Advanced blockchain technology infrastructure provider Blockstream Inc. announced Monday the availability of its Confidential Assets feature designed to give enterprise users with the ability to transact virtual assets with verification while ensuring privacy.
Cryptographically secured distributed peer-to-peer ledgers, or blockchains, have been pitched as a solution to a multitude of challenges in the finance industry for several years now. Using a blockchain, a financial institution can issue digital assets that can be tracked with certainty that the assets will be difficult to counterfeit and transactions can be confirmed.
However, in the case of a public blockchain, transactions themselves, the type of asset transferred and the quantity are publicly visible. As a result, the transactions are not fully hidden from third parties that can potentially use this to unmask exchanges or derive confidential information about participants. The nature of a public blockchain provides essential transparency, good for regulatory compliance and trust assurance, but at the risk of losing confidentiality.
“In today’s increasingly digital environments, privacy and security of financial transactions are more critical than ever,” said Adam Back, chief executive of Blockstream. “Our latest release of Confidential Assets enables users to protect financial information about their transactions and commercial activity in a public blockchain.”
Blockstream’s new Confidential Assets feature upgrades the company’s open-source Elements blockchain platform with the additional ability to hide assets from view — ensuring cryptographically-enforced confidentiality — while also allowing parties outside the transactions to verify accuracy publicly without necessarily revealing critical information.
With this system, an external party can verify that a transaction was authorized by all parties involved and that no assets were unexpectedly created, destroyed or modified. Furthermore, the feature also allows the transacting participants to selectively enforce privacy rules on hidden assets, revealing or hiding them as desired.
The Confidential Assets feature builds on an already existing function of the Elements blockchain called Confidential Transactions.
The company claims that its solution goes a step beyond the usual privacy accorded by Bitcoin’s blockchain, which is also the largest and most mature blockchain platform in current use. Transactions on the Bitcoin blockchain are protected by pseudonymous naming protocols — that is, the identities of the participants are hidden behind identifiers or addresses — which can be de-anonymized through various means.
“Confidential Transactions improves the situation by making the transaction amounts private, while preserving the ability of the public network to verify that the ledger entries still add up,” wrote Gregory Maxwell, Blockstream’s chief technology officer. “It does this without adding any new basic cryptographic assumptions to the Bitcoin system, and with a manageable level of overhead.”
Confidential Assets demo available
For the more technically minded, DG Lab, subsidiary of Digital Garage Inc., has made available an open-source demo built on top of the Elements blockchain platform. The source code for the demo is available on GitHub.
Digital Garage Chief Executive Officer Kaoru Hayashi said of the code that it is “the world’s first working demonstration of the real-time exchange of asset tokens on a blockchain with preservation of the essential requirements of commercial confidentiality.”
The demo can be compiled and run in Linux or MacOS environments and provides a very simple scenario demonstration using a real-world example with an imaginary coffee shop. In the scenario, a coffee shop owner (Dave) charges a customer (Alice) for a delicious caramel macchiato using a particular asset (melon). However, the customer does not currently hold any melon currency. To facilitate the transaction, Alice uses a point exchange system (Charlie) to convert one of her other digital assets into melon to complete the purchase.
A competitor (Bob) trying to gather information about Dave’s sales tries to spy on the transactions and can see the Elements blockchain because it’s publicly visible. However, Bob cannot see anything useful about the transaction between Alice and Charlie or between Alice and Dave because the asset types and number are cryptographically hidden. Bob cannot even easily tell which transactions belonged to Alice, Charlie or Dave, especially because in a live situation they would be mixed together with every other transaction that occurred near the same time.
While the demo takes place in a virtual coffee shop, it’s not hard to imagine this sort of thing happening between financial institutions exchanging stocks, commodities or other virtual assets between clients in day-to-day transactions.
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