Request for input: help shape our growth and development strategy

What can we do to stand out, and make more privacy-focused users aware of our extensive feature set and unique tech?

This month, the growth team will be out in the wilds recruiting new users based on these 2 key products - pDEX and Incognito wallet. For those of you who use/have used privacy-angled products like Bisq exchange, or Samourai/Wasabi Wallet - we’d love to hear your experiences. What are our comparative strengths and weaknesses?

The product team will be doubling down efforts to make the app more secure, with performance upgrades, better key management, more back up options, and yes - cold storage. What are the key features we need for a bulletproof privacy solution?

The chain team will be focusing on stability and autonomy - improving our privacy stack, strengthening consensus, and moving steadily towards releasing the network next year. Please dive into the mechanics, share your research with us, and help us work through all possible scenarios. How can we make Incognito truly future-proof?

The more traffic and market insight we have, the better equipped we’ll be. To shape our strategy for user acquisition, app improvements, and chain development. So please share your thoughts, and please share privacy with your friends!

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I’ve researched and probably used every single distributed exchange system on the market. After having my funds stolen from not one but TWO exchange hacks I was really looking for a distributed systems where I don’t need to rely on these central exchanges.

Bisq exchange originally called Bitsquare was made by Manfred Karrer. He is a good guy and cares a whole lot about personal freedoms free from censorship. A bit… political but hey you win some you lose some. It’s an application which is easy enough to install but the interface is bulky and can be only be used on desktop operating systems. The fee structure is not setup easily and you need to pay fees to create an offer and pay an offer. That seems to be currently 0.001BTC for both maker and taker. At the current bitcoin rate (10434.17) that is $10.43 FOR A TRADE. But that isn’t all the fees. There is also a mining fee which happens on depositing, trading, and withdrawing. It’s also only really to be used to transact BTC and another currency. They have an arbitrator system (reason for the high fees) which tries to protect against fraud and does a pretty OK job with that. Pros is you can transact with real FIAT currency in a decentralized way. Still it’s hard to really transact a meaningful volume on it. The exchange process is hard to complete and understand compared to something like uniswap. The privacy I guess is there if you are only transacting crypto but it’s completely broken when you go with FIAT.

Samourai/Wasabi Wallet provides privacy to it’s users with a mixing pool system directly on the bitcoin blockchain. This method used the CoinJoin systems. Basically you split up your bitcoin into a certain amount and it goes through the pool mixing it. You then withdraw a certain amount which is lesser than the amount you put in obscuring your funds. It’s a simple to understand and completely breakable with the right input-output correlation blockchain analysis. One mistake combining the mixes and you have effectively made all that work worthless. The cost to participate within a pool varies but it can be STUPIDLY EXPENSIVE (bold because important). Right now for most pools it’s 5%. Then you have the transaction fees to get into the pool and transaction fees for EVERY OUTPUT (which is bad for large amounts of bitcoin with 20 or so outputs per bitcoin). The issue with this approach is you can get dirty bitcoin and have your exchange account shut down. To combat this they have a transaction system called “ricochet” that basically splits and sends multiple transactions to break the source of the bitcoin before arriving at the exchange. This is traceable with the most rudimentary blockchain analysis (aka funds sent at this point here and landed over here after going through a couple different addresses). Privacy increases if you don’t use all the funds though. So if you put in more and take out a lot less that is where the real value of this system is. However if not enough people are using the pool with enough volume the mix is weakened. There is so much that can go wrong with it on just a privacy front. It does obscure some heuristics but this kind of pooling approach is unreliable at best and downright unsafe to do if you truly care about your privacy. It’s expensive, bulky, and the privacy is based on how much people use the pool and what you do plus what others do after to withdrawal from the pool. It’s obvious you are using their pool and that is enough for your exchange to shutdown your account. Anyone who cares about privacy, please don’t trust this system it’s easy to break and if it’s not broken now know that the blockchain is immutable. Mistakes of the past routinely come to bite people in the future.

Now for Incognito. This project has a lot of potential. The shielding systems with the ability to exchange is great. Nothing like breaking heuristics than cross blockchain transactions. There is some privacy downfalls when you are doing a large withdrawal amount all at once. With enough volume though and transacting within the incognito blockchain there is true privacy with that. The two downfalls is with liquidity and the way custody works. If you don’t have enough liquidity in the network people will not use it. And the custody of the funds is not truly trustless. The backing of the network relies upon the “Trustless” Custodians being honest. If they are not honest and just think that the project is dead and PRV is worthless they can take the funds. If enough of them do this there will be imbalances where p tokens are not worth the same as their counterpart. If there is a mass liquidation of PRV from the custodians the price will tank (as people try to make up their losses). The truthful custodians might not be able to balance the massive increase of new PRV that will need to be collateralized do to the decrease of the PRV price on their own books. It creates a chain reaction of liquidation and the network effectively implodes upon itself. The sad part is not all of the custodians need to take part just a sizable enough percentage to flash tank the price of PRV. They will make out like bandits stealing a country’s gold reserve. This can be protected by simply having the custodians needing to back the equivalent collateral in the deposited currency but that also causes chain issues that if not enough custodians can meet the deposit collateral. Right now I don’t see a system where a person puts how much they are going to be depositing to make sure the custodian they are depositing to has enough collateral to back it. Uniswap is directly on the blockchain as a smart contract and doesn’t need to rely on collateralization. There is some very real problems with this custodian approach and with enough mainstream reach and massive increase of volumes the network might not be able to scale deposit collateral when it counts. I understand why you would want to tie it with PRV being that it can scale with the massive increases of volume so the custodians don’t need to upfront so much as more deposits will mean more liquidity in the system and thus PRV is worth more. At this moment I don’t think there is a real solution which can solve this. There is a risk with this but at the same time it’s better than a central exchange where you need to trust only one person being honest. With numbers comes safety.

With incognito there is some cool things which can be done. Remember when bitcoin costed a crazy amount to do a single transaction (like always lol), or just recently when ethereum’s network was extremely expensive to do a simple transaction on. Incognito is a really good layer2 system for truly offchain transactions in a private way. If your friend wants to receive funds from you in bitcoin but the amount is smaller than a regular transaction at the time instead of doing it on the bitcoin blockchain you can have them setup the incognito wallet and send them funds that way. Then when bitcoin has less of a scalability problem it can be transacted. Or if bitcoin never solves it’s scalability problem they can exchange it directly on incognito for a different currency to use. Just think of a good private tipping system that can match incognito’s sharded POS throughput. The fees are basically non-existent and it’s private. Can’t be blocked or really taken down. There is a lot of use within the incognito blockchain itself. Just think how nice it would be to upfront liquidity and then tip the reward to a streamer you like, it’s effectively free shoutouts and support for something you like if you were going to hold the crypto anyway. Providing privacy to others is cool too.

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Hey @MrAwesome, thanks for the very insightful post, we really appreciate your interest in our trustless bridge mechanism with a very detailed analysis in both pros and cons. Yes, I agree that in the worst-case scenario, a spiral situation may happen due to PRV collateral, that’s why we’re working on an upgrade version that will allow custodians to collateralize ETH (and popular ERC20 tokens). The work is still in progress and will be rolled out around the beginning of December (see more at Incognito's trustless bridge V3 with Ethereum bond contract). What do you think about this? Can this help solve the problem you stated?

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@duc Allowing collateral to be backed by other currencies does spread the load and is a step forward. Having it locked in an ethereum contract provides more options for custodians to provide backing. However it’s not perfect. The moment you are trying to collateralize a seperate coin you are subject to at least twice market volatility leading to possible liquidation when either one of the coins have a sudden change in value (collateralized worth up or collateral worth down).

The true method to back it would probably be in fact a combination of multiple currencies at once with the best case the backing is done by the locking in the same collateralized currency.

Allow me to explain. All cryptocurrencies with the exception of FIAT backed currencies issued by exchanges have an ever changing value. When you are trying to keep equal or greater value of collateralized backing in a different currency then the one needing to be collateralized you are creating possibly for sudden liquidity when prices of either the collateral or the collaterized change opposingly.

If the custodian provided multiple currencies in a collateral pool they would effectively be making a kind of index. Think of the SP500. People buy indexes because overall the value of an index will be more stable in comparison to single stock. Consistently of value for the custodian’s collateral is extreamly important in making sure that liquidation only happens when they are dishonest. Having a spread over multiple currencies will protect custodians against a singular coins immediate increase or decrease leading to liquidity.

So overall I think bond contacts on ethereum is a great step forward but the true goal would be to allow custodians to self-collateralize any cryptocurrency. The more different types of crypto custodians can collateralize to protect themselves against liquidation the better. Best case custodians are able to back every crypto with the same collateralized crypto.

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