What is a confidential transaction?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 5 min
In short
A confidential transaction records amounts on the ledger as ciphertext while still letting anyone verify that inputs and outputs balance. Because hiding amounts would otherwise allow secret inflation, a separate range proof is always attached. It is the basic technique for keeping values private without giving up verifiability.
Key points
- Amounts stay encrypted while the balance check still works
- Additively homomorphic commitments allow arithmetic on ciphertext
- Without a range proof, negative values would allow hidden inflation
- Destinations and address links are not covered by it
Definition
A scheme that records transaction amounts on the ledger as cryptographic commitments while still letting third parties verify that inputs equal outputs. It is accompanied by a proof that each amount lies in a valid range.
The key ingredient is a commitment with an additively homomorphic property. Instead of writing the amount, the transaction records a value computed from the amount and a blinding random number. Because such values can be added and subtracted, a verifier confirms that outputs subtracted from inputs come to zero without ever learning either figure.
The obvious hole is negative amounts. If nobody can see the values, making one output negative would keep the sums balanced while creating coins from nothing. Range proofs close this by showing in zero knowledge that every output lies between zero and an upper bound. These proofs tend to be large, which shows up as higher fees and heavier storage.
It is worth stressing that only the amount is hidden. Which output was spent in which transaction still appears on the ledger, so concealing values alone leaves the flow traceable. Real designs therefore combine confidential transactions with stealth addresses, ring signatures or zero-knowledge proofs.
Watch out for
- · Hiding amounts leaves the links between transactions, and their timing, intact
- · The proofs are bulky, which raises fees and slows synchronisation
- · Accounting and tax work still needs the figures, so a way to view them must exist