Usechain, the world’s first mirror identity blockchain, hopes to become the first public blockchain to ensure privacy while maintaining regulatory compliance.
The exploitation of blockchain by cybercriminals, who use untraceable digital currencies like Bitcoin to extort and launder money, has given the technology a bad reputation among financial institutions and regulators.
However, Usechain’s Mirror Identity Protocol (MIP) could offer a solution, allowing users to integrate their private information with the blockchain without risk of compromising privacy.
“The users also want privacy, so the hurdles to get to the intervention must be high; that’s why we use multiple signature,” Huining Cao, a finance professor and the developer of Usechain, said.
The technology maps each person using the blockchain and assigns them a random identification number, while will ensure that each user can only have one account on the Usechain blockchain. The mirror identity of a user is scrambled and requires considerable effort to reverse.
As a result, account information remains private. However, if the blockchain is used to commit a crime, such as tax evasion, terrorism funding, drug trafficking or money laundering, this can be traced and monitored, with restrictions placed on the offending account, which will help the blockchain to comply with anti-money laundering laws.
“Wall street lost its soul in chasing money without any moral limits,” Cao said. “With this technology, we can build a blockchain platform that is compliant with regulation and provide financial services.”
Solving the Bitcoin scalability problem
Financial regulators aren’t the only ones that blockchain technology has to convince if it is to become a viable way to facilitate payments on scale. Users of Bitcoin, the most widely used cryptocurrency, will know all too well about the digital asset’s scalability problem.
As Bitcoin grew in popularity, the network become increasingly clogged up, leading to slow processing times and high processing fees.
However, the Usechain will make use of sub-chain technology similar to the Lightning Network. This second layer protocol operates on top of a cryptocurrency and allows two parties to set up ‘direct lines’ between each other, which reduces the bottleneck on the main blockchain and reduces wait times and processing fees.
Usechain also mixes the centralised and decentralised models. “The transaction flows is centralised, however the net positions will be reported to the blockchain soon after,” Cao explained, which will provide the speed of a centralised network with the privacy of a decentralised blockchain.
After 15 months of development, the Usechain has now launched in alpha. The platform has already been well received in China, having attracted approximately 50,000 users.
However, Cao admits that Usechain will have to play the long game as it waits for regulators to recognise the potential of blockchain, which would lead to wider acceptance and use of the technology.
“I view blockchain as a way to create trust in transactions by strangers online; it has huge ramifications for finance as finance is built on trust. I believe once the regulators can work out an efficient way to avoid abuses, it will be the future of finance.
“My startup of Usechain is to participate in this process, and I believe it will take about 20 years to be fruitful.”