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Implementing Confidential Transactions in extension blocks

There was a proposal on bitcoin-dev to implement Confidential Transactions in extension blocks.

What do you think about implementing Confidential Transactions in extension blocks? CT transactions go from extension block to extension block passing through normal blocks. It looks the perfect solution:

  • Soft fork: old nodes see CT transactions as “sendtoany” transactions

  • Safe: if there is a software bug in CT it’s impossible to create new coins because the coins move from normal block to normal block as public transactions

  • Legal: Exchanges can use public transactions so regulators can monitor their activity

  • Capacity increase: the CT signature is stored in the extension block, so CT transactions increase the maximum number of transactions per block

ZmnSCPxj agreed that capacity increase can boost network capacity for all full nodes, he thinks extension blocks are not real soft forks but rather “evil” soft forks as older nodes have to upgrade in order to function optimally, which makes extension blocks worse than soft forks.