February 2 What is the mercury layer?
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A new kind of Bitcoin layer 2 protocol
Mercury Layer, created by Commerce Block, represents a significant advancement in Bitcoin’s layer 2 scaling ecosystem and focuses on improving privacy and efficiency through state chains. The Mercury Layer enables off-chain transfer and settlement of Bitcoin UTXOs (unspent Bitcoin transaction outputs) without sacrificing the custody and security of owner funds. This layer 2 protocol leverages statechain and blind co-signature technology to facilitate instant, cost-free transactions and presents a new approach to overcome Bitcoin’s scalability hurdles.
Statechain, implemented by Mercury Layer, achieves off-chain transmission of UTXOs through a combination of key sharing and blind signing, ensuring that the ownership of UTXOs can be changed securely and privately. The design of the protocol ensures that no single party or Statechain Entity (SE) involved in facilitating these transfers has full control of the private keys, maintaining security and privacy with minimal trust in the transactions.
The introduction of Mercury Layer’s “blinding” technology is a groundbreaking feature that further enhances user privacy on the Bitcoin network by ensuring that SEs cannot identify or censor transactions based on their content. This approach prevents the SE from learning transaction details such as the associated TXID, public key, or signature that helps co-create it. The protocol also uses Schnorr signatures over Taproot addresses, leveraging a blind variant of the MuSig2 protocol to generate signatures without revealing sensitive information to the SE.
The Mercury Layer protocol also includes mechanisms such as backup transactions and orderly closure processes that provide users with the ability to autonomously recover their funds if the SE does not cooperate or respond. This gives users greater control over their assets, ensuring a safety net.
By solving Bitcoin’s scalability and privacy challenges with instant, cost-free, private, off-chain transactions, Mercury Layer paves the way for the widespread adoption of Bitcoin for a variety of applications that require instant, secure, private transactions. that Integration with Lightning Network It will be a pivotal development in the pursuit of a more scalable and privacy-centric Bitcoin ecosystem, opening up additional possibilities to enhance Bitcoin’s transaction capabilities.
Significantly improved scalability and user privacy.
The Mercury Layer dramatically reduces the burden on the Bitcoin blockchain by facilitating the off-chain transfer of ownership of Bitcoin UTXOs. This mechanism improves Bitcoin’s scalability by significantly increasing the number of transactions that can be processed without directly affecting the main blockchain.
Mercury Layer’s use of state chains is key to improving scalability. Statechain allows UTXOs to be transferred between parties without an on-chain transaction. This is achieved by sharing control of the UTXO between the original owner and the SE and then transferring ownership through key updates. This process generates a large volume of transactions on the main blockchain, significantly increasing throughput.
An important feature of the Mercury Layer is that it implements blind co-signatures, ensuring that the SE does not know the transaction ID, the associated public key, or the signature it helped create. This blindness ensures that transactions remain private and secure without censorship or surveillance by the SE.
Utilizing a variation of the Schnorr signature scheme, Mercury Layer allows signatures to be generated via a shared public key without revealing the entire key to the SE. This allows transactions to be signed securely while maintaining the privacy of the user’s keys.
This protocol ensures that no single party, including SEs, has complete control over user funds. The shared control mechanism combined with backup transactions and orderly termination processes not only enhances security but also protects user privacy by preventing unilateral actions by SEs.
Mercury Layer’s state chain provides a way for users to prove the uniqueness and ownership of their funds without exposing transaction history or balances to the network or SE, ensuring network integrity while protecting financial privacy.
How does the Mercury layer compare to other Bitcoin Layer 2 protocols?
Mercury Layer represents a unique approach to layer 2 scaling and privacy solutions for the Bitcoin network and differs significantly from other major layer 2 protocols such as Chaumian e-cash, sidechains, and the Lightning Network. Each of these solutions has its own advantages and limitations, but offers unique mechanisms for transaction scalability and privacy.
Below is a comparison of how Mercury Layer compares to sidechains, Lightning Network, and Chaumian e-cash.
Mercury Layer and Sidechain
Operating Model: Mercury Layer uses state chains to facilitate off-chain transactions of Bitcoin UTXOs while maintaining security and privacy. Scalability and privacy are achieved through blind co-signature and key rotation without requiring cross-chain asset transfers.
Sidechains are independent blockchains that run in parallel with the main Bitcoin blockchain, allowing assets to be locked and transferred between the main chain and sidechains. This can facilitate a wide range of applications and smart contracts that are not possible on the main chain.
Trust Model: The Mercury Layer requires trust in SEs for them to act honestly in facilitating UTXO transfers and maintaining privacy through private operations. However, the protocol is designed to minimize trust through cryptographic mechanisms.
A sidechain may require trust in the entity securing the sidechain, depending on the consensus mechanism used. For example, federated sidechains rely on a group of validators to secure the network and approve cross-chain transfers.
Scalability and Privacy: Mercury Layer directly addresses scalability by allowing numerous off-chain transactions without affecting the throughput of the Bitcoin blockchain. Enhances privacy by preventing SEs from knowing details about transactions they facilitate.
Sidechains can potentially offer higher scalability and different privacy features depending on their design, but privacy and scalability will depend on the specific architecture of the sidechain and the mechanisms it uses.
Aqueous Layer and Lightning Network
Operating Model: The Lightning Network enables off-chain transactions through a payment channel between two parties. These channels allow for an almost unlimited number of transactions that are settled on the Bitcoin blockchain only when the channel is opened or closed.
Mercury Layer’s use of statechains is different in that it facilitates off-chain transfer of UTXO ownership. Unlike the Lightning Network, which requires channels to be funded in advance, the Mercury Layer enables the transmission of existing UTXOs.
Scalability: Both the Lightning Network and Mercury Layer provide solutions to Bitcoin’s scalability problems. Lightning achieves this through a network of payment channels that facilitate microtransactions, while Mercury Layer achieves this through off-chain UTXO transfers.
Mercury Layer potentially provides a simpler mechanism for transferring value off-chain without channel management and routing, but focuses on UTXO transfers rather than facilitating large, small transactions.
Privacy: The Lightning Network provides privacy benefits by not broadcasting transactions to the public blockchain until the channel is closed. However, routing information can potentially leak privacy-sensitive information.
Mercury Layer enhances privacy through blind co-signature, ensuring strong privacy by preventing SEs from knowing details about the transactions they facilitate.
Use Case: The Lightning Network is suitable for small, frequent payments, making it ideal for micropayments and everyday transactions.
The Mercury Layer focuses on maintaining the ownership, privacy, and security of UTXOs, making it particularly advantageous for privacy-sensitive transfers and potentially large transactions.
Comparison of Mercury Layer and Chaumian eCash
Operating Model: Mercury Layer is a Layer 2 scaling solution based on state chains that facilitates the off-chain transfer of Bitcoin UTXOs with full custody governed by their owners. We use blind signing and key rotation technology to ensure privacy and security.
Chaumian eCash operates as a privacy-focused digital cash system that uses blind signatures to provide anonymity to users. This allows users to create mints or banks where they can deposit and withdraw funds while transacting anonymously within Mint.
Trust and custody risk: The Mercury Layer minimizes trust by ensuring that neither the SE nor the user has full control of the private key, thus requiring cooperation for transactions. Introducing a new way to transfer Bitcoin ownership without an on-chain transaction.
Chaumian eCash introduces a trust model where users must have a certain level of trust in the Mint operator. However, federated mints spread trust across multiple parties to mitigate risk. The privacy and security of transactions within Mint depend on the integrity of these operators.
Privacy: Mercury Layer uses blinding technology to prevent SEs from knowing transaction details, providing users with a high level of privacy. By design, it protects against internal and external privacy leaks.
Chaumian eCash offers strong privacy protections by design, using blind signatures to prevent mint operators from linking users to transactions or balances. They must be carefully designed to effectively address internal privacy leaks but protect against external analysis and surveillance.
Scalability and Usability: The Mercury Layer directly addresses Bitcoin’s scalability by enabling off-chain UTXO transfers, potentially supporting larger amounts of transactions without putting a strain on the Bitcoin network. This approach simplifies the user experience by abstracting away the complex channel management found in other layer 2 solutions.
Chaumian eCash also offers scalability benefits by enabling off-chain transactions within Mint. Simplifies the user experience, making it easy to transact without direct blockchain interaction. However, scalability is limited to the Mint ecosystem and depends on Mint’s ability to process large volumes of transactions.
Integration with existing networks: Mercury Layer is a standalone layer 2 solution focused on UTXO transport, but in theory its principles could be integrated with other networks to improve functionality.
Chaumian eCash Mint is designed to interoperate with the Lightning Network, creating a bridge between the privacy-centric eCash system and Lightning’s efficient micropayment channel. This interoperability can enrich the Bitcoin ecosystem with a variety of transaction options catering to different user needs.
In summary, while sidechains, Chaumian e-cash, and Lightning Network extend Bitcoin’s capabilities in many directions, the Mercury Layer offers a new approach focused on privacy and secure transfer of UTXO ownership. Each of these layer 2 solutions plays a critical role in improving Bitcoin’s scalability, privacy, and utility to meet a variety of use cases within the ecosystem.