XRP Ledger devs introduces confidential multi-purpose tokens

Developers working on the XRP Ledger have proposed a new standard that would bring privacy features to the blockchain’s transactions. The proposal, introduced on September 12 in a discussion hosted on the XRPL Standards forum, is titled Confidential Multi-Purpose Tokens (Confidential MPTs). 

According to the XRP forum, confidential MPTs can help users hide the amounts they send or hold without breaking the rules that govern token supply. The plan is one of the most technically ambitious upgrades to the ledger’s token system since the XLS-33 standard was launched through the 2024 version 2.3.0 release. 

Ripple engineers Murat Cenk and Aanchal Malhotra, who authored the draft, said it would allow confidential transfers on XRPL without breaching rules that issuers and regulators have imposed on tokens used by the general public, like stablecoin RLUSD.

How do MPT tokens remain confidential? 

Most public blockchains are completely transparent, which is why anyone with an internet connection can see how much money is moving between addresses and their balances. This visibility builds trust in the system, and in cases where theft takes place, security firms can easily track which address holds the stolen tokens. 

But according to Cenk and Malhotra, some businesses and individuals see the transparency as “too much info to give,” and would rather have their transactions hidden in broad daylight.

Financial institutions do not always want competitors to see their payroll flows or supply chain payments. Ordinary users may not want their spending habits exposed to anyone who searches the ledger. Confidential MPTs address can hide balances and transfers to the public, but have room for oversight to prevent abuse.

The developers have refuted discussions about the token standards becoming a “dark” version of XRPL, as issuers would still have the ability to track supply, and regulators could be given access through optional audit keys. 

“MPT means stablecoin or corporate token could operate privately in day-to-day use while still meeting legal obligations if called for inspection,” the proposal read.

ZK proofs and encryption on XLS-33

The Confidential MPT framework splits the existing XLS-33 standard in two forms: public, where balances and transfers are visible, and confidential, where the amounts are encrypted. Holders can convert tokens from one form to the other to their discretion.

It uses two main cryptographic techniques, including ElGamal encryption, which hides amounts so that only the intended parties can read them. The second is zero-knowledge proof, which shows that a transaction is valid without displaying the actual numbers involved. 

Incoming confidential funds land in what the proposal calls an “inbox.” Before they can be spent, the inbox must be merged into a main balance for each transaction to use fresh proofs, preventing any attempts to reuse old cryptographic data. Wallets would likely handle these steps automatically to avoid user confusion.

The proposal also will see XRPL convert tokens into confidential form, sending confidential tokens, merging inbox balances, converting back to public, and clawbacks that allow issuers to reclaim tokens if necessary. Each of these transactions includes encrypted values and proofs that the ledger’s validators must check.

However, privacy on a financial ledger comes with trade-offs. Financial watchdogs fear it will be misused for money laundering or sanctions evasion, even though developers have promised to embed audits into its structure.

The authors also pointed out that users must manage additional cryptographic keys, and losing them would mean losing access to confidential balances permanently. 

Integration with existing XRPL features such as the decentralized exchange and escrow functions is not yet addressed in the proposal. The authors admitted there’s more work to do to make confidential tokens compatible with those systems.

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