Ripple's New Proposal Indicates Potential for XRP as a Privacy Coin, Yet Opposition Remains
The XRP Ledger community is abuzz with a new proposal that aims to enhance the privacy and compliance features of the ledger. The proposal, titled Confidential Multi-Purpose Tokens (MPTs), was first discussed on September 13, 2021, by developers Dan Hook and Nicholas Merten.
The proposal outlines two auditor models: an on-chain, trust-minimized approach and a simpler issuer-controlled "view key" option. This dual approach aims to strike a balance between privacy and transparency, a key aspect of the XRP Ledger's design.
The Confidential MPTs change, if advanced, would arrive as an XRPL amendment. If approved, it would need to clear the XRP Ledger's formal governance hurdle, requiring more than 80% validator approval sustained for two weeks before activation on mainnet.
The system enables "flexible auditability" while keeping private balances "encrypted under the holder's key," with optional auditor copies of the same ciphertext verifiably bound via Zero-Knowledge equality proofs. This ensures that while balances remain private, public auditability is maintained through issuance limits, which are enforced by the network's existing invariant-OutstandingAmount.
The ledger would continue to expose supply caps and enforce invariants even as per-account balances become opaque. This is a crucial aspect of the proposal, as it prevents "stealth inflation" that could potentially undermine the ledger's stability.
The proposal does not make XRP a privacy coin in a straightforward sense, as it is ambivalent by design. It offers end-to-end encrypted balances and amounts while also hardwiring audit channels and issuer recourse. This design differentiates it from pure privacy chains like Monero or Zcash, which prioritise maximum privacy at the expense of transparency.
Confidential MPTs use EC-ElGamal encryption and Zero-Knowledge Proofs (ZKPs) for confidential transfers and balances. Ripple engineers Murat Cenk and Aanchal Malhotra are the authors of the Confidential MPTs proposal.
The design of the proposal leans on a practical architectural compromise, maintaining a second account for public supply metrics. This account would be used to ensure that the ledger's transparency is not compromised, even as confidential MPTs are introduced.
It's important to note that the proposed Confidential MPTs don't replace the existing MPT model; they extend it. The multi-purpose token standard (XLS-33, "MPT") already equips XRPL with a more compact, compliance-aware fungible token primitive. The Confidential MPTs build upon this foundation, offering additional privacy and auditability features.
The proposal includes issuer-only freeze and clawback capabilities over confidential balances, framed as compliance tools. These capabilities are intended to help issuers meet regulatory requirements, while still preserving the privacy of their users.
At press time, XRP traded at $3.01. The future of the Confidential MPTs proposal remains to be seen, as it moves through the XRP Ledger's governance process. The XRP Ledger Standards (XRPLF) has opened a discussion on the proposal, inviting the community to participate in shaping the future of the XRP Ledger.
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