Confidential Transactions are a type of financial transaction that allows users to exchange digital assets without revealing the sender, receiver, or the amount of the transaction. This type of transaction gives users the ability to keep their financial information private, allowing them to make transactions without fear of the data being exposed or stolen. Confidential Transactions have the potential to revolutionize the way digital assets are exchanged, offering users a new level of security and privacy.
The technology implements new address and transaction formats. Transaction format consists of scriptPubKey, Pedersen commitment scheme and random code ECDH (elliptic Diffie-Hellman curve).
ScriptPubKey contains a Confidential Transaction Address (CTA) and a mathematical condition according to which bitcoin can only be spent if the ownership of the private key of the address is confirmed by a signature.
The address of a confidential transaction is a hash of the blinding key plus a regular bitcoin address.
The function of the blind key is to hide the bitcoin address and the amount of the transaction in the public registry. In addition, access to the blind key makes it possible to see the bitcoin address and amount in a confidential transaction.
The Pedersen Commitment Scheme is a hash of the entire Bitcoin output plus a blind key.
The ECDH code is the key that allows you to reveal the entire confidential transaction. It is used to transmit encrypted data to the recipient of the transaction, who will know the output of the bitcoin transaction and the blinding factor of the confidential transaction.
An example of how confidential transactions work.
Alice has two bitcoins in her wallet, one of which she wants to send to Bob.
After receiving Bob’s address, Alice creates a blind key and combines them into a single hash. This creates a confidential address. Although it is recorded in the public ledger, no one but Alice and Bob knows that the private transaction address is linked to Bob’s address.
Confidential address example:
Alice then creates a confidential transaction. Using the same blind key and the output of one bitcoin, she creates a Pedersen bond. This keeps the amount Alice sends to Bob hidden, but both of them can see it because they both have the public blind key. Alice has it because she created the blind key, and Bob can deduce it using the private key of his bitcoin address.
Alice then creates a scriptPubKey with the private transaction address she created with Bob’s bitcoin address, with the mathematical condition that one bitcoin can be spent if Bob can verify ownership of the address’s private key by signing.
The transaction is then recorded in the public ledger.
Confidential Transactions are an important new development in blockchain technology, offering users a way to protect the privacy of their financial information while still using the benefits of the blockchain. With its ability to obfuscate the amount being transferred while still verifying the transaction, it is an important addition to the blockchain space, and one that is sure to gain more traction in the future.
What are Confidential Transactions?
Confidential Transactions are a cryptographic technique that hides the amount of cryptocurrency being sent from the public ledger. This helps protect the privacy of users’ financial information, since the amounts being sent can only be seen by the sender and the receiver. Confidential Transactions also ensure that all transactions are valid, and that no new cryptocurrency is created out of thin air.
How Does Confidential Transactions Work?
Confidential Transactions rely on cryptographic technology called “zero-knowledge proofs”. This technology allows two parties to prove to each other that a certain amount of cryptocurrency is being sent without revealing the actual amount being sent. This is done through a series of mathematical calculations that are verified on the blockchain.