Bitcoin Privacy Through Statechains with Nicholas Gregory - WBD560

Nicholas Gregory is the CEO of Commerce Block, the company
behind Mercury Wallet. In this interview, we discuss how they
have used statechains to develop a virtual version of
Opendime, the balance of trust and privacy on layer 2
protocols, and onboarding Lightning users.


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One of the most novel innovations to come out of the Bitcoin
ecosystem in recent years has been Opendime. The aim was to
turn Bitcoin into a version of physical cash. An Opendime, is
essentially a USB stick, that can be traded between
individuals without the need to confirm such transactions on
the bitcoin base chain. The USB can be verified but is only
redeemed by the last user, by breaking the device and
accessing its private key.


Opendime enables people to use Bitcoin as anonymous,
untraceable cash. The limitation is that it requires a
physical transfer. That was until Mercury Wallet was
launched. Mercury Wallet is essentially a layer 2 protocol
based on statechains. Statechains enable the offchain
transfer of UTXOs (turned into a bearer asset referred to as
a "statecoin") between parties.


The limitation of statechains is the requirement for a
trusted third party, in this case, Mercury Wallet. The third
party is non-custodial; they collaborate as a blind partner
in the cryptographic transfer of keys. Whilst there are
theoretical security issues, they have been mitigated by
Mercury Wallet. The issue to overcome is what tradeoffs
people are willing to make between ease of use, value
transfer and security requirements.


But, this is just the first of a number of growing use cases
for Mecury Wallet. It enables unlimited free swaps of Bitcoin
UTXOs providing privacy benefits. Through the conversion of
underlying assets into statecoins, the transfer of assets
using Discreet Log Contracts can be facilitated. Further, by
layering the Lightning network on top of statechains, it
could even enable the transfer of Lightning channels.