Fedi, the Bitcoin company building on top of the open source Fedimint protocol — a privacy-centric bitcoin payments method using Chaumian e-cash — is emerging from a period of quiet development to announce a new groundbreaking feature. This new feature, which will be released today within the Fedi application, aims to simplify, secure, and private the creation of multiple-signature electronic cash mints for users around the world with only a few simple clicks. It aligns with the cypherpunk principle of user sovereignty and decentralization.
Android and iOS devices now have a built-in GPS. appsWith the G-Bot, an intuitive chatbot interface, users can easily create a Fedimint Federation. Mint creators must pay the basic service fee and add basic information within minutes.
The G-bot will then find trusted, anonymous Guardians who can help the user form a mint federation. This process decentralizes the custody of the mint’s bitcoin reserves — needed to operate an e-cash mint. This also prevents collusion, as the mint operators remain anonymous to each other. They would have to make themselves public to locate other key holders in order to collaborate.
The Fedimint Protocol is built around privacy. Privacy has been a keystone in Bitcoin, and other crypto currencies. cypherpunk movement. “The first line of the Cypherpunk Manifesto is that privacy is necessary for an open society in the electronic age. It’s not nice to have. It’s not convenient. It’s necessary.” Obi Nwosu, CEO of FediIn an exclusive interview, he told Bitcoin Magazine. He also added an important warning to the world about what it would be best not to do in the future: “Bitcoin without privacy is our worst nightmare. It’s 1984 coin, it’s the panopticoin.”
Founded in 2022Fedi quietly has worked to bring private digital money to the world. It is based upon one of the best technologies for this purpose: David Chaum’s Chaumian electronic cash, designed in 1982. The digital currency almost found its way into each copy of Windows 1995Chaum and Gates were unable to reach an agreement regarding the final deal, despite its scalability.
Bitcoin has been around for 30 years and is now stepping up to meet the global demand for private digital currency. It does this by leveraging Bitcoin’s newfound possibilities, which could solve the core problem of Chaumian E-cash: the dependence on a single mint, who issues the bills and redeems them in the original currency.
Bitcoin is a great solution for the tradeoffs inherent in e-cash. While eCash is based on trusting a server to verify that transactions are funded properly, the system can still do this without any user data, as it’s primarily built around cryptography. It nevertheless requires a trusted server, which can in theory emit more e-cash bills than it has reserves for, a form of the ‘double spending problem’ Satoshi Nakamoto sought to address in his Bitcoin white paper.
The history of digital money before Bitcoin shows that centralized mints are also more susceptible to being harassed. Bitcoin decentralized the mint by distributing the accounting process the mint does with the invention of the Bitcoin node, anyone that runs a node has a copy of all bitcoin transactions and can independently verify the accounting integrity of the system, thus solving the ‘double spending problem’.
The downside of Bitcoin’s approach is that it leaves a public record of all transactions, which is not great for privacy, and has hard theoretical limits in terms of how many transactions it can process per second — it is not very scalable — two limits which the e-cash systems do not have.
Nwosu is well-versed in the downsides of centralised cryptocurrency exchanges. He was CEO and founder of Coinfloor (a centralized crypto exchange) founded in 2014. It was the “First ‘Publicly Auditable’ Bitcoin Exchange” According to Coindesk from 2014, an auditing system called Proof of Reserves was used. Nwosu recalled his own experience in the subject. “Being solvent is a very big thing for me as well as being able to prove that cryptographically, if possible”. Fedi’s co-founder was motivated by his own experience, as well as his fear of a future devoid of private digital money.
However, creating scalable, secure, and private digital money is neither politically nor technically easy. To solve this fundamental problem of finance and computer science, many in the Bitcoin community have been looking for ways to combine the benefits of Bitcoin and Chaumian e-cash in order to solve — or at least mitigate — the downsides of both systems. Fedimint is most notable for its development of federated digital cash mints. It leverages Bitcoin’s smart contract features, including multi-signature transactions, to ensure the safety of the system.
Bitcoin’s multisignature script introduces a brand new concept in finance: transactions that are only executed when more than one signatory agrees. Banks can have multiple accounts that are shared, but the rules are strictly enforced and governed by local lawyers who follow local laws. In the end, it is up to local governments to decide whether or not to accept a transaction. Bitcoin’s international proof-of-work network defends multisignature agreements with all its weight, allowing them to be as valuable as gold. This opens up a whole new type of financial institution. Both the Liquid Network as well as Bitcoin Lightning Network are only possible because of this technology.
Fedimint is a multi-signature system that takes it to the next step by making members anonymous through G-bot. This protects users from collusion and adds redundancy in the mint’s bitcoin reserve, thereby increasing the difficulty of hacking. Fedimint can also prevent accidental keys loss by Guardians. A threshold number of Guardians, such as three out of four signers in the case of one losing their keys, or getting compromised, will restore the stability to a Federation. “the bigger risk isn’t collusion but users forgetting passwords, which federations mitigate since the system continues if one guardian fails.”
Nwosu is expecting that, in the end, there will “tens of thousands, if not hundreds of thousands, of federations, each with a different set of users using it.” They connect using various payment methods such as onchain Bitcoin, the Lightning Network or the Bitcoin standard. “offering cryptographic privacy within each federation. Even when sending between federations via Lightning, privacy remains high because users are interchangeable within pools. No single point of trust or failure.”
Self-custody is a common criticism of electronic cash systems. This critique persists even after the advent of Bitcoin. Even in a network of federated e-cash is a trusted custodial system. Nwosu’s insight on the topic was particularly strong. “If you have self-custody and no privacy, you don’t have self-sovereignty because someone knows exactly what you’re doing and can confiscate your money at any point.” eCash can be more private because it doesn’t leave a trace on the blockchain.
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Source: bitcoinmagazine.com
