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Counterparty is a cryptocurrency that sits in a layer 'on top of' Bitcoin. Unlike colored coins, which map identities to units of Bitcoin, Counterparty tokens aren't attached to any units of Bitcoin at all. Instead, they exist only in the OP_RETURN, a piece of arbitrary data that can be attached to any Bitcoin transaction. The Counterparty protocol defines certain opcodes that you can add to create and transfer assets and management rights between addresses on the Bitcoin blockchain, with the same level of security that Bitcoin offers.

I'm wondering if something similar to this could be implemented in Monero, but with the caveat that the asset in question have plausible deniability in it's transfer/ownership. A trackable token could be stored in TX_EXTRA, where the data contained is a transfer opcode and a signature proving ownership, but this would reveal which of the ring members is yours (degrading privacy). It would be possible to trace this asset's path through a series of one-time addresses as it moves within the blockchain. Can this be done in a private way?

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I've spoken to Robby Dermody from Counterparty about this exact thing. Shoving the data into tx_extra is the trivial part, and in my opinion the best way to handle it would be to encrypt the data with the viewkey. You could reveal the tx key or the viewkey to reveal your asset movement, but it would otherwise stay private. Since transfers of an asset to another person would be encrypted with their viewkey (as with regular transactions, via DHKE) they would be able to decrypt the data and act accordingly.

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