SPARC and Carrot: Salvium's Innovative Solution for Compliant Privacy

In our previous posts, we introduced Salvium’s vision and explored the regulatory challenges facing privacy coins. Today, we’ll examine our technical solution—how Salvium One addresses these challenges through innovative cryptographic approaches that maintain privacy while enabling regulatory compliance.

The Core Innovation: SPARC

At the heart of Salvium One lies SPARC (Spend Proof and Anonymized Returns for CARROT), our extension of the Carrot protocol that enables two critical capabilities:

1. Anonymized returns: A privacy-preserving mechanism for two-way transactions
2. Spend authority proofs: A method to verify control over receiving addresses without revealing private keys

To understand how SPARC works and why it matters, let’s first explore its foundation—the CARROT protocol—and then examine how SPARC extends it to solve our specific challenges.

Understanding CARROT

CARROT (Cryptonote Address on Rerandomizable-RingCT-Output Transactions) is a proposed addressing protocol originally designed for Monero. While not yet implemented in Monero, it provides several key capabilities that Salvium leverages:

Enhanced Privacy with Practical Features

CARROT improves on traditional CryptoNote addressing by enabling:

• Full view-only wallets: Unlike traditional Monero view-only wallets that can only see incoming transactions, CARROT allows monitoring of both incoming and outgoing transactions without compromising security
• Enhanced security: Protection against attacks like the Janus Attack (which can link multiple addresses to the same owner) and the Burning Bug (where users can inadvertently lose funds)

Advanced Wallet Architecture

CARROT introduces a more sophisticated key hierarchy that provides:

• View-balance key: A private key that can view all balance information without the ability to spend
• Find-received key: A capability to identify incoming transactions
• Generate-address key: The ability to create new addresses without full wallet access

This tiered approach allows different levels of wallet access for different purposes—a critical feature for compliance without compromising security.

How SPARC Extends CARROT

While CARROT provides an excellent foundation, it doesn’t address all the requirements for MiCA compliance. This is where SPARC comes in, adding two critical capabilities:

1. Anonymized Returns: Solving the One-Way Problem

Privacy coins typically excel at sending funds anonymously but lack effective mechanisms for returns. SPARC implements a secure return payment system:

How It Works (Simplified):

1. When Alice sends funds to Bob, she includes encrypted return data in the transaction
2. Only Bob can identify this as genuine return data; to everyone else, it appears as random noise
3. If Bob needs to return funds, he can send them back to Alice without knowing her address
4. Alice can verify the returned funds are genuinely for her

This system preserves privacy while enabling practical applications like refunds, escrow systems, and two-way payment channels—all essential for everyday commerce.

2. Spend Authority Proof: Enabling Compliance

The spend authority proof is SPARC’s most innovative feature for regulatory compliance. It allows a user to prove they control an address without revealing private keys:

How It Works:

1. A user creates a zero-knowledge proof showing they have the secret values used to create a one-time output address
2. This proof demonstrates address control without revealing any private information
3. The proof satisfies standard zero-knowledge properties: completeness, soundness, and zero-knowledge

This capability is crucial for MiCA compliance, as it allows exchanges and other regulated entities to verify address ownership without compromising user privacy.

Security Guarantees

SPARC doesn’t just implement these features—it provides formal security guarantees:

• Indistinguishability: Observers cannot tell if a transaction includes return data
• Unlinkability: Transactions cannot be linked across the blockchain
• Return Address Hiding: Third parties cannot recover return addresses
• Non-Swindling: Adversaries cannot hijack return data to redirect funds
• Unforgeability: Spend proofs cannot be faked without breaking cryptographic assumptions

These guarantees ensure that compliance features don’t compromise Salvium’s core privacy protections.

Practical Applications

The combination of CARROT and SPARC enables numerous real-world applications that were previously difficult or impossible with privacy coins:

E-commerce and Refunds

Merchants can issue refunds without storing customer wallet addresses, enabling private yet functional e-commerce experiences.

Compliant Exchange Listings

By allowing exchanges to verify transaction information when required by regulations without compromising the privacy of the entire system, Salvium can potentially remain listed on centralized exchanges even under MiCA.

Escrow Systems

Funds can be returned automatically if conditions aren’t met, enabling trustless escrow arrangements that preserve privacy.

Private Smart Contracts

The foundation for complex, private return logic that can be built into applications—laying groundwork for Salvium Two.

Technical Quality

Independent security researchers have reviewed SPARC and found it to be “an impressive protocol that is correct, fitting for its intended purpose, and will benefit users.” The protocol builds on established cryptographic techniques while adding innovations to improve security and regulatory compliance.

How This Changes the Game

Traditional privacy coins face a difficult choice: maintain privacy and face delistings or compromise privacy for compliance. SPARC represents a third path—maintaining essential privacy while enabling regulatory compliance.

This approach transforms privacy coins from theoretical privacy tools to practical financial instruments that can operate within regulated systems, while still preserving their core value proposition.

Next Steps

In our next post, we’ll delve deeper into the technical implementation of SPARC with the release of our updated white paper. We’ll explore the mathematical foundations, security proofs, and implementation details that make these innovations possible.

The combination of CARROT and SPARC represents a significant advancement in privacy technology—one that addresses both the technical limitations of existing privacy coins and the regulatory challenges they face. By solving these dual problems, Salvium is creating a pathway for privacy technology to enter the mainstream financial system.