BEAM is built on Mimblewimble, a very elegant protocol that allows for both confidentiality and scalability. Transaction amount, sender and receiver are hidden using Confidential Transactions, and there are no “addresses” in the system — each user just holds private keys to the UTXOs she owns.
Privacy in BEAM is enabled by default. Actually, there are no “open” transactions at all. Reading the blockchain would not yield any information to the observer.
In addition to Mimblewimble’s default privacy, BEAM also implements Dandelion a networking policy which significantly improves anonymity. Dandelion prevents someone observing the network traffic to infer any valuable information.
In BEAM, the Mimblewimble cut-through mechanism is used to keep the blockchain small. The cut-through removes all the intermediate states of UTXOs, essentially leaving only unspent outputs on the blockchain. Thus, the blockchain size growth not with the number of transactions, but with the number of UTXOs, which is much slower.
We estimate that BEAM Blockchain size will be around 30% of Bitcoin’s, so the blockchain size should be below 70GB when Beam reaches Bitcoin’s scale, making it possible to run a full node on smaller devices. We are actively researching additional improvements to Mimblewimble to make the blockchain even smaller (see Eliminating Transaction Kernels)
BEAM introduces the optional Auditability feature. BEAM users can create one or more Auditor keys that can be distributed to the parties of their choice, such as accountants, auditors, and even tax authorities. Using those keys, the auditing party can review the transactions recorded on the blockchain, and also verify that the list of transactions is complete. Auditability is strictly optional and cannot be enabled retrospectively. See more in “What is Auditability” below.
By implementing Mimblewimble, BEAM achieves excellent confidentiality and scalability, and our extensions to the protocol allow for excellent Auditability as well. We believe that BEAM has the features that any currency should strive to have if it has aspirations for wide adoption, and we are working hard to get there soon.