This is an opinion piece by Kudzai Kutukwa, a financial inclusion advocate and Mandela Washington Fellow.
“When the use of strong cryptography becomes popular, it is more difficult for the government to criminalize it. Therefore, using PGP is good for preserving democracy. If privacy is forbidden, only outlaws will have privacy… PGP empowers people to take their privacy into their own hands. There has been a growing social need for it. That’s why I wrote it.
–Phil Zimmerman, “Why I wrote PGP”
THE case by Roman Sterlingov, who is accused of running the custodial bitcoin mixer, “Bitcoin Fog,” is indicative of the many situations in which individuals are targeted by law enforcement to protect their financial privacy.
As stated in “What Bitcoin has done“, the US Department of Justice relied on Reactor software from Chainalysis to trace the purchase of the Bitcoin Fog domain to an address linked to Sterlingov’s Mt. Gox account, establishing it as its operator. Reactor has was designed to link cryptocurrency addresses to real-world identities.Despite the various irregularities present in this case in progressone could conclude that it sends a clear message of “you will not have financial privacy”.
Presentation of the arch
Given this growing hostility towards financial privacy for Bitcoin transactions, there is a pressing need to develop higher quality tools. At the recently concluded Bitcoin 2023 conference, a potentially game-changing tool, called the Ark Protocolhas been presented.
Announced during one of opening sessions on the open-source scene by the developer Burak, Ark is a layer 2 scaling solution that enables cheap, anonymous, off-chain Bitcoin transactions. The protocol also has a minimal on-chain footprint, further protecting user privacy while keeping transaction costs low. In what can best be described as an “accidental invention” that occurred when Burak was trying to develop a Lightning wallet, Ark is a separate protocol that could potentially scale the use of non-custodial bitcoins.
Burak named the protocol “Arche” in reference to Noah’s arkwhich acts as a lifeboat that provides refuge from surveillance companies and predatory blockchain custodians.
During his presentation, Burak highlighted one of the most concerning trends in the Lightning Network today, which is that there are currently more depositary Lightning users than non-custodial users. This is primarily due to liquidity constraints on Lightning which require non-custodial users to first receive liquidity from someone else’s node before they can receive funds. Custody wallets like Wallet Of Satoshi take this problem away from the user, but at the expense of the user not having 100% control over their funds, as well as their financial privacy.
An alternative layer 2 protocol
I interviewed Burak to better understand Ark and the inspiration behind its development. When I asked him what led him to develop an alternative Layer 2 protocol, he said:
“I have always criticized Lightning primarily due to issues with inbound liquidity, asynchronous receive as well as its on-chain footprint. Incoming liquidity always felt like a bug to me, which made the user experience anything but pleasant. On top of that, it would take over a century to onboard the entire world population non-custodially to the Lightning Network, assuming each person has four channels that each consume a few hundred vbytes.
As he set out to solve these and other problems, his Lightning wallet idea eventually turned into Ark.
“Ark can best be defined as a trustless e-cash or liquidity network similar to the Lightning Network but with a UTXO bundle that lives entirely off-chain and it’s neither a state chain nor a rollup,” said burak. “These UTXOs are called ‘virtual UTXOs’ or ‘vTXOs’, which have a ‘lifespan’ of four weeks. The core of Ark’s anonymous off-chain payments is driven by vTXOs.
Throughout the conversation, Burak continued to emphasize his obsession with a frictionless end-user experience, his view being that sending sats should be as easy as pressing a button. This is one of the reasons why Ark users do not need channels or liquidity, as it is delegated to a network of unreliable intermediaries called Ark Service Providers (ASP). These are always-on servers that provide liquidity to the network, similar to Flash Service Providers work, but with an added benefit: ASPs are unable to link senders to receivers, which adds another layer of privacy for users.
This is made possible by the fact that each payment on Ark takes place within CoinJoin round that obscures the connection between sender and receiver. The best part about it is that the CoinJoin happens entirely off-chain while settling payments every five seconds, which not only significantly reduces on-chain footprints but also boosts user privacy. The anonymity set is every party involved in a transaction, and theoretically this creates a greater degree of privacy than is possible on the Lightning Network. Additionally, Ark mimics on-chain user experiences in that users have a dedicated address to send and receive payments, but the difference is that it’s a reusable address that doesn’t compromise the user privacy, made possible in a way similar to how silent payments work.
However, like any other system, Ark has its own trade-offs. While it may not offer instant settlements as quickly as Lightning, it offers immediate access to funds without having to wait for confirmations in what Burak described as “immediate availability with delayed finality.”
For vendors, Lightning remains the best option for receiving payments. Additionally, liquidity providers are needed, but assuming that individuals will be motivated to offer liquidity to earn a return in bitcoin, Burak also believes this challenge can be easily overcome in the long run. This new proposal fixes some of Lightning’s shortcomings, but also comes with its own set of challenges.
The road to follow
In summary, the Ark protocol is a unique second-layer scaling solution with unilateral egress capability that enables seamless transactions without imposing liquidity or interactivity constraints, or requiring a direct connection between the sender and the recipient. As a result, recipients can easily receive payments without the hassle of an onboarding setup, maintaining a continuous presence on the server, or compromising their anonymity to third parties. Designed to be a scalable, non-custodial solution, Ark gives users full control over their funds and empowers everyone to hold their own money.
Ark is interoperable with Lightning, but also serves as a complement to it. However, due to Lightning’s complicated self-custody process and differing levels of privacy for senders and receivers, as well as the imminent danger posed by blockchain surveillance companies, scaling solutions that prioritize privacy, like Ark, have become essential. The various attempts to attack Bitcoin through malicious lawsuits, as in the case of Sterlingov, and predatory legislation such as that of the EU Micademonstrate the need for scalable, efficient and privacy-friendly tools to avoid future problems.
It is in this context that I think Ark is an interesting concept worth watching as protocol development unfolds. Of course, with no code to review yet or a working prototype tested in battle, there’s still a long way to go. Despite the unforeseen challenges ahead, Burak is optimistic about Ark’s potential and is confident that it is a breakthrough that strikes the balance between private Bitcoin transactions and scalability, in a user-friendly way. A sentiment I also share, given the vital need for non-custodial and privacy-preserving tools.
This is a guest post by Kudzai Kutukwa. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.