Anonymity is one of the advantages of cryptocurrency payments, but even they do not guarantee absolute confidentiality. For example, there are tools for analyzing transactions that make it possible to track the movement of cryptocurrencies and identify who exactly is behind the operations. Why digital coins cannot be fully interchangeable and become less resistant to control and censorship 🤔

👉 Confidential transactions could be a potential solution to this issue. Such technology as a cryptographic protocol hides the recipient's address and the actual amount at the beginning and end of a transaction. But, the validation of the operation remains possible.

Technology advantages:

➕ The cryptographic protocol uses blinding keys. Allowing to "hide" bitcoin addresses and amounts, which makes the currency interchangeable.
➕ Also, if participants of the transaction agree, it can be used by an independent party for audit.

Disadvantages:

➖ Despite the concealment of the transaction amount, the addresses of the transaction participants remain visible to observers.
➖ The technology hides the amount only for a certain transfer, making the protocol useless if the following transactions are not confidential.
Today, this cryptographic protocol is used in the commercial sidechain Liquid, and its modification can also be found in Monero, Bitshares, Grin and Beam cryptocurrencies. Potentially confidential transactions can be integrated into the main bitcoin protocol, but the implementation of this idea is still far from reality.

Did you know about this technology?