There is a key debate that lies at the heart of crypto — one between liberty and security. Murray Rothbard, widely considered to be the father of anarchy-capitalism, refers to this as an “eternal struggle between liberty and power”, and echoes of this struggle have arguably played out across human history; What the individual or the society wants versus what the State wants.
Arguably, this is a false dichotomy, as there is fairly clear anecdotal evidence that shows that states that have protected individual liberties the most are the ones that have survived and thrived the most, but that is a rabbit hole to be explored on another occasion. In any event, Bitcoin’s original promise addresses this foundational conflict between state and society. It was meant to be uncensorable and unseizable, and also promised some level of anonymity, the same way that you are your IP address on the internet. In an era where corporates have been accused of holding society to ransom in their relentless pursuit of profits, often in active connivance with the State, it is important that the libertarian promise of bitcoin and its spiritual successors and progenies balance out this eternal power struggle. It is in this context that the launch of Grin, a new cryptocurrency focused on privacy, is creating waves in the cryptocurrency community.
But first, some background context on blockchains and privacy coins. While the range of use cases for cryptocurrencies has vastly evolved since the launch of bitcoin ten years ago, the underlying technology of elliptic-curve cryptography and public/private key combination that undergirds the blockchain has more or less remained unchanged. Every public blockchain fundamentally ensures that transactions are legitimate and not being double spent by performing the following tasks:
1) the sum of outputs minus the sum of inputs, including the transaction fees, should be zero for every transaction.
2) The digital signature that is generated by the private key to ensure that the spender has the right to spend the coins he/she is spending.
Additional features such as privacy and smart contracts are layered on top these two verification steps to create blockchains for more specific use cases.
In 2016, a ‘cyberphunk’ with the Harry Potter-inspired pseudonym ‘Tom Elvis Jedusor’ (anagram of Voldemort in French – “Je Suis Voldemort”) uploaded a post on the Bitcoin Chat forum, a key online watering hole for early crypto aficionados. The post introduced a variation of the Bitcoin protocol called “MimbleWimble” that trimmed down the Bitcoin blockchain. Skipping blithely over a fair bit of technical minutiae, what is important to know here is that “MimbleWimble” is more easily scalable, and also offered more privacy. MimbleWimble does not store the entire blockchain history and this makes it easy for nodes to sync with the blockchain without downloading the entire state of the ledger. Using a technology known as Pedersen Commitments, transaction details (sender’s and receiver’s addresses and transaction amounts) can be obfuscated easily without increasing the size of the transaction. MimbleWimble is, therefore, a lightweight version of the Bitcoin protocol with two critical enhancements – a compact blockchain size and concealed transactions.
Grin’s ethos almost perfectly mirrors Bitcoin’s low-key beginnings, where the project was founded, developed and maintained by a group of anonymous actors in the fringes of the ecosystem. Grin decided to skip an ICO in a world of ‘all-hustle-zero-substance’ projects raising millions of dollars. This clearly shows that a great project can still attract a strong community of followers by sticking to the essential spirit of the blockchain, without having to do a pre-mine or an ICO. The project name itself, by the way, is a nod to the Gringotts Wizarding Bank in Harry Potter.
In addition to being a lightweight version of the bitcoin blockchain that gets rid of all the large-footprint, bloated components of the latter to provide privacy and compactness. Grin also builds upon many of the best security features of Monero and Z-Cash. Most importantly, Grin offers superior privacy and compactness relative to Bitcoin; let’s take a simple example:
Now that all the transactions are private by default, there’s no need to maintain the trail of each and every UTXO generated on the blockchain. UTXOs or Unspent Transaction Outputs need to be processed continuously on the bitcoin blockchain and are responsible for beginning and ending every transaction. Since UTXOs are aggregated, the Grin blockchain is small and compact. All full nodes do not have to download the entire UTXO set whenever it connects to the network. They only have to download the most recent UTXO set after aggregation.
To contrast and compare the extent to which Grin’s novel design reduces its blockchain size versus Bitcoin, some numbers are helpful. The entire size of the Bitcoin blockchain is around 185 GB and it has over 500k addresses. When Grin grows to Bitcoin’s size in terms of the total number of addresses, Grin’s blockchain would still only be 4GB. In terms of monetary policy, Grin’s perpetual issuance of constant block rewards is more egalitarian than Bitcoin’s in that the miners who join the network after 15-20 years still enjoy that same reward of 1 Grin per second that early movers enjoy. Unlike Bitcoin’s capped issuance of 21 million coins, Grin’s perpetual issuance makes it theoretically unfit to become a digital SoV (Store of Value) currency due to its lack of perceived scarcity. This should, at least theoretically discourage hoarding and speculative behaviour. However, this has not prevented an active secondaries market for Grin emerging on various exchanges. As expected, early price movements have been volatile, three weeks after main net launch.
Privacy is critical, but complex to design. Information leakage is a constant threat, and the often cumbersome nature of the implementation drives most people to trade privacy for convenience. While Bitcoin is pseudonymous, it is not truly anonymous. There are multiple ways in which it can be tracked. The addresses themselves are a tracking vector. The transaction amounts as well as the origin and destination of the transaction, as well as the frequency of transactions, all lead to an erosion of privacy. In addition, multiple interactions with a ‘tainted’ bitcoin address, for instance, a dissident in a corrupt regime that needs to be funded through BTC, risks exposing the dissident to grave danger. Law enforcement agencies can track down such payments fairly easily, especially as the frequency of payments increase. Even more abominably, while theoretically fungible, there have been cases where ‘minted’ bitcoins with no previous transaction history have commanded a premium. Additionally, bitcoins that have been associated with ‘flagged’ addresses might become difficult to trade, as they get flagged and watchlisted just like IP addresses, bank accounts, passports and other such identity documents that are censorable.
Grin addresses these issues; Grin brings together multiple features such as CTs (Confidential Transactions), Uniformity and Dandelion Relays in a manner that is elegant and simple. Importantly, Grin is also so much more than privacy. It hopes to address price stability, scalability, decentralization and privacy, all critical features of a potential global currency. The Grin monetary policy is also intended to discourage SOV (store-of-value) behaviour and encourage medium-of-exchange behaviour. A new Grin is issued every second, the inflation will be 10% after 10 years, and less than 5% after 20. Also, another common criticism against bitcoin is that post issuance of 21 million coins, we do not know yet how miners and the broader market will react, given that block rewards would have disappeared and validating transactions are the only means of revenue. To complicate matters, as scaling solutions like lightning move transactions off-chain, there is a smaller and smaller mining fee pool even for transaction validation. Grin, through its perpetual issuance mechanism, seeks to address these problems with a perpetual-issuance monetary policy.
Grin also improves upon existing implementations of Monero and ZCash in terms of existing weaknesses that these have around scalability, transaction footprints, and truly non-native privacy. Privacy is optional in Monero and ZCash, and technologies to reduce the footprint is still evolving with these two.
To extend the Bitcoin analogy, there is still considerable polarisation in the community on what exactly is the value of Grin. Because it is a lightweight bitcoin that also has the security features of ZCash and Monero, the potential use cases are very exciting. Combined with the fact that the monetary policy discourages speculation, there is something almost utopian in the ideals of the project.
While many investors are actively mining Grin, a number of investors are preferring to wait and watch, given the highly inflationary monetary policy. Given that this is the only game in town in the depths of a bear market with proven, working technology, it is probably fair to expect a pump, perhaps after the Chinese new year but the smart money is probably waiting on the sidelines for a while, given that it is currently valued at ~$4 billion, basis 2050 supply, which is more than the valuation of ZCash and Monero combined. Basis current market cap, however, the valuation for Grin drops to approximately $3.6 million.
There is, of course, the parallels to bitcoin, to begin with. Under what scenario does Grin become valuable? What seems to be the simplest use case for Grin? Something like a Silk Road paradoxically, in the near term! A shadow network that can create a marketplace for regulated but excluded-from-banking-rails businesses like porn and cannabis, or for outright illegal stuff, like guns and drugs. Ross Ulbricht built the Silk Road around bitcoin, and a big reason authorities were able to bring down the Silk Road was the inherent traceability and auditability of bitcoins online. Something like Grin, designed bottom-up with a focus on security, becomes a challenge of a different scale to authorities worldwide.
This again takes us back to the paradox, the conflict between State and society. For Grin to be accepted, it needs to be ‘respected’ by the government and by the larger institutions, banks need to run pilots on it, big corporations need to be test-driving it. And this is where the parallels to bitcoin start fading. Unlike in the case of bitcoin’s early days, where corporates were still unaware of crypto because of the fact that it was a fringe phenomenon, most corporations are now well and truly on top of the possibilities of crypto, which is a truly mainstream phenomenon. Facebook, for example, wants to pioneer a whole payment system around cryptocurrencies and multiple banks and payment processors are already widely adopting this technology for trade finance and settlements. It is for this reason that Grin is exciting. If this technology finds wider adoption, then it could spawn powerful use cases across the mainstream. In wider adoption lies true liberty, irrespective of the false dichotomy, the State vs. individual fire that crypto-anarchists seek to stoke. Grin could thus actually achieve the libertarian promise that BTC originally held before it devolved into its current state, which is limited to being an indisputable store of value.
Grin also brings to the forefront another dichotomy in crypto, between the technologist and the investor. If you are looking at cryptos purely as an asset class, Grin is not going to be interesting to you, as there is no immediate clear path for value capture (a new Silk Road or porn/pot financing apart). It is foundational, like another TCP/IP, there will be interesting stuff built on top of it and using it, but that will take time. But if you are excited by the possibilities that Grin might offer up, the opportunities for value creation are truly exciting. If you are technologist you will love Grin; if you are an investor, you are probably on the fence, despite all the hype. Either way, this is an exciting development in the narrative arc of cryptocurrencies, bitcoin and potentially another key milestone in the perpetual pseudo-struggle between ‘individual’ and ‘state’.