Confidential Transfers

How to use the CLI wallet to perform confidential transfers in LocalCoin

This tutorial shows how to use the CLI wallet to perform confidential transfers in LocalCoin. A confidential transfer is one that hides both the amount being sent and the parties involved in the trade. Confidential transfers are also referred to as blinded transfers. When privacy is important no account should ever be used twice, and coupled with diligent measures to backup and protect the wallet and document the cryptograhic keys used it is impossible for any third party to identify how money is moving by using blockchain analysis alone.

It is important to realize that the current implementation of Steath functionality requires careful attention to detail and entails a higher level of risk for loosing your account balance if the steps followed herein are followed casually and without regard to such potential loss. However, by following this guide you can rest assured your balance will be held in the blockchain but remain totally and completely hidden from everyone but you. With that staunch admonition out of the way let’s get started.

We will illustrate the CLI commands required to complete every step in this tutorial. You must be familiar with the witness_node and cli_wallet software to follow this guide. For further information on how to build and use that software consult the readme file on github or the LocalCoin wiki. I will be using simple passwords and account names to simplify the presentation. You should change these to more secure values to provide a higher level of security. Also note that the CLI wallet echos the command entered which is not reflected in the quoted session logs in the examples that follow.

Step 1: Create a Blind Account

Blind Accounts are not registered on the blockchain like the named accounts of LocalCoin. Instead a blind account is nothing more than a labeled public key. The label assigned to the key is only known to your wallet. Thus it is crucial that you create a new wallet for the blind account and back it up after completing the balance transfer.

The first step in creating a blind account is to create a new wallet and set a good quality password for it that would be difficult to crack. Then, using this wallet we’ll create a labeled account and protect it with a “brainkey”. The “brainkey” is effectively the private key used by your account. All LocalCoin cryptography is based on public / private key pairs, one public which can be shared the other private known only to you.

For confidential accounts the “brainkey” is only stored in the wallet, so if the wallet file is lost or destroyed and you have not recorded the “brainkey” on paper or some other place there will be no way to recover your confidential account balance. Even if you do record your “brainkey” elsewhere outside of the wallet, I do not believe any recovery methods yet exist to import your “public key / brainkey” pair into a wallet so you could access your confidential balance. At least it would be possible to do so at some future date, unlike the impossibility it would be if you lost the wallet and failed to record the “brainkey”.

>>> create_blind_account alice "alice-brain-key which is a series of words that are usually very long"
1483572ms th_a       wallet.cpp:743                save_wallet_file     ] saving wallet to file /home/admin/LocalCoin2/blindAliceWallet

The result of the create_blind_account command is to print out the Public Key associated with the blind account named alice and the command success or failure (true). Note that the CLI interface will update the wallet file you specified on the command line following the -w when you started the cli_wallet. The CLI wallet has no command to quit or exit the interface so we terminate the session with a control-C (shown as ^C), which returns us to the operating system shell.

Step 2: Transferring a Balance From a Standard Public Account to a Blind Account

Now that we’ve created a new, unregistered blind account named alice we can transfer assets into it from any source, public or not. We’ll describe the steps to transfer a balance from one blind account to another momentarily, which is essential to fully obscure a balance from public view, but for now we’ll illustrate a transfer from a publicly registered account to our newly created blind account.

To begin, we need a wallet that has an account with assets. It can be any account with assets, so we’ll use Peter’s Public account and transfer funds from that into the alice account. We will also need to have the public key handy that was printed for the alice account when it was created. Since the alice account is not registered we need a way to refer to it before we can do the transfer. So in this CLI session we’ll also show you how to create a label to do that and then we’ll use that label to transfer assets into the alice blind account.

>>> list_account_balances "peters-public-registered-account"
5000 LLC

>>> set_key_label "LLC5Qmr9H9SM39EHmVgXtsVjUGn2xBUtqbF6MdQ6RpnxUWNak7mse" "Alice-is-Blind"

>>> transfer_to_blind "peters-public-registered-account" LLC [[Alice-is-Blind,100]] true
3369305ms th_a       wallet.cpp:3794               transfer_to_blind    ] to_amounts: [["Alice-is-Blind","100"]]
peters-public-registered-account sent 100 LLC to 1 blinded balance fee: 40 LLC
100 LLC to  Alice-is-Blind
          receipt: 2B2vTjJ19hgqzGp8qdc8MEWmsgEUGECNJcoQTYNQqMU8bRofmbQYemXs56FoUc4Z5PdVM65nsySZgwJMq9Z SkpWQFhEqLGuZi1N3jQm8yBwaLD2DQzwY5AEW1rSK9HWJbfqNLtx8U4kc3o9xKtJoED2SgHW6jDQ7igBTcVhuUiKSwFu3DFa6LTeS5 Wm5khjgy1LrR5uhmp

>>> list_account_balances "peters-public-registered-account"
list_account_balances verbaltech2
4860 LLC

The above 2 steps transmit LLC assets from a public, registered account named “peters-public-registered-account” into a single unregistered blind account named alice using a label to refer to it named “Alice-is-Blind”. It is important to note that these labels are NOT persistent from one CLI session to the next, so every time you transfer assets from a source account such as “peters-public-registered-account” used here to a blind account you will need to set a label to refer to the blind account.

Adding a Contact

There is currently no facility to transfer assets to a blind account from the light wallet or the LocalCoin web wallet. They only support the WIF (Wallet Import Format) and thus will not accept your blind account’s “brainkey” as a valid private key. In the future you may be able to avoid setting labels each time you transfer from a public to a blind account by defining a contact. However, keep in mind that every association you establish in the path between a public account and a confidential account may make it that much easier to trace your steps, so think twice about the tradeoffs you make for the sake of convenience. They just might circumvent the measures you are taking to hide your balance. This is also true if you transfer assets directly between a public account to a confidential account and leave them in the confidential account. To totally obscure where your balance is held you need to transfer to at least 2 different confidential accounts. We will cover this in a bit more detail later. In the next step we’ll look at how to receive the transmitted assets into alice’s blind account.

Step 3: Receiving an Asset Balance Transmitted From Another Account

Transferring assets from one account to a confidential account involves at least 2 steps, the first to transmit the assets and the second to receive them into the confidential account. We covered the process required to transmit assets in Step 2, now lets see what it takes to complete the transfer and verify we have the correct balance:

>>> receive_blind_transfer "2B2vTjJ19hgqzGp8qdc8MEWmsgEUGECNJcoQTYNQqMU8bRofmbQYemXs56FoUc4Z5PdVM65nsySZgwJMq9ZSkpWQFhEqLGuZi1N3jQm8yBwaLD2DQzwY5AEW1rSK9HWJbfqNLtx8U4kc3o9xKtJoED2SgHW6jDQ7igBTcVhuUiKSwFu3DFa6LTeS5Wm5khjgy1LrR5uhmp "peter" "from Peter"
100 LLC  peter  =>  alice   "from Peter"

Using the balance receipt value returned from the transfer_to_blind command in Step 2 we can receive (i.e. import) the balance into alice’s bliind account. Note that the source of the balance must be labeled which is the parameter that follows the long balance receipt key. It is meant to represent to source account from which the assets are being transferred, however it need not be. The last of the 3 parameters is a memo text field which is an arbitrary text value. Note that all 3 parameters are required. In the next section we will describe how to list the confidential accounts and their balances so that we can verify our transfer is correct and complete.

Listing Blind Accounts and Their Balances

For any wallet in which you have created confidential accounts you can list the accounts present using the “get_my_blind_accounts” CLI command, and use the accounts returned from that to obtain their balances:

>>> get_my_blind_accounts

>>> get_blind_balances "alice"
100 LLC

To review, you have learned how to:

  1. create a new CLI wallet and add a blind account to it

  2. create a label to refer to a blind account

  3. send assets from a public account to a blind account

  4. receive or import assets sent from another account into a blind account

  5. list the blind accounts contained in a cli wallet

  6. list the asset balances of blind accounts

These are the basic steps for a simple unidirectional transfer of a single asset from a public account to a single blind account. Next we will examine how to cover our trail to obscure our balance by using a second blind account and finally we will see how to transfer from a blind account back into a public account to wrap up our look into protecting your assets with confidential accounts using the CLI wallet.

The first part was a basic demonstration of how to use the LocalCoin CLI wallet to transfer an asset from a registered, public account to a confidential (i.e. blind) account. It explained the steps involved and the current limitations of using confidential features. Here in part 2 we will show how to transfer assets from one confidential account to another, and conclude our look at confidential by describing how to transfer assets from a confidential account back into a registered public account.

The first part mentioned that to truly hide an account balance and eliminate any public tractability of how the assets arrived there, at least 2 confidential accounts should be used in the path from public source to final confidential destination. This is due to the fact that the destination address of transfers from a public account are visible. There may be no way for the public to query the holdings of confidential accounts but it would not be wise to leave assets in such an obvious hiding place either.

However, if those assets are moved to yet another confidential account there is no way their whereabouts can be traced through blockchain analysis alone. Because transfers between confidential addresses cannot be traced, even the inference that assets remain in the first confidential address (the destination out of the public registered account) is highly questionable. Additional layers of confidential to confidential transfers would provide even greater security that assets cannot be found for those with a higher sense of paranoia. It should go without saying that disbursing assets to multiple confidential accounts is an important security strategy for large balances. Lastly, be aware that the assets held in confidential accounts are not counted for purposes of voting. Thus you should consider how the use of confidential accounts will affect your participation and influence in the policies and proposals of the LocalCoin ecosystem.

Step 4: Transferring Assets Between Confidential Accounts

Let’s start by creating a second wallet and confidential account we will use as our hypothetical final destination. We’ll call this account bobby. We’ve already shown how to do this in part 1, but you may wish to review those basic steps before you continue.

>>> create_blind_account bobby "bobby-brain-key which is a series of words that are usually very long"
1434971ms th_a       wallet.cpp:743                save_wallet_file     ] saving wallet to file /home/admin/LocalCoin2/blindBobWallet

We need to restart the CLI wallet with the alice account, where we have a 100 LLC balance. We will create a label to refer to Bob’s confidential account (bobby) and transfer some LLC assets from alice to bobby. Note that the process is the same as before, and we need to set a label for the bobby (destination) account to do the transfer.

>>> set_key_label "LLC6V829H9SM39EHmVgXtsVjUGn2xBUtqbF6MdQ6RpnxUWNakaV26" "bobby"

>>> blind_transfer alice bobby 80 LLC true
318318ms th_a       wallet.cpp:743                save_wallet_file     ] saving wallet to file /home/admin/LocalCoin2/blindAliceWallet
blind_transfer_operation temp-account fee: 15 LLC
5 LLC to  alice
          receipt: iiMe3q3X4DqW1AqCXfkYEcuRsRATxMwSvJpaUuCbMTcxRUUGeBPPwYU1SRRs4tEQGPNmP$Js4jTJkDGEHzUm33o6h14wa1XNsmedLJCKnwmyGeqFB4vPRk9ZxnaizbMNu8bHr62xQaTc73ALxAZEPRdkNLyqMk$oDEFja3vCPgcyDYCQmkVnNiAQaKeMG83KrW11QZMHQZfzZ8ofTSTEy8qruLAa27vrjAM6q2ckbD8ZTNMWnkSWniq$4fay3Tbcd2zsy9EgxuxN

80 LLC to  bobby
          receipt: iiMe3q3X4DqW1AqCXfkYEcuRsRATxMwSvJpaUuCbMTcxRUUsn1qUtjfqLYUaNycrpKHfmUG1PR9mxd2nVKB15RYSryyjSn54ADzNBaFzxTY1s699iJWWHw2itiagfcKtvwizhN9Ru8nfnzgx8c5vi7RCLNB2PgrcTxSjYUJW1sfMicFyLRgYrCHFyNd1VhBeWpsLMwagcTGkUTf4rNDyXTrRqqLf2Nhy6P3ohk3J5WbshYyHxuLJGY2E7B5nPpFuf4Bnf9paD6jW

There is a bit more output printed than what is shown above, but the important results are provided. From this you can see we first set a label to refer to the newly created “bobby” account, and the blind_transfer command fee was 15 LLC, which sent 80 LLC of the balance (100 LLC was transferred to the alice account in Part 1) to the bobby confidential account and provided 2 balance receipts: the first for 5 LLC coming back to the alice account as returned change (leftover funds), and the second which is the receipt for the 80 LLC being sent to the bobby account, which we will need in order to receive the transfer in the bobby account contained in the blindBobWallet file.

As you can see using confidential in the CLI wallet is a rather tedious “manual” process. Do note however that you do not need to do a “receive_blind_transfer” to import the 5 LLC change back into the alice account, at least that is taken care of. Also important to note is as far as the outside world can see alice sent some amount less than 100 LLC to two new outputs, one of which is the change returned, which makes it yet that much more difficult to track what is going on, especially since the amounts of each output are invisible.

Step 5: Transferring Assets From a Confidential Account Back to a Public Account

In this final step of our round-trip process we will transfer some of the LLC from the bobby confidential account back to original public account named peter we started out with. There is nothing new required to accomplish for this step, but a couple of points are worth mentioning. First, keep in mind that the source address for transfers coming into a public account may be visible, so consider using one or more intermediary confidential accounts to add layers of insulation between the public account and the resting place for your confidential assets. Second, although you are sending to a registered, public account which one might think needs no label to access, that isn’t the case.

A label must be assigned to the public destination address to return assets from a blind (confidential) account. The public key value for the account is readily available using the account’s permission page explorer. Use the account/key shown under the Active Permissions heading.

>>> receive_blind_transfer "iiMe3q3X4DqW1AqCXfkYEcuRsRATxMwSvJpaUuCbMTcxRUUsn1qUtjfqLYUaNycrpKHfmUG1PR9mxd2nVKB15RYSryyjSn54ADzNBaFzxTY1s699iJWWHw2itiagfcKtvwizhN9Ru8nfnzgx8c5vi7RCLNB2PgrcTxSjYUJW1sfMicFyLRgYrCHFyNd1VhBeWpsLMwagcTGkUTf4rNDyXTrRqqLf2Nhy6P3ohk3J5WbshYyHxuLJGY2E7B5nPpFuf4Bnf9paD6jW "alice" "from Alice"
100 LLC  alice  =>  bobby   "from Alice"

set_key_label LLC9oxUqKFD8gfGoXb6AwDBEoBt8W47g4Mtz8SW8inUeHemR9nOi9 "peter"

>>> blind_transfer bobby peter 50 LLC true
2263915ms th_a       wallet.cpp:743                save_wallet_file     ] saving wallet to file /home/admin/LocalCoin2/blindBobWallet
blind_transfer_operation temp-account fee: 15 LLC
15 LLC to  bobby
          receipt: boqRZqyKaZW6bExrystPwFdXvzUBJSjGeaqy482NxBJ6S9Un4zima1mzysTrUipBiBpm4CrLTvCJZfqDaAaqEpmxWAWAKhi2GmnuT7nLU6n18GWjLxUnpskyywA8qCBw9VTAvaxtrNpFRtxx16NzJiZEYk6zfndvLJ2txvjq9cTT16QRXdqPQ75GJxuTAWKNdvzYm3NyK3w3K3462AbutEF9TyNGEfHidvAff49Q3yBATFs1g5NkGAMsmx4ffgwnFeMPBqi58cSZ

50 LLC to  peter
          receipt: boqRZqyKaZW6bExrystPwFdXvzUBJSjGeaqy482NxBJ6S9VPCqArXCypszWZnpCeG7jfS3oUnbtmn5bmmVH5HCXJg9QxCmn4pocbJ8ipRHfzgeq1mLMewQNn6HGrkb5WbosSntj3o4LcSEMpw2etsR2GjnBxcdxN879rBwxm6inhbpsoYn1nGwS4H o3SqoCF43MRDK3ouYrFBcAK2TTPXfnnvAU3r1UvhNHpxuNaS1cexbd88Nn6BTxSifKdJ8ysFft98e88Cbek

>>> get_blind_balances bab1
get_blind_balances bab1
15 LLC

The explanation for this CLI session is essentially the same as it was for step 4. Although the account information is different the commands used and their role in the transfer process are the same.

One last example demonstrates how to split a balance between multiple confidential accounts. This is very useful because it not only saves on transfer fees it also obscures what amounts end up where. The point of showing this is primarily to illustrate the syntax of the command.

>>> list_account_balances "peters-public-registered-account"
4860 LLC

>>> set_key_label "LLC5Qmr9H9SM39EHmVgXtsVjUGn2xBUtqbF6MdQ6RpnxUWNak7mse" "Alice-is-Blind"

>>> set_key_label "LLC6V829H9SM39EHmVgXtsVjUGn2xBUtqbF6MdQ6RpnxUWNakaV26" "bobby"

>>> transfer_to_blind peter LLC [[alice,800],[alice,2000],[bobby,2000] true
peter sent 4800 LLC to 3 blinded balances fee: 40 LLC
800 LLC to  alice
  receipt: 2Dif6AK9AqYGDLDLYcpcwBmzA36dZRmuXXJR8tTQsXg32nBGs6AetDT2E4u4GSVbMKEiTi54sqYu1Bc23cPvzSAyPGEJTLkVpihaot4e1FUDnNPz41uFfu2G6rug1hcRf2Qp5kkRm4ucsAi4Fzb2M3MSfw4r56ucztRisk9JJjLdqFjUPuiAiTdM99JdfKZy8WTkKF2npd

2000 LLC to  alice
  receipt: 28HrgG1nzkGEDNnL1eZmNvN9JmTVQp7X88nf7rfayjM7sACY8yA7FjV1cW5QXHi1sqv1ywCqfnGiNBqDQWMwpcGB1KdRwDcJPaTMZ5gZpw7Vw4BhdnVeZHY88GV5n8j3uGmZuGBEq18zgHDCFiLJ6WAYvs5PiFvjaNjwQmvBXaC6CqAJWJKXeKCCgmoVJ3CQCw2ErocfVH

2000 LLC to  bobby
  receipt: 82NxBJ6S9Un4zima1mzyboqRZqyKaZW6bExrystPwFdXvzUBJSjGeaqy4sTrUipBiBpm4CrLTvCJZfqDaAaqEpmxWAWAKhi2GmnuT7nLU6n18GWjLxUnpskyywA8qCBw9VTAvaxtrk6zfndvLJ2txvjq9cTT16QRXdqPQ75GJNpFRtxx16NzJiZEY49Q3yBATFs1g5NkGAMsmx4ffgwnFeMPBqi58cSZxuTAWKNdvzYm3NyK3w3K3462AbutEF9TyNGEfHidvAff

20 LLC to  peter
  receipt: cwBmzA36dZRmuXXJR8tTQs2Dif6AK9AqYGetDT2E4u4GSVbMKEiTi54saot4e1FUDnNPz41uFDLDLYcpXg32nBGs6Afu2G6rpguiAiTdM99JdfKZy8WTkKF2npd1hcRf2Qp5kkRm4ucsAi4Fzb2M3MSfw4r56ucztRisk9JJjLdqFjUPqYu1Bc23cPvzSAyPGEJTLkVpih

In this case the only thing the public sees is that account ‘peter’ sent 4800 LLC to four different places. Note that although 800 and 2000 LLC were sent to the alice confidential account they do not show up that way on the blockchain.

Conclusion: The outside world has no idea how much is in each output, only that they all add up to 4800 LLC.