Fungibility – the functionality of an asset to be interchangeable with itself – is an issue with Bitcoin. Bitcoins and crytpocurrencies are not completely fungible. This is important for an asset to perform well in payments and in reaching quick agreement over settlement of a transaction. If cryptocurrencies will succeed as an important alternative payment method, it must tackle this lack of fungibility issue.
Obviously there some proposals already put forth. In the video below we hear from two prominent Bitcoin core developers and about this issue and what might be the way forward. Adam Back is one of the most well-regarded, significant Bitcoin enthusiast and with a legal background (in addition to being a Cryptographer) is a respected person, sought after with sensible issues in this field. He explains that the current Bitcoin network is not a proper support for a fungible asset, Paypal being more fungible; plus in a business environment everyone needs to be fungible. The slide about transaction flow analysis and the possible attacks related to this issue is important to read carefully. Fungibility also is no brainer for scalability issues: it helps scalability via the information leakage character of fungibility.
Matthew Corallo is another prominent Bitcoin core developer. He is the founder of the company Blockstream, a major blockchain and cryptosystems provider. He also talks in the video about what he thinks on this fungibility issue and lists some proposals:
- Lightning (with Onion Routing…)
- One way aggregatable signatures
The description of network attacks and chain analysis by Matt Corallo is important to listen carefully. Finally the slides about transaction features identification, wallet fingerprinting and transaction censorship are also worthy read. Conclusions: much work to do but many ways forward.
featured image: Scaling Bitcoin 2016 Milan – Day 2 – Afternoon