I am concerned about the proposal to add transparent transaction functionality to neptune-core. (stating my bias) edit: I’m becoming more neutral after looking deeper into it.
In a recent discussion, it was pointed out that theoretically there is nothing to prevent a sender from making a transaction transparent on any privacy-preserving cryptocurrency, since the sender must transmit secrets to the receiver and nothing prevents the sender from publishing those secrets.
I thought this an interesting observation as it would apply to monero, zcash, wownero, etc. To explore the scenario, I had a conversation with Gemini AI, which I share below as food for thought / debate.
note: I ask the LLM about Monero because it knows more about it, but much of the analysis applies to Neptune as well. In particular, the last query/response should equate to the neptune ecosystem which does not use decoys.
Comments welcome.
complete conversation: https://gemini.google.com/share/df65955274b7
query
is there anything at the consensus or validation level that would somehow prevent a software fork of monero from adding functionality to send transparent (non-private) transactions to an arbitrary recipient?
In other words, would it be possible to form a transaction that conforms to relay validation rules, but does not hide the amount and recipient information? It might for example provide the secrets intended for recipient in the tx_extra data, or elsewhere.
response
Yes, it is possible for a software fork of Monero to create transactions that are transparent, but not by changing the consensus rules. Instead, it would be done by voluntarily revealing the cryptographic secrets of a standard, private transaction.
A transaction that does not hide the amount and recipient information in the way you describe could conform to all network validation rules and be relayed.
Here’s a breakdown of how this works.
Why Direct Transparency is Impossible
At the consensus level, Monero has mandatory privacy. Every transaction must adhere to the following rules to be considered valid by the network:
- Hidden Sender (Ring Signatures): The sender’s identity must be obscured within a ring of possible signers. A transaction without a valid ring signature is rejected.
- Hidden Recipient (Stealth Addresses): The output of a transaction must be sent to a one-time stealth address, not a standard Monero address. This is a non-negotiable part of the protocol.
- Hidden Amount (RingCT): The transaction amount must be encrypted using Pedersen commitments, and its validity proven with a range proof (like Bulletproofs+). The network validates the math (that inputs equal outputs) without ever seeing the actual amounts.
Any transaction that attempts to bypass these rules—for example, by putting a plain amount or a standard recipient address in the output—would be invalid and immediately rejected by every node on the network.
How Voluntary Transparency is Possible
Your suggestion is the correct way it would be implemented: a standard, fully private Monero transaction is created, and then the keys needed to decrypt it are voluntarily published within the transaction itself.
This is how a forked wallet could achieve it:
- Create a Normal Private Transaction: The wallet constructs a transaction that is 100% compliant with Monero’s consensus rules. It has ring signatures, stealth addresses, and confidential amounts. To any node on the network, it looks like any other private transaction.
- Embed Decryption Keys: The wallet then takes the crucial pieces of information that make the transaction private—specifically the transaction private key (often called
tx_keyorr)—and places this key, along with the real destination address and the unencrypted amount, into thetx_extrafield of the transaction. - Broadcast the Transaction: This transaction is broadcast to the network. Since the core structure is valid (correct signatures, proofs, etc.), nodes will validate it and include it in a block.
The result is a transaction that is cryptographically private at the protocol level but semantically transparent to anyone who knows where to look. An explorer or wallet designed for this forked software could scan the tx_extra field, find the embedded tx_key, and use it to display the sender, recipient, and amount in plain sight.
In short, you are not breaking the privacy rules; you are simply handing over the keys to unlock the privacy of that specific transaction.
query
Let’s think about the implications of this.
First, let’s consider that it is entirely the sender’s option to send such a transparent tx. But how does this affect the recipient’s privacy, who has not opted into the transparency?
Second, let’s suppose that exchanges start using transparent tx for withdrawals because it helps them comply with KYC/AML type “transparency” pressures. So then, perhaps 50% of monero tx become “transparent”, which makes the useful anonymity set smaller.
Does that seem a possible scenario?
response
Excellent questions. Your thinking is spot on, and you’ve highlighted the exact reasons why such a feature, while technically possible, would be considered a fundamental threat to the Monero network.
Let’s break down the implications you’ve proposed.
1. Impact on the Non-Consenting Recipient
You are absolutely correct. The sender’s choice to be transparent directly compromises the privacy of the recipient, who did not opt-in. This has several damaging effects:
- Direct Exposure: The link between the sender (e.g., an exchange) and the recipient’s address is now public. Anyone can see that your address received a specific amount of XMR from that source at that time. This immediately destroys the privacy of that transaction for you.
- Compromised Future Privacy: This is the more severe, long-term problem. When you later decide to spend those coins, your new transaction will use that now-publicly-known UTXO (Unspent Transaction Output) as one of its inputs. For any blockchain analyst, that input is a known true spend.
- Normally, a ring signature provides ambiguity because it’s unclear which of the (e.g.,) 16 inputs is the real one.
- If your transaction uses an input that is known to have come from a transparent transaction, that ambiguity is gone for that specific input. Analysts know for a fact you are the one spending it.
- Loss of Fungibility: The coins you received are now “tainted.” They have a public history, making them fundamentally different from other XMR that have a private history. This undermines Monero’s core property of fungibility, where every coin is equal and interchangeable. You might face issues spending these “transparent” coins later, as they could be treated differently or be subject to more scrutiny.
In essence, the sender’s “optional transparency” forces a permanent, non-consensual loss of privacy onto the recipient and damages the fungibility of the specific coins they received.
2. System-Wide Impact of Widespread Adoption
Your second scenario, where exchanges adopt this and 50% of transactions become transparent, is a plausible and deeply concerning threat model. This would catastrophically degrade the entire network’s privacy, not just the privacy of those directly involved.
Here’s why:
- Shrinking the “Useful Anonymity Set”: Monero’s ring signatures rely on a large pool of past transaction outputs to use as plausible decoys. If a huge portion of those outputs on the blockchain are from transparent transactions, the pool of effective, truly private decoys shrinks dramatically.
- When a user’s wallet builds a ring signature, it might unknowingly select several “transparent” outputs as decoys.
- Chain analysis firms could simply disregard these known outputs, effectively reducing the size of your ring signature. If your ring size is 16, but 8 of the decoys are from known transparent transactions, your effective anonymity set is much smaller than you think.
- Creating a “Transparent Spine”: Widespread use would create a public ledger of transactions running parallel to the private one. Analysts could use this “transparent spine” to make inferences and connect the dots between the supposedly private transactions that branch off from it. It would provide an enormous amount of data for heuristics and statistical analysis, weakening the entire system.
- Bifurcation of the Ecosystem: As you noted, this would essentially split the Monero supply into two categories: “white” or “clean” XMR with a traceable history from exchanges, and the traditional, private “dark” XMR. This completely destroys fungibility and could lead to vendors or exchanges refusing to accept non-transparent XMR, defeating the purpose of Monero entirely.
Conclusion: Is This Scenario Possible?
Yes, the scenario you’ve outlined is not only possible but represents a primary existential threat to Monero.
While the implementation is technically feasible on a fork, it is fundamentally hostile to the principles of non-consensual privacy and fungibility that define Monero. Any such proposal would be overwhelmingly rejected by the Monero community and developers precisely because of the devastating implications you’ve identified. It’s often seen as a “Trojan horse” that would use the lure of regulatory compliance to gut the privacy of the entire network.
query
The danger that I see though is that this only requires a software change, not a consensus level fork. Thus anyone sending (eg exchanges) could make the change in their own nodes without consent of anyone else. A random developer could release a modified monero node software that all exchanges begin running. Do you agree with this analysis?
response
Yes, I agree completely with your analysis. You have correctly identified the core of the danger: this is a software-level attack vector, not a protocol-level one.
This distinction is critical and is what makes this scenario so plausible and threatening:
-
No Consensus Required: As you said, because these “transparent” transactions are perfectly valid according to the existing consensus rules, there is no need for a network-wide upgrade or a hard fork. The Monero protocol itself wouldn’t even be able to distinguish these transactions from fully private ones.
-
Unilateral Action is Possible: An exchange, a group of exchanges, or any large sender can decide to modify their own wallet software to implement this feature. They do not need permission from Monero developers, the community, or anyone else. It’s an action taken entirely on their own initiative.
-
Incentives are Aligned (Against Privacy): Exchanges are under immense and growing pressure from regulators worldwide to comply with AML/KYC regulations and the “Travel Rule,” which requires them to share originator and beneficiary information for transactions. A software fork that creates transparent Monero withdrawals is an almost perfect “solution” for them. It allows them to:
- Continue listing and profiting from Monero.
- Claim to be compliant with regulators by making withdrawals traceable.
- Shift the privacy burden and consequences onto their users and the rest of the network.
Your scenario of a developer releasing a modified client that exchanges then adopt is precisely how this would likely play out. It could be marketed as a “Regulatory Compliance Suite” or “Transparent Monero Node.”
The danger is that this wouldn’t be a sudden, obvious attack. It would be a slow, creeping degradation of the anonymity set. As more and more exchanges adopt this, the “transparent spine” on the blockchain would grow, and the overall privacy of the entire network would be silently eroded, all without a single change to the core Monero protocol.
query
Let’s say that Monero implements full-chain-membership-proofs or some other tech that makes tx unlinkable and does not utilize decoys. How would that affect the impact of these transparent tx on the ondividual receiver and the overall network?
response
Of course. The implementation of a decoy-less, fully unlinkable system would fundamentally change the impact of these transparent transactions.
The threat would be significantly lessened and would shift from a catastrophic cryptographic failure to a more manageable (but still serious) economic and meta-data problem.
Impact on the Individual Receiver: Taint is Contained
For the individual, this new technology would be a massive improvement.
- Initial Transaction: The initial transparent transaction is still fully exposed. The public would know that an exchange sent you a specific amount of XMR. That link is permanently recorded.
- Spending the Funds (The Key Difference): When you go to spend those “tainted” coins, the new technology fundamentally breaks the chain of analysis. Because your transaction’s input is proven against the entire blockchain (a full-chain-membership-proof) instead of a small ring of decoys, an observer cannot link your new transaction back to the transparent one you received.
Essentially, the privacy “taint” is contained to a single hop. Your past is known, but your future actions on the network become private and unlinkable again. This is a stark contrast to the ring signature model, where spending a known output creates a permanent, traceable link.
Impact on the Overall Network: A Shift in Threat Model
This is where the most significant change occurs. The primary network-wide danger of transparent transactions would be completely neutralized.
The old threat was the erosion of the anonymity set. Transparent transactions created a pool of “bad decoys,” which weakened the privacy of everyone else’s transactions.
In a decoy-less system, this threat is eliminated. Your decision to engage in a transparent transaction has no cryptographic impact on the privacy of my transactions. The negative externality is gone because the concept of a “decoy set” no longer exists.
However, new and different threats would remain:
- Damaged Fungibility: This problem doesn’t go away. Widespread transparent transactions would still bifurcate the Monero supply into “white-market” XMR with a known exchange origin and “private” XMR. This creates two different classes of coins, which is the definition of poor fungibility.
- Public Meta-Data Graph: While cryptographic links would be broken, analysts could still build a large graph of “edge” transactions. They would have a massive database showing which exchanges sent funds to which Monero addresses. This is still valuable intelligence, even if they can’t follow the money further.
- Erosion of the Privacy Ethos: If transparency becomes normalized for interactions with major services, it could socially undermine the network’s core value proposition of “privacy by default.”
Summary: Old vs. New Threat Model
| Impact Vector | Ring Signature Model (Current) | Hypothetical Unlinkable Model |
|---|---|---|
| Individual’s Future Privacy | Compromised. Spending tainted funds links your new activity to your old. | Preserved. Taint is contained; future spending is unlinkable. |
| Network Anonymity Set | Severely Damaged. Creates bad decoys, weakening privacy for all users. | Unaffected. No decoys means no cryptographic impact on others. |
| Fungibility | Damaged. Creates “white-market” vs. “private” coins. | Damaged. This economic problem remains unchanged. |