What Bitcoin Did is a podcast hosted by Peter McCormack, and in this episode he is joined by Nicholas Gregory, the CEO of Commerce Block, the company behind Mercury Wallet.

They discuss how statechains can enable privacy, how to onboard BTC Lightning users, and look at the interface of Mercury Wallet.

Read our notes below to learn more.

Background

• In the past, he worked as a TradFi developer for banks.
• In 2012 started to get into BTC.
• Went full-time around 2016.

Statechains on Mercury Wallet

• Mercury Wallet produces statecoins in which BTC can be put in and then transferred.
• An address with two private keys is created, where one private key is with the user and one with the recipient.
• To transfer it to another wallet, the recipient should create a statecoin address in Mercury.
• There is cooperation between the sender and statechain server to tweak the sender’s private key and generate a new private key for the recipient.
• With the two private keys, you’re creating one public key which exists on the BTC blockchain.
• There is a 3-month time limit during which statecoins can be sent back and forth.
• Mercury is non-custodial and the users can always pull their funds out.

Mercury Wallet Interface

• The deposit button allows users to create a statecoin.
• Withdraw button allows taking your BTC back to BTC main chain.
• Privacy Score in the pop-up window means how many times the state coin has been swapped.

Criticism

• Some people don’t like the hardware security module (HSM) that the team is using.
• To avoid the risk, the team has hard coded the 3-month period.
• Every L2 has a reduction in trust compromises.

Regulatory Concerns

• Different lawyers have different views.
• The team is trying to copy what others are doing.
• They don’t have custody, they don’t charge for using the swaps, and they charge only for using the statechain entity.
• FinCen released a report in 2019 stating that non-custodial mixers are ok to operate.
• Custodial mixers are in control of the funds and you need a money transfer license.
• The team has plans to protect themselves.

Thoughts on Fedimint

• Fedimint is different, it’s similar to Liquid Network.
• Mercury is fixed UTXO, which means that you can’t break the statecoin into little pieces.
• The next step for statecoins is to integrate with BTC Lightning Network.

Mercury Use Cases

• Mercury currently has around 16 BTC going through the system.
• Statecoins could be used for Discreet Log Contracts.
• The team is working on being able to onboard Lightning users.
• In some ways, Mercury is better than Wasabi wallet, in some ways it’s not.
• Mercury is not doing any type of coin join, it’s doing coin swaps, which means that the exchanges can’t see anything. The downside is you might get a dirty coin.
• The team wants the project to be seen as an L2 project rather than only a privacy project.

This summary was originally posted on The Daily Bolt, which is a 100% free no-nonsense daily crypto newsletter by Revelo Intel.