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Fedimint, or federated mint, is an open-source eCash protocol that complements existing layer-2 solutions to help scale Bitcoin. It offers scalable, community-focused custody that is natively interoperable with Lightning and uses a federated model similar to Liquid.

Families, friends, or small communities may prefer the Fedimint model for collaborative custody instead of running their own node or having to rely on fully custodial services like an exchange.

The relationship between trust and anonymity in a federation.

A Fedimint federation comprises members who create a multisig wallet and enforce rules particular to that federation. When a member deposits their funds, the federation mints a redeemable note that is then exchanged for bitcoin. These notes are blinded, allowing for an untraceable exchange of payment, similar to cash. The mint has no record of whom a note was issued to or when it was spent. Once the notes are created, they can be transacted between users within the same federation, transferred between federations via Lightning, or exchanged for bitcoin on-chain.

This type of federation offers two main benefits. Firstly, it is more scalable since there is no blockchain to verify. Secondly, it uses Chaumian eCash and blind signatures, which, although less auditable, offer a higher degree of privacy. Note, one potential downside of this model is the risk of collusion among the members if the federation is not sufficiently sized.

For more information, visit the official Fedimint website.