What Is Confidential Transactions?
Also known as: CT, Confidential Transaction, Hidden Amount Transactions
In short
Confidential transactions are a cryptographic technique that hides transfer amounts in a blockchain transaction on the public ledger while still letting the network verify that inputs and outputs sum equally and no money is created from nothing.
On transparent blockchains such as Bitcoin, the amount of every transaction is openly visible. Instead of writing the amount directly, confidential transactions hide it with a cryptographic value called a Pedersen commitment. Because these commitments are additive, nodes can check that the sum of the inputs equals the sum of the outputs and the transaction fee without knowing the actual figures.
On its own, this method would be open to money being secretly created by using negative amounts. To prevent this, a range proof, which proves that the amount is within a certain range and non-negative, is attached to each output. In the initial designs, these proofs were quite large; later developments such as Bulletproofs significantly reduced proof size.
The concept was developed by Bitcoin developer Gregory Maxwell. It is used on Blockstream's Liquid network, in Monero (as part of RingCT), in the MimbleWimble-based Grin, and in Litecoin's MWEB extension. The downsides of confidential transactions are that transactions take up more space and verification requires more computation; they also do not hide sender and recipient addresses on their own.
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