed on the
blockchain, the greater the space-saving effect.

In the following diagram, the blockchain is shown on the right before the cut-through and on
the left after. The corresponding inputs and outputs are shown in the same color. New coins
(mining rewards) are shown in white, the kernels are shown in gray.

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Polyphasic PoW

In order to avoid mining monocultures of huge mining farms, as is common in BTC

mining, different algorithms are used, each of which is designed and optimized for
specific types of hardware. At different time intervals, these alternate in a predefined
percentage ratio at irregular intervals, which has several advantages compared to a
monophasic PoW.

The algorithms themselves and also the percentage distribution can be easily
changed during operation without interruption or expanded with additional
algorithms. This makes it possible to react easily and quickly to changes (e.g. use of
a quantum resistant algorithm).

Not all mining hardware is constantly busy mining. During the phases of algorithms
that are not designed for the hardware, these devices are in standby mode or
perform other tasks. The security of the network is not impaired by this
energy-saving effect, but actually increased, because a 51% attack does not require
51% of the total hash rate, but 51% of each individual algorithm. The time intervals
between the different algorithms are too short to create a manipulated chain by
adopting a single algorithm.

By distributing mining with different algorithms across very different hardware,

decentralization is being driven further and further and is not concentrated on fewer
and fewer mining farms, as is the case with BTC mining. Additional and
environmentally harmful electronic waste is also avoided by using existing standard
hardware (home computers, gaming computers, etc.).

EPIC Cash

EPIC Cash is a cryptocurrency that stands out in a very special way among
MW-based cryptocurrencies, as it focuses solely on the use case of money in its
best possible form and does not burden and inflate its blockchain with unnecessary
additional functions. The polyphasic PoW integrated by EPIC Cash ensures that a
wide variety of hardware, including older hardware, can be used for mining and that
mining is not concentrated on specialized hardware in mining farms.

EPIC is a private cryptocurrency that follows Bitcoin's original idea of providing a

solid and scarce electronic money for everyone and for everyday use that cannot be
controlled by the state. EPIC Cash combines all the properties that money should

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have and protects all confidential data without restriction from prying eyes and the
surveillance rage of the state.

Short transaction times and very low transaction costs make EPIC an ideal currency
for everyday use, even for very small amounts, such as a cup of coffee. All the
necessary resources to create an EPIC Private Parallel Economy have been
developed by the community. An EPIC Cash payment processor and a specialized
mobile app simplify the payment process considerably.

In contrast to the "digital gold" BTC, it combines all the properties of a medium of
exchange, unit of account and store of value. With a maximum issuance limit of 21
million coins, no premining, no venture capital, no corporation or foundation but as a
grassroots movement driven only by a community of freedom-loving idealists, EPIC
Cash follows 100% of Bitcoin's DNA.

Blockchain trilemma

The blockchain trilemma is a term defined by Vitalik Buterin that concerns a problem
of all blockchain developments. It states that decentralization, security and scalability
cannot be optimized at the same time, but that one property can only ever be
improved at the expense of another.

Although EPIC does not completely solve this trilemma, it takes it to another level
that comes very close to a solution.

● Scalability is significantly improved by Mimblewimble with "cut-through"

thanks to the ultra-light blockchain.
● Decentralization is further advanced by the polyphasic PoW, as the barrier to
entry for participating in mining is lowered to the point where older home and
gaming computers can also participate.
● Security is not compromised by better decentralization and scalability

Summary and outlook

Despite all its weaknesses, Bitcoin, created by Satoshi Nakamoto, remains a

milestone in the development of an electronic scarce money system that can

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function independently of a third party in a modern society based on the division of
labor, even without the influence of the state.

However, BTC is unable to fulfill the fundamental requirements of a

state-independent, censorship-free and fungible currency. Ultimately, BTC was
hijacked by the very system it was supposed to fight and challenge. Partly due to
outside influence and partly due to the greed of some of the most influential insiders.

BTC's biggest, or at least most visible and vocal enthusiast, Michael Saylor, is
categorically against BTC being used for payments, believing it to be like a dragon's
hoard - only to be accumulated and never sold. On the surface, BTC appears to be
an attractive means of escaping inflation, but due to its complete lack of privacy and
lack of censorship resistance, it must be considered a pitfall of the current system.

At this point, there are trillion dollar companies controlling and manipulating BTC and
its development. Through tokenization, BTC itself becomes a version of CBDC, with
banks and government agencies serving as controllers. BlackRock is tokenizing
BTC, which not only allows for the creation of massive derivatives markets, but also
a totalitarian control mechanism over BTC and other non-fungible cryptocurrencies,
just as JP Morgan has gained over Ethereum.

EPIC Cash, on the other hand, embodies the private and handy twin of BTC, which,
based on the Mimblewimble protocol, has all the prerequisites to serve as a means
of payment for everyday use. All privacy-protecting cryptocurrencies will gain in
importance gradually at first and later explosively. The value of privacy will not be
ignored for much longer.

Open source, multi-algo, ultra-light blockchain and its version of privacy through
compression rather than obfuscation give EPIC Cash a unique advantage over most
other cryptocurrencies, both in practical and legal terms. The only thing standing
between EPIC Cash and true greatness is a process of discovery over time.

Closing remarks

The initial euphoria of finally having a way to escape the fraudulent state fiat money
system with BTC has been followed by disillusionment. Although the masses are
only now slowly being swept up in a wave of euphoria, it is no longer the libertarian
idea behind BTC that plays a role, but only the prospect of "fast money". BTC can no

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longer pose a threat to the system because it lacks the most important feature:
privacy protection.

Legislative changes to ban BTC mixers and the obligation to register self-hosted
wallets are just the finishing touches for the complete monitoring and control of all
BTC transactions. As described by Saifedean Ammon, "digital gold", as BTC is also
known, can indeed replace the gold hoarded by central banks and thus be fully
adapted to and captured by the existing fraudulent financial system.

On closer analysis of the current state of BTC, this can even be assumed. In any
case, it is clear that BTC is not what many still believe it to be. The money monopoly
is a state's most important tool for enslaving the population. No one needs to
assume that any state will simply allow this to be taken away without
countermeasures.

Totalitarian structures are becoming increasingly evident worldwide. With the

introduction of CBDCs, complete surveillance is to be installed, sealing the end of
individual freedom. To achieve this, however, all assets that cannot be controlled by
the state must be taken out of circulation. The pressure on all assets that cannot be
controlled, such as private cryptocurrencies, will therefore continue to increase.

An old analogy says that pressure creates diamonds. If this is true, further pressure
on private cryptocurrencies will produce some flawless diamonds.

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