A slightly altered version of this article was first released in the CryptoBirb Monthly Bulletin Series as our “Gem” for June. This project has been on our radar for months, and though we are quite happy to see BEAM’s chart on a vigorous climb since our internal announcement, it’s valuation in relation to the scope of their vision just getting started. For more information on further analysis of BEAM, as well as future “Gems”, visit our Discord at discord.gg/emw5Npb.
There are any number of privacy coins angling to capture a purist version true privacy and anonymity. To say nothing of the quality or execution of projects like Monero, ZCash, ZCoin, Dash, and many others dividing privacy coin market share, for the everyday trader, it can be quite difficult to find meaningful distinction among a pack whose log-lines mostly read as riffs on “the privacy coin to rule them all”. Though many projects endeavor to distinguish themselves with a focus on technical progress, I am of the opinion that they are only playing half the game, or perhaps better put, they are walking forward with one leg, while walking backwards with the other. To date, privacy coins have worked in isolation of governmental oversight, with many as directly antagonistic of federal and state agencies. BEAM has taken the bold and iconoclast move of meeting regulation head on, and is even courting major institutions to ensure compliance and what BEAM terms as “auditability”. I believe that this forward thinking strategy, added to similarly impressive technology, will put this young project in a prominent position to help usher cryptocurrencies into the main stream, and may even help produce a framework that encourages governmental agencies to embrace previously mistrusted privacy coins with open arms.
Before we address potential policy breakthroughs, there are a few major technical elements worth highlighting. BEAM is one of two projects currently utilizing the privacy protocol, “Mimblewimble”,(M.W.), the other being GRIN. It is worth noting that the BEAM and GRIN teams are very supportive of one another, and foster a collaborative dialogue. There are more than a few differences between the projects, but the most pertinent to this paper is that BEAM has a max supply of over 262,800,000, where GRIN is inflationary. Much has been written on M.W., and its privacy advantages, so I will summarize that the protocol enables a level of obfuscation and scaling that is hitherto unavailable to other privacy projects, (excluding GRIN, of course). Where projects like Monero and ZCash use ring signatures and zero-knowledge proofs to hide transactions, (which make transactions more cumbersome), M.W. “manages to resolve the problem of privacy without adding additional information to the blockchain, but quite the opposite — making it smaller and more efficient”, — BEAM CTO Alex Romanov. BEAM uses a second privacy measure known as Pederson commitments, and vital to the long term viability of cryptographic security in the approaching era of quantum computing, has the complimentary measure of ElGamal commitments ready to go. You may ask why BEAM is not currently engaging ElGamal switch commitments since, yes, they are already deployed on the BEAM Mainnet. Just like many modern V-6 and V-8 car engines disengage part of their cylinder use at cruising speeds to preserve fuel economy, there is currently no need for the escalated security measure. This makes the network more efficient until quantum computers are an eminent threat, at which point the network will be updated with ElGamal commitments engaged, making BEAM one of the most quantum computer-ready cryptocurrencies in circulation today. That may sound like selling life-jackets to Miami pedestrians on the threat of rising sea levels, but, ehem, commercial quantum computers are already among us. Just ask your friends at IBM..
BEAM will partition their efforts on two fronts, BEAM Core for tech, and BEAM Compliance for, you guessed it, compliance. In the near-term, much of the focus will be on BEAM Core to meet technical objectives. Among recent wins, BEAM Core has released the Android, and IOS wallets, while ongoing tasks which include atomic swaps, online and offline transactions, integrations with other wallets, merchant on-boarding, improvements in privacy, and developments in governance methods, among many other impressive and well thought out goals. Though it may sound a little academic for everyday consumers, scalability is key to the BEAM value proposition as it is central to adoption and usability. For instance, to run a BTC node, the user would need 200 gigs hard drive free space, and about 48 hours to download and sync the node. To run a node on BEAM is significantly faster, and resource efficient, eventually providing for the ability of nodes to be run on much smaller devices, (i.e. smart phones, tablets, etc). BEAM sees this as a critical offering as they believe most business use-cases for the currency would mandate running a private node as it provides for fewer parties to trust in transacting, where clients can functionally be their own bank.
If quantum computer resistance is a technological defense, BEAM Compliance is a political defense with a supercharger. As the name would suggest, this arm is squarely focused on making the privacy coin opt-in compliant. First reported by Crypto Sieve in an interview with BEAM CMO Beni Issembert, they are working with an undisclosed “top 4” global consulting firm to ensure “auditability”, and have been working with the Japanese government to make BEAM the first privacy coin that is completely private and legalized in Japan. Let that sink in for a moment.. Japan, home to Mt. Gox and Coincheck, the targets of two of the most infamous and costly heists of all time, (crypto or otherwise), whose Financial Services Agency, (FSA), later required Coincheck to de-list several privacy coins, is actively working with BEAM to construct an auditable and acceptable framework to legitimize BEAM as a government-approved currency. If successful, this will be an absolute game changer for cryptocurrency adoption, and would set the global stage for a prospective framework that other government agencies could follow. This is necessary as the ‘BEAM-Team’ is devising a currency that is not only legally available for widespread vendors to transact in, (including employee compensation), but one that potentially is even more attractive than traditional currency due to its friction-less, and fungible nature.
BEAM Compliance Suite
The ‘Compliance Suite’ being built to accommodate these lofty goals includes “software which enables various use cases integrated with third party services and conforms to country specific regulations”. What does all this mean? Let’s say you have a merchant who would like to accept BEAM as payment for goods and services, but they want to ensure they have a way to report their transactions. Additionally, let’s say this is an international transaction, and the merchant would like to enact KYC, (Know Your Customer criteria), and comply with AML, (Anti Money Laundering standards). The BEAM Compliance software, or “business wallet” will allow the merchant to keep history of all transactions, attach documents to each transaction, or require specific documents from the counter party for each transaction, and then store a reference of those documents on the blockchain after the transaction is completed. It may not sound like much to the layperson, but for an accounting firm, that’s about the closest thing to blockchain-enabled dirty talk as you will find. Alexander Zaidelson, BEAM ‘s CEO explains further. “A business pays a supplier in BEAM where they would initiate a transaction and the wallet will automatically request the supplier to attach an invoice to the transaction, which will then be reviewed, and agreed to by the payer wherein both parties click ‘ok’. Once both parties have agreed, the transaction will be sent to the blockchain, including a reference to all the documents associated with the transaction.” Third parties with special permission status, such as KYC providers, and auditors, will then utilize the software to access the required documents without needless delays, or bureaucratic friction.
Now You See It, Now You Don’t
Though compliance may sound like another language when it comes to the Cypherpunk championship of private money systems, critics should be careful not to overlook a key element of BEAM’s essential functionality; BEAM’s compliance features are opt-in, and are completely adjustable to meet each user’s needs. When a company needs to meet the rigors of compliance mandates, they are better equipped to do so by using BEAM than if they were to deal in “fiat currency 1.0”. When that same company would benefit from masking financial data critical to its infrastructure in order to defend against competitors looking to front-run earnings reports, BEAM again would be the superior option. BEAM comes from the philosophy that there is no true freedom without privacy, but privacy is only one part of the equation. BEAM is, after all, a privacy coin, and a coin that is only minimally adopted quickly loses utility, and is relegated to a niche market, the lesser of which become passing fads, and gimmicks.
To Infinity, and Beyond
The advent of cryptocurrency and privacy coins have created an arms race on both sides. Where projects like Monero, ZCash and others race to offer users more and greater privacy protocols, governments agencies, and companies like Chainalysis have swarmed to utilize the unique capacities of the same technology to catch them. Point being, rogue privacy coins present a direct threat to institutional powers, and when provoked, those powers have been known to devastate threats with ‘shock and awe’. BEAM seemingly understands that the next generation of money transfer tools will work at the behest of the users, reflecting their needs in the transaction’s microcosm, without forsaking membership in the greater economic system in which the transaction takes place. BEAM embraces the sense that has eluded other projects. Better be on the leading edge of governmental legitimacy and acceptance, and leverage first mover advantage, than to be a laggard, and deny your own voice in the construction of what is, in my opinion, the inevitable hybridized ecosystem of state issued and decentralized currencies.