A developer at Ripple has proposed a new feature for the XRP ledger to make transactions with the XRP token more anonymous to better protect the privacy of users. Nik Bougalis, senior software engineer at Ripple Labs, has worked with his C++ development team to create a feature that allows source and target tags to be cryptographically encrypted.
The XRP Ledger uses these tags to allow a single account to hold funds for multiple users. These wallets are called “hosted wallets” and are used by stock exchanges, for example. When sending a transaction from a hosted wallet, the source tag is used to identify which user initiated the transaction. The target tag tells the account how to redistribute funds in the XRP wallet. Both information are supposed to be visible only to the sender and the recipient, as Bougalis wrote on Twitter about the new feature:
I just published a proposed spec to improve privacy on the XRP Ledger. The Blinded Tags proposal allows for source and destination tags to be cryptographically scrambled so that they are meaningful only to the source and destination of a transaction
In the GitHub repository, Bougalis writes that the proposal is intended to prevent the address and the tag of a transaction from being correlated in order to track further transactions. The developer also states that the change will not significantly affect the scalability of the ledger.
This proposal aims to be secure, minimal, and performant; ideally, it should be possible to implement tag blinding as a single function call that does not noticeably increase the time necessary to assemble a transaction. Similarly, using a blinded tag should not make it significantly harder for the intended recipient to process a transaction.
On Twitter Bougalis also added:
Transaction times aren’t really affected; perhaps a few extra milliseconds per transaction on the sending and receiving ends. No performance implications for the network. You only need to generate one keypair. You then do a bit of calculations per transaction.
As for the impact of the proposal on XRP regulation, Bougalis doubts that it will have serious consequences.
From the point of view of a third party (including a regulator) a tag is just an opaque number, whether it’s blinded or not. Regulators likely need to work with exchanges already because of that; blinded tags won’t really change that.
Whether Bougalis’ proposal will be accepted remains to be seen, as an 80% majority of network validators are needed to implement the feature.
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