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Since iota is a public ledger, anyone can see a transaction that is part of a data marketplace interaction between a data vendor and buyer. Is there a way that the data content could be shielded from the rest of the network? Encrypting the data could work but the key would still need to be transferred on the tangle.

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The data marketplace uses the Masked Authenticated Messaging IXI Module of IOTA.
There are different Privacy & Encryption Modes in MAM which allow encrypted transfer of data.

The decryption key would either be transferred encryped through the tangle or through some secure channel.

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