Quote from: AgentME on August 09, 2013, 11:44:00 PM

If only the recipient (and sender) can read a transaction, how can you verify that the transaction is valid and based on previous unspent transactions (that you can't read)? You then have to be able to verify those previous unspent transactions are valid by checking the previously unspent transactions they depend on too.

I can't imagine how any sort of anonymous system could work besides one that abused BIP 32 or used Zerocoin's innovations.

Which you can do, as the inputs (and thus the required S2 component) are stored in the block tree. The S2 component can only be provided by the valid receiver of those EMU's, so you can be sure that the input & outputs in question are legitimate and can be spent, without ever divulging the address.

All you need to know is that whoever is sending them, is allowed to, which this protocol can achieve. You need to know nothing about sender and receiver.