Good Morning Everyone,
I’ve been meaning to chat about Fedimint for a while, and after receiving an email from Ego Death Capital this morning about their investment toward Fedimint it has prompted me to finally do so.
Why Fedimint?
Despite non-stop attempts by the bitcoin community to help educate the wider community on the importance of self custody - “Not Your Keys, Not Your Coins“ - the unfortunate reality is that a dominant percentage of users relinquish custody of their keys to 3rd party exchanges, and this weakens not only the security of the holdings of the individual but the entire network significantly.
The primary reasons for this are 1) People lack the technical competence to do so 2) Cost. Many around the world simply cannot afford the price of a hardware wallet and 3) Many people prefer to outsource trust as they do not trust themselves to take responsibility and secure their bitcoin.
This basically turns any exchange into a massive honey pot for government and nefarious actors wishing to control, surveil, restrict and censor the use of these bitcoin and could even lead to mass seizure of bitcoin, similar to what happened in 1933 with gold following executive order 6102. Fundamentally this dynamic removes the censorship nature intended, due to the outsourcing of trust to custody ones bitcoin keys.
What is Fedimint?
Fedimint, short for Federated Chaumian Mint, is a protocol that has the potential to profoundly improve bitcoin self-custody solutions and offers to potentially solve one of the most significant attack vectors facing bitcoin today - that being large percentages of bitcoin keys being custodied by centralised 3rd party exchanges.
Fedimint leverages two primary technologies being 1) Federations, or community shared wallets. This can be simply thought of as multi-signature wallets and 2) The use of Chaumian Mints. Attached is a great blog post explaining more around the use of federated mints including how and why they could improve scaling and privacy on bitcoin. Chaumian mints are explained in the post as follows:
“Chaumian mints, also known as Chaumian banks, or blind mints, offer a compelling solution to these problems, particularly when operation is federated. Chaumian mints, through the use of blind signatures, have extremely appealing privacy properties. The mint operators do not know the number of users, their identities, account balances, or transaction histories. Additionally, mint transactions are cheap and can be performed at unlimited scale.”
What Are The Primary Advantages?
Fedimint could offer a superior custody model while maintaining bitcoins core properties, and without sacrificing decentralization. The three primary benefits to leveraging this technology are:
A Superior Bitcoin Custody Solution. Better than trusting an unknown 3rd party like an exchange, and perhaps even better than individual self-custody due to the fail-safes it would provide, fedimint has the potential to be a superior way to self-custody bitcoin which would be widely available to all users.
Privacy. Fedimint can dramatically improve privacy on bitcoin as the use of federated chaumian mints makes it impossible for chain surveillance companies to tell the difference between a normal transaction and that of a federation. While they would be able to see the total balance, they cannot know who is sending or receiving what, and the balances of individual federation members is completely hidden.
Help more people take full ownership of their bitcoin, and enable them to leverage the core properties offered by the protocol, like censorship resistance, that are lost when trusting centralised 3rd party exchanged.
The forming of federations outsources the most technical parts of self-custody from the individual user who may not have the technical competence to do so, to trusted members of the federation. Thus making it far more possible than before for these users to custody their bitcoin keys.
Below is a timestamped link to Obi Nwosu’s presentation on Fedimint at Bitcoin 2022 Where he goes through the ins and outs of the protocol which i highly recommend watching to understand more.
In my opinion the improvement of privacy on bitcoin is the single most important advancement as fundamentally, everything else is downstream of privacy. The priority to ensure user privacy cannot be over-stated. The need for it to be standard procedure is critical. This requires an alternative to solve for the vast number of bitcoin users giving custody of their private keys to centralised 3rd party exchanges.
It must be simple for any user regardless of technical capability to utilise, and implemented in a way that makes it robust and common-place when interacting with the network and in my opinion, the promise of bitcoin full-filling the mission to separate money and state relies on such a solution. Hopefully Fedimint is that solution. Time will tell.
Just another example of why open networks win. Open Source Everything!
Hope you have a great day. I’ll talk to everyone tomorrow.
AK
#124 Fedimint: Federated Chaumian Mints