diff --git a/chain/tests/mine_simple_chain.rs b/chain/tests/mine_simple_chain.rs
index 063746164..8fff8b7a6 100644
--- a/chain/tests/mine_simple_chain.rs
+++ b/chain/tests/mine_simple_chain.rs
@@ -263,7 +263,7 @@ fn spend_in_fork() {
 	let lock_height = 1 + global::coinbase_maturity();
 	assert_eq!(lock_height, 4);
 
-	let (tx1, _) = build::transaction(
+	let tx1 = build::transaction(
 		vec![
 			build::coinbase_input(consensus::REWARD, block_hash, kc.derive_key_id(2).unwrap()),
 			build::output(consensus::REWARD - 20000, kc.derive_key_id(30).unwrap()),
@@ -276,7 +276,7 @@ fn spend_in_fork() {
 	let prev_main = next.header.clone();
 	chain.process_block(next.clone(), chain::Options::SKIP_POW).unwrap();
 
-	let (tx2, _) = build::transaction(
+	let tx2 = build::transaction(
 		vec![
 			build::input(consensus::REWARD - 20000, next.hash(), kc.derive_key_id(30).unwrap()),
 			build::output(consensus::REWARD - 40000, kc.derive_key_id(31).unwrap()),
diff --git a/chain/tests/test_coinbase_maturity.rs b/chain/tests/test_coinbase_maturity.rs
index 99c0c6401..3d6d7d397 100644
--- a/chain/tests/test_coinbase_maturity.rs
+++ b/chain/tests/test_coinbase_maturity.rs
@@ -116,7 +116,7 @@ fn test_coinbase_maturity() {
 
 	// here we build a tx that attempts to spend the earlier coinbase output
 	// this is not a valid tx as the coinbase output cannot be spent yet
-	let (coinbase_txn, _) = build::transaction(
+	let coinbase_txn = build::transaction(
 		vec![
 			build::coinbase_input(amount, block_hash, key_id1.clone()),
 			build::output(amount - 2, key_id2.clone()),
@@ -183,7 +183,7 @@ fn test_coinbase_maturity() {
 
 	let prev = chain.head_header().unwrap();
 
-	let (coinbase_txn, _) = build::transaction(
+	let coinbase_txn = build::transaction(
 		vec![
 			build::coinbase_input(amount, block_hash, key_id1.clone()),
 			build::output(amount - 2, key_id2.clone()),
diff --git a/core/src/core/block.rs b/core/src/core/block.rs
index ce5ea24ae..47f030cb3 100644
--- a/core/src/core/block.rs
+++ b/core/src/core/block.rs
@@ -43,12 +43,13 @@ use util::kernel_sig_msg;
 use util::LOGGER;
 use global;
 use keychain;
+use keychain::BlindingFactor;
 
 /// Errors thrown by Block validation
 #[derive(Debug, Clone, PartialEq)]
 pub enum Error {
-	/// The sum of output minus input commitments does not match the sum of
-	/// kernel commitments
+	/// The sum of output minus input commitments does not
+	/// match the sum of kernel commitments
 	KernelSumMismatch,
 	/// Same as above but for the coinbase part of a block, including reward
 	CoinbaseSumMismatch,
@@ -126,6 +127,8 @@ pub struct BlockHeader {
 	pub difficulty: Difficulty,
 	/// Total accumulated difficulty since genesis block
 	pub total_difficulty: Difficulty,
+	/// The single aggregate "offset" that needs to be applied for all commitments to sum
+	pub kernel_offset: BlindingFactor,
 }
 
 impl Default for BlockHeader {
@@ -143,6 +146,7 @@ impl Default for BlockHeader {
 			kernel_root: ZERO_HASH,
 			nonce: 0,
 			pow: Proof::zero(proof_size),
+			kernel_offset: BlindingFactor::zero(),
 		}
 	}
 }
@@ -164,6 +168,7 @@ impl Writeable for BlockHeader {
 		try!(writer.write_u64(self.nonce));
 		try!(self.difficulty.write(writer));
 		try!(self.total_difficulty.write(writer));
+		try!(self.kernel_offset.write(writer));
 
 		if writer.serialization_mode() != ser::SerializationMode::Hash {
 			try!(self.pow.write(writer));
@@ -184,6 +189,7 @@ impl Readable for BlockHeader {
 		let nonce = reader.read_u64()?;
 		let difficulty = Difficulty::read(reader)?;
 		let total_difficulty = Difficulty::read(reader)?;
+		let kernel_offset = BlindingFactor::read(reader)?;
 		let pow = Proof::read(reader)?;
 
 		Ok(BlockHeader {
@@ -201,6 +207,7 @@ impl Readable for BlockHeader {
 			nonce: nonce,
 			difficulty: difficulty,
 			total_difficulty: total_difficulty,
+			kernel_offset: kernel_offset,
 		})
 	}
 }
@@ -284,7 +291,7 @@ pub struct Block {
 	pub inputs: Vec<Input>,
 	/// List of transaction outputs
 	pub outputs: Vec<Output>,
-	/// List of transaction kernels and associated proofs
+	/// List of kernels with associated proofs (note these are offset from tx_kernels)
 	pub kernels: Vec<TxKernel>,
 }
 
@@ -379,7 +386,7 @@ impl Block {
 		key_id: &keychain::Identifier,
 		difficulty: Difficulty,
 	) -> Result<Block, Error> {
-		let fees = txs.iter().map(|tx| tx.fee).sum();
+		let fees = txs.iter().map(|tx| tx.fee()).sum();
 		let (reward_out, reward_proof) = Block::reward_output(
 			keychain,
 			key_id,
@@ -486,26 +493,33 @@ impl Block {
 		let mut inputs = vec![];
 		let mut outputs = vec![];
 
+		// we will sum these together at the end
+		// to give us the overall offset for the block
+		let mut kernel_offsets = vec![];
+
 		// iterate over the all the txs
 		// build the kernel for each
 		// and collect all the kernels, inputs and outputs
 		// to build the block (which we can sort of think of as one big tx?)
 		for tx in txs {
 			// validate each transaction and gather their kernels
-			let excess = tx.validate()?;
-			let kernel = tx.build_kernel(excess);
-			kernels.push(kernel);
+			// tx has an offset k2 where k = k1 + k2
+			// and the tx is signed using k1
+			// the kernel excess is k1G
+			// we will sum all the offsets later and store the total offset
+			// on the block_header
+			tx.validate()?;
 
-			for input in tx.inputs.clone() {
-				inputs.push(input);
-			}
+			// we will summ these later to give a single aggregate offset
+			kernel_offsets.push(tx.offset);
 
-			for output in tx.outputs.clone() {
-				outputs.push(output);
-			}
+			// add all tx inputs/outputs/kernels to the block
+			kernels.extend(tx.kernels.iter().cloned());
+			inputs.extend(tx.inputs.iter().cloned());
+			outputs.extend(tx.outputs.iter().cloned());
 		}
 
-		// also include the reward kernel and output
+		// include the reward kernel and output
 		kernels.push(reward_kern);
 		outputs.push(reward_out);
 
@@ -514,7 +528,28 @@ impl Block {
 		outputs.sort();
 		kernels.sort();
 
-		// calculate the overall Merkle tree and fees (todo?)
+		// now sum the kernel_offsets up to give us
+		// an aggregate offset for the entire block
+		let kernel_offset = {
+			let secp = static_secp_instance();
+			let secp = secp.lock().unwrap();
+			let keys = kernel_offsets
+				.iter()
+				.cloned()
+				.filter(|x| *x != BlindingFactor::zero())
+				.filter_map(|x| {
+					x.secret_key(&secp).ok()
+				})
+				.collect::<Vec<_>>();
+			if keys.is_empty() {
+				BlindingFactor::zero()
+			} else {
+				let sum = secp.blind_sum(keys, vec![])?;
+
+				BlindingFactor::from_secret_key(sum)
+			}
+		};
+
 		Ok(
 			Block {
 				header: BlockHeader {
@@ -526,6 +561,7 @@ impl Block {
 					previous: prev.hash(),
 					total_difficulty: difficulty +
 						prev.total_difficulty.clone(),
+					kernel_offset: kernel_offset,
 					..Default::default()
 				},
 				inputs: inputs,
@@ -641,22 +677,34 @@ impl Block {
 		let io_sum = self.sum_commitments()?;
 
 		// sum all kernels commitments
-		let proof_commits = map_vec!(self.kernels, |proof| proof.excess);
+		let kernel_sum = {
+			let mut kernel_commits = self.kernels
+				.iter()
+				.map(|x| x.excess)
+				.collect::<Vec<_>>();
 
-		let proof_sum = {
 			let secp = static_secp_instance();
 			let secp = secp.lock().unwrap();
-			secp.commit_sum(proof_commits, vec![])?
+
+			// add the kernel_offset in as necessary (unless offset is zero)
+			if self.header.kernel_offset != BlindingFactor::zero() {
+				let skey = self.header.kernel_offset.secret_key(&secp)?;
+				let offset_commit = secp.commit(0, skey)?;
+				kernel_commits.push(offset_commit);
+			}
+
+			secp.commit_sum(kernel_commits, vec![])?
 		};
 
-		// both should be the same
-		if proof_sum != io_sum {
+		// sum of kernel commitments (including kernel_offset) must match
+		// the sum of input/output commitments (minus fee)
+		if kernel_sum != io_sum {
 			return Err(Error::KernelSumMismatch);
 		}
 
 		// verify all signatures with the commitment as pk
-		for proof in &self.kernels {
-			proof.verify()?;
+		for kernel in &self.kernels {
+			kernel.verify()?;
 		}
 
 		Ok(())
@@ -839,8 +887,7 @@ mod test {
 		build::transaction(
 			vec![input(v, ZERO_HASH, key_id1), output(3, key_id2), with_fee(2)],
 			&keychain,
-		).map(|(tx, _)| tx)
-			.unwrap()
+		).unwrap()
 	}
 
 	// Too slow for now #[test]
@@ -863,7 +910,6 @@ mod test {
 		let now = Instant::now();
 		parts.append(&mut vec![input(500000, ZERO_HASH, pks.pop().unwrap()), with_fee(2)]);
 		let mut tx = build::transaction(parts, &keychain)
-			.map(|(tx, _)| tx)
 			.unwrap();
 		println!("Build tx: {}", now.elapsed().as_secs());
 
@@ -898,7 +944,7 @@ mod test {
 		let key_id3 = keychain.derive_key_id(3).unwrap();
 
 		let mut btx1 = tx2i1o();
-		let (mut btx2, _) = build::transaction(
+		let mut btx2 = build::transaction(
 			vec![input(7, ZERO_HASH, key_id1), output(5, key_id2.clone()), with_fee(2)],
 			&keychain,
 		).unwrap();
@@ -1010,7 +1056,7 @@ mod test {
 		ser::serialize(&mut vec, &b).expect("serialization failed");
 		assert_eq!(
 			vec.len(),
-			5_676
+			5_708,
 		);
 	}
 
@@ -1023,7 +1069,7 @@ mod test {
 		ser::serialize(&mut vec, &b).expect("serialization failed");
 		assert_eq!(
 			vec.len(),
-			16_224
+			16_256,
 		);
 	}
 
@@ -1035,7 +1081,7 @@ mod test {
 		ser::serialize(&mut vec, &b.as_compact_block()).expect("serialization failed");
 		assert_eq!(
 			vec.len(),
-			5_676
+			5_708,
 		);
 	}
 
@@ -1048,7 +1094,7 @@ mod test {
 		ser::serialize(&mut vec, &b.as_compact_block()).expect("serialization failed");
 		assert_eq!(
 			vec.len(),
-			5_682
+			5_714,
 		);
 	}
 
@@ -1070,7 +1116,7 @@ mod test {
 		ser::serialize(&mut vec, &b).expect("serialization failed");
 		assert_eq!(
 			vec.len(),
-			111_156
+			111_188,
 		);
 	}
 
@@ -1092,7 +1138,7 @@ mod test {
 		ser::serialize(&mut vec, &b.as_compact_block()).expect("serialization failed");
 		assert_eq!(
 			vec.len(),
-			5_736
+			5_768,
 		);
 	}
 
diff --git a/core/src/core/build.rs b/core/src/core/build.rs
index f833ae66f..252872297 100644
--- a/core/src/core/build.rs
+++ b/core/src/core/build.rs
@@ -27,7 +27,7 @@
 
 use util::{secp, kernel_sig_msg};
 
-use core::{Transaction, Input, Output, OutputFeatures, SwitchCommitHash};
+use core::{Transaction, TxKernel, Input, Output, OutputFeatures, SwitchCommitHash};
 use core::hash::Hash;
 use keychain;
 use keychain::{Keychain, BlindSum, BlindingFactor, Identifier};
@@ -40,7 +40,7 @@ pub struct Context<'a> {
 
 /// Function type returned by the transaction combinators. Transforms a
 /// (Transaction, BlindSum) pair into another, provided some context.
-pub type Append = for<'a> Fn(&'a mut Context, (Transaction, BlindSum)) -> (Transaction, BlindSum);
+pub type Append = for<'a> Fn(&'a mut Context, (Transaction, TxKernel, BlindSum)) -> (Transaction, TxKernel, BlindSum);
 
 /// Adds an input with the provided value and blinding key to the transaction
 /// being built.
@@ -50,14 +50,14 @@ fn build_input(
 	out_block: Option<Hash>,
 	key_id: Identifier,
 ) -> Box<Append> {
-	Box::new(move |build, (tx, sum)| -> (Transaction, BlindSum) {
+	Box::new(move |build, (tx, kern, sum)| -> (Transaction, TxKernel, BlindSum) {
 		let commit = build.keychain.commit(value, &key_id).unwrap();
 		let input = Input::new(
 			features,
 			commit,
 			out_block,
 		);
-		(tx.with_input(input), sum.sub_key_id(key_id.clone()))
+		(tx.with_input(input), kern, sum.sub_key_id(key_id.clone()))
 	})
 }
 
@@ -86,7 +86,7 @@ pub fn coinbase_input(
 /// Adds an output with the provided value and key identifier from the
 /// keychain.
 pub fn output(value: u64, key_id: Identifier) -> Box<Append> {
-	Box::new(move |build, (tx, sum)| -> (Transaction, BlindSum) {
+	Box::new(move |build, (tx, kern, sum)| -> (Transaction, TxKernel, BlindSum) {
 		debug!(
 			LOGGER,
 			"Building an output: {}, {}",
@@ -125,6 +125,7 @@ pub fn output(value: u64, key_id: Identifier) -> Box<Append> {
 				switch_commit_hash: switch_commit_hash,
 				proof: rproof,
 			}),
+			kern,
 			sum.add_key_id(key_id.clone()),
 		)
 	})
@@ -132,31 +133,41 @@ pub fn output(value: u64, key_id: Identifier) -> Box<Append> {
 
 /// Sets the fee on the transaction being built.
 pub fn with_fee(fee: u64) -> Box<Append> {
-	Box::new(move |_build, (tx, sum)| -> (Transaction, BlindSum) {
-		(tx.with_fee(fee), sum)
+	Box::new(move |_build, (tx, kern, sum)| -> (Transaction, TxKernel, BlindSum) {
+		(tx, kern.with_fee(fee), sum)
 	})
 }
 
 /// Sets the lock_height on the transaction being built.
 pub fn with_lock_height(lock_height: u64) -> Box<Append> {
-	Box::new(move |_build, (tx, sum)| -> (Transaction, BlindSum) {
-		(tx.with_lock_height(lock_height), sum)
+	Box::new(move |_build, (tx, kern, sum)| -> (Transaction, TxKernel, BlindSum) {
+		(tx, kern.with_lock_height(lock_height), sum)
 	})
 }
 
-/// Sets a known excess value on the transaction being built. Usually used in
+/// Adds a known excess value on the transaction being built. Usually used in
 /// combination with the initial_tx function when a new transaction is built
 /// by adding to a pre-existing one.
 pub fn with_excess(excess: BlindingFactor) -> Box<Append> {
-	Box::new(move |_build, (tx, sum)| -> (Transaction, BlindSum) {
-		(tx, sum.add_blinding_factor(excess.clone()))
+	Box::new(move |_build, (tx, kern, sum)| -> (Transaction, TxKernel, BlindSum) {
+		(tx, kern, sum.add_blinding_factor(excess.clone()))
+	})
+}
+
+/// Sets a known tx "offset". Used in final step of tx construction.
+pub fn with_offset(offset: BlindingFactor) -> Box<Append> {
+	Box::new(move |_build, (tx, kern, sum)| -> (Transaction, TxKernel, BlindSum) {
+		(tx.with_offset(offset), kern, sum)
 	})
 }
 
 /// Sets an initial transaction to add to when building a new transaction.
-pub fn initial_tx(tx: Transaction) -> Box<Append> {
-	Box::new(move |_build, (_, sum)| -> (Transaction, BlindSum) {
-		(tx.clone(), sum)
+/// We currently only support building a tx with a single kernel with build::transaction()
+pub fn initial_tx(mut tx: Transaction) -> Box<Append> {
+	assert_eq!(tx.kernels.len(), 1);
+	let kern = tx.kernels.remove(0);
+	Box::new(move |_build, (_, _, sum)| -> (Transaction, TxKernel, BlindSum) {
+		(tx.clone(), kern.clone(), sum)
 	})
 }
 
@@ -170,21 +181,78 @@ pub fn initial_tx(tx: Transaction) -> Box<Append> {
 /// let (tx2, _) = build::transaction(vec![initial_tx(tx1), with_excess(sum),
 ///   output_rand(2)], keychain).unwrap();
 ///
-pub fn transaction(
+pub fn partial_transaction(
 	elems: Vec<Box<Append>>,
 	keychain: &keychain::Keychain,
 ) -> Result<(Transaction, BlindingFactor), keychain::Error> {
 	let mut ctx = Context { keychain };
-	let (mut tx, sum) = elems.iter().fold(
-		(Transaction::empty(), BlindSum::new()),
+	let (mut tx, kern, sum) = elems.iter().fold(
+		(Transaction::empty(), TxKernel::empty(), BlindSum::new()),
 		|acc, elem| elem(&mut ctx, acc),
 	);
 	let blind_sum = ctx.keychain.blind_sum(&sum)?;
-	let msg = secp::Message::from_slice(&kernel_sig_msg(tx.fee, tx.lock_height))?;
-	tx.excess_sig = Keychain::aggsig_sign_with_blinding(&keychain.secp(), &msg, &blind_sum)?;
+
+	// we only support building a tx with a single kernel via build::transaction()
+	assert!(tx.kernels.is_empty());
+	tx.kernels.push(kern);
+
 	Ok((tx, blind_sum))
 }
 
+/// Builds a complete transaction.
+pub fn transaction(
+	elems: Vec<Box<Append>>,
+	keychain: &keychain::Keychain,
+) -> Result<Transaction, keychain::Error> {
+	let (mut tx, blind_sum) = partial_transaction(elems, keychain)?;
+	assert_eq!(tx.kernels.len(), 1);
+
+	let mut kern = tx.kernels.remove(0);
+	let msg = secp::Message::from_slice(&kernel_sig_msg(kern.fee, kern.lock_height))?;
+
+	let skey = blind_sum.secret_key(&keychain.secp())?;
+	kern.excess = keychain.secp().commit(0, skey)?;
+	kern.excess_sig = Keychain::aggsig_sign_with_blinding(&keychain.secp(), &msg, &blind_sum)?;
+
+	tx.kernels.push(kern);
+
+	Ok(tx)
+}
+
+/// Builds a complete transaction, splitting the key and
+/// setting the excess, excess_sig and tx offset as necessary.
+pub fn transaction_with_offset(
+	elems: Vec<Box<Append>>,
+	keychain: &keychain::Keychain,
+) -> Result<Transaction, keychain::Error> {
+	let mut ctx = Context { keychain };
+	let (mut tx, mut kern, sum) = elems.iter().fold(
+		(Transaction::empty(), TxKernel::empty(), BlindSum::new()),
+		|acc, elem| elem(&mut ctx, acc),
+	);
+	let blind_sum = ctx.keychain.blind_sum(&sum)?;
+
+	let split = blind_sum.split(&keychain.secp())?;
+	let k1 = split.blind_1;
+	let k2 = split.blind_2;
+
+	let msg = secp::Message::from_slice(&kernel_sig_msg(kern.fee, kern.lock_height))?;
+
+	// generate kernel excess and excess_sig using the split key k1
+	let skey = k1.secret_key(&keychain.secp())?;
+	kern.excess = ctx.keychain.secp().commit(0, skey)?;
+	kern.excess_sig = Keychain::aggsig_sign_with_blinding(&keychain.secp(), &msg, &k1)?;
+
+	// store the kernel offset (k2) on the tx itself
+	// commitments will sum correctly when including the offset
+	tx.offset = k2.clone();
+
+	assert!(tx.kernels.is_empty());
+	tx.kernels.push(kern);
+
+	Ok(tx)
+}
+
 // Just a simple test, most exhaustive tests in the core mod.rs.
 #[cfg(test)]
 mod test {
@@ -198,17 +266,37 @@ mod test {
 		let key_id2 = keychain.derive_key_id(2).unwrap();
 		let key_id3 = keychain.derive_key_id(3).unwrap();
 
-		let (tx, _) = transaction(
+		let tx = transaction(
 			vec![
 				input(10, ZERO_HASH, key_id1),
-				input(11, ZERO_HASH, key_id2),
+				input(12, ZERO_HASH, key_id2),
 				output(20, key_id3),
-				with_fee(1),
+				with_fee(2),
 			],
 			&keychain,
 		).unwrap();
 
-		tx.verify_sig().unwrap();
+		tx.validate().unwrap();
+	}
+
+	#[test]
+	fn blind_simple_tx_with_offset() {
+		let keychain = Keychain::from_random_seed().unwrap();
+		let key_id1 = keychain.derive_key_id(1).unwrap();
+		let key_id2 = keychain.derive_key_id(2).unwrap();
+		let key_id3 = keychain.derive_key_id(3).unwrap();
+
+		let tx = transaction_with_offset(
+			vec![
+				input(10, ZERO_HASH, key_id1),
+				input(12, ZERO_HASH, key_id2),
+				output(20, key_id3),
+				with_fee(2),
+			],
+			&keychain,
+		).unwrap();
+
+		tx.validate().unwrap();
 	}
 
 	#[test]
@@ -217,11 +305,11 @@ mod test {
 		let key_id1 = keychain.derive_key_id(1).unwrap();
 		let key_id2 = keychain.derive_key_id(2).unwrap();
 
-		let (tx, _) = transaction(
+		let tx = transaction(
 			vec![input(6, ZERO_HASH, key_id1), output(2, key_id2), with_fee(4)],
 			&keychain,
 		).unwrap();
 
-		tx.verify_sig().unwrap();
+		tx.validate().unwrap();
 	}
 }
diff --git a/core/src/core/mod.rs b/core/src/core/mod.rs
index 18082fdac..7eeb5755e 100644
--- a/core/src/core/mod.rs
+++ b/core/src/core/mod.rs
@@ -263,8 +263,10 @@ mod test {
 		let tx = tx2i1o();
 		let mut vec = Vec::new();
 		ser::serialize(&mut vec, &tx).expect("serialization failed");
-		println!("{}", vec.len());
-		assert!(vec.len() == 5364);
+		assert_eq!(
+			vec.len(),
+			5_438,
+		);
 	}
 
 	#[test]
@@ -273,7 +275,7 @@ mod test {
 		let mut vec = Vec::new();
 		ser::serialize(&mut vec, &tx).expect("serialization failed");
 		let dtx: Transaction = ser::deserialize(&mut &vec[..]).unwrap();
-		assert_eq!(dtx.fee, 2);
+		assert_eq!(dtx.fee(), 2);
 		assert_eq!(dtx.inputs.len(), 2);
 		assert_eq!(dtx.outputs.len(), 1);
 		assert_eq!(tx.hash(), dtx.hash());
@@ -304,7 +306,7 @@ mod test {
 		let key_id3 = keychain.derive_key_id(3).unwrap();
 
 		// first build a valid tx with corresponding blinding factor
-		let (tx, blind) = build::transaction(
+		let tx = build::transaction(
 			vec![
 				input(10, ZERO_HASH, key_id1),
 				output(5, key_id2),
@@ -314,14 +316,51 @@ mod test {
 			&keychain,
 		).unwrap();
 
-		// confirm the tx validates and that we can construct a valid tx_kernel from it
-		let excess = tx.validate().unwrap();
-		let tx_kernel = tx.build_kernel(excess);
-		let _ = tx_kernel.verify().unwrap();
+		// check the tx is valid
+		tx.validate().unwrap();
 
-		assert_eq!(tx_kernel.features, KernelFeatures::DEFAULT_KERNEL);
-		assert_eq!(tx_kernel.fee, tx.fee);
-		assert_eq!(tx_kernel.excess, excess);
+		// check the kernel is also itself valid
+		assert_eq!(tx.kernels.len(), 1);
+		let kern = &tx.kernels[0];
+		kern.verify().unwrap();
+
+		assert_eq!(kern.features, KernelFeatures::DEFAULT_KERNEL);
+		assert_eq!(kern.fee, tx.fee());
+	}
+
+	// Combine two transactions into one big transaction (with multiple kernels)
+	// and check it still validates.
+	#[test]
+	fn transaction_cut_through() {
+		let tx1 = tx1i2o();
+		let tx2 = tx2i1o();
+
+		assert!(tx1.validate().is_ok());
+		assert!(tx2.validate().is_ok());
+
+		// now build a "cut_through" tx from tx1 and tx2
+		let mut tx3 = tx1.clone();
+		tx3.inputs.extend(tx2.inputs.iter().cloned());
+		tx3.outputs.extend(tx2.outputs.iter().cloned());
+		tx3.kernels.extend(tx2.kernels.iter().cloned());
+
+		// make sure everything is sorted
+		tx3.inputs.sort();
+		tx3.outputs.sort();
+		tx3.kernels.sort();
+
+		// finally sum the offsets up
+		// TODO - hide this in a convenience function somewhere
+		tx3.offset = {
+			let secp = static_secp_instance();
+			let secp = secp.lock().unwrap();
+			let skey1 = tx1.offset.secret_key(&secp).unwrap();
+			let skey2 = tx2.offset.secret_key(&secp).unwrap();
+			let skey3 = secp.blind_sum(vec![skey1, skey2], vec![]).unwrap();
+			BlindingFactor::from_secret_key(skey3)
+		};
+
+		assert!(tx3.validate().is_ok());
 	}
 
 	#[test]
@@ -331,7 +370,7 @@ mod test {
 		let key_id2 = keychain.derive_key_id(2).unwrap();
 		let key_id3 = keychain.derive_key_id(3).unwrap();
 
-		let (tx, _) = build::transaction(
+		let tx = build::transaction(
 			vec![
 				input(75, ZERO_HASH, key_id1),
 				output(42, key_id2),
@@ -349,7 +388,7 @@ mod test {
 	#[test]
 	fn blind_tx() {
 		let btx = tx2i1o();
-		btx.verify_sig().unwrap(); // unwrap will panic if invalid
+		assert!(btx.validate().is_ok());
 
 		// checks that the range proof on our blind output is sufficiently hiding
 		let Output { proof, .. } = btx.outputs[0];
@@ -372,6 +411,57 @@ mod test {
 		}
 	}
 
+	// #[test]
+	// fn tx_build_aggsig() {
+	// 	let keychain = Keychain::from_random_seed().unwrap();
+	// 	let key_id1 = keychain.derive_key_id(1).unwrap();
+	// 	let key_id2 = keychain.derive_key_id(2).unwrap();
+	// 	let key_id3 = keychain.derive_key_id(3).unwrap();
+	// 	let key_id4 = keychain.derive_key_id(4).unwrap();
+    //
+	// 	let (tx_alice, blind_sum) = {
+	// 		// Alice gets 2 of her pre-existing outputs to send 5 coins to Bob, they
+	// 		// become inputs in the new transaction
+	// 		let (in1, in2) = (input(4, ZERO_HASH, key_id1), input(3, ZERO_HASH, key_id2));
+    //
+	// 		// Alice builds her transaction, with change, which also produces the sum
+	// 		// of blinding factors before they're obscured.
+	// 		let (tx, sum) = build::partial_transaction(
+	// 			vec![in1, in2, output(1, key_id3),
+	// 			with_fee(2)],
+	// 			&keychain,
+	// 		).unwrap();
+    //
+	// 		(tx, sum)
+	// 	};
+    //
+	// 	let blind = blind_sum.secret_key(&keychain.secp())?;
+	// 	keychain.aggsig_create_context(blind);
+	// 	let (pub_excess, pub_nonce) = keychain.aggsig_get_public_keys();
+    //
+	// 	let sig_part = keychain.aggsig_calculate_partial_sig(
+	// 		&pub_nonce,
+	// 		tx.fee(),
+	// 		tx.lock_height(),
+	// 	).unwrap();
+    //
+    //
+	// 	// From now on, Bob only has the obscured transaction and the sum of
+	// 	// blinding factors. He adds his output, finalizes the transaction so it's
+	// 	// ready for broadcast.
+	// 	let tx_final = build::transaction(
+	// 		vec![
+	// 			initial_tx(tx_alice),
+	// 			with_excess(blind_sum),
+	// 			output(4, key_id4),
+	// 		],
+	// 		&keychain,
+	// 	).unwrap();
+    //
+	// 	tx_final.validate().unwrap();
+    //
+	// }
+
 	/// Simulate the standard exchange between 2 parties when creating a basic
 	/// 2 inputs, 2 outputs transaction.
 	#[test]
@@ -382,27 +472,26 @@ mod test {
 		let key_id3 = keychain.derive_key_id(3).unwrap();
 		let key_id4 = keychain.derive_key_id(4).unwrap();
 
-		let tx_alice: Transaction;
-		let blind_sum: BlindingFactor;
-
-		{
+		let (tx_alice, blind_sum) = {
 			// Alice gets 2 of her pre-existing outputs to send 5 coins to Bob, they
 			// become inputs in the new transaction
 			let (in1, in2) = (input(4, ZERO_HASH, key_id1), input(3, ZERO_HASH, key_id2));
 
 			// Alice builds her transaction, with change, which also produces the sum
 			// of blinding factors before they're obscured.
-			let (tx, sum) =
-				build::transaction(vec![in1, in2, output(1, key_id3), with_fee(2)], &keychain)
-					.unwrap();
-			tx_alice = tx;
-			blind_sum = sum;
-		}
+			let (tx, sum) = build::partial_transaction(
+				vec![in1, in2, output(1, key_id3),
+				with_fee(2)],
+				&keychain,
+			).unwrap();
+
+			(tx, sum)
+		};
 
 		// From now on, Bob only has the obscured transaction and the sum of
 		// blinding factors. He adds his output, finalizes the transaction so it's
 		// ready for broadcast.
-		let (tx_final, _) = build::transaction(
+		let tx_final = build::transaction(
 			vec![
 				initial_tx(tx_alice),
 				with_excess(blind_sum),
@@ -435,7 +524,7 @@ mod test {
 		let key_id = keychain.derive_key_id(1).unwrap();
 
 		let mut tx1 = tx2i1o();
-		tx1.verify_sig().unwrap();
+		tx1.validate().unwrap();
 
 		let b = Block::new(
 			&BlockHeader::default(),
@@ -483,8 +572,7 @@ mod test {
 				with_lock_height(1),
 			],
 			&keychain,
-		).map(|(tx, _)| tx)
-			.unwrap();
+		).unwrap();
 
 		let b = Block::new(
 			&BlockHeader::default(),
@@ -504,8 +592,7 @@ mod test {
 				with_lock_height(2),
 			],
 			&keychain,
-		).map(|(tx, _)| tx)
-			.unwrap();
+		).unwrap();
 
 		let b = Block::new(
 			&BlockHeader::default(),
@@ -525,13 +612,13 @@ mod test {
 	#[test]
 	pub fn test_verify_1i1o_sig() {
 		let tx = tx1i1o();
-		tx.verify_sig().unwrap();
+		tx.validate().unwrap();
 	}
 
 	#[test]
 	pub fn test_verify_2i1o_sig() {
 		let tx = tx2i1o();
-		tx.verify_sig().unwrap();
+		tx.validate().unwrap();
 	}
 
 	// utility producing a transaction with 2 inputs and a single outputs
@@ -541,7 +628,7 @@ mod test {
 		let key_id2 = keychain.derive_key_id(2).unwrap();
 		let key_id3 = keychain.derive_key_id(3).unwrap();
 
-		build::transaction(
+		build::transaction_with_offset(
 			vec![
 				input(10, ZERO_HASH, key_id1),
 				input(11, ZERO_HASH, key_id2),
@@ -549,8 +636,7 @@ mod test {
 				with_fee(2),
 			],
 			&keychain,
-		).map(|(tx, _)| tx)
-			.unwrap()
+		).unwrap()
 	}
 
 	// utility producing a transaction with a single input and output
@@ -559,22 +645,22 @@ mod test {
 		let key_id1 = keychain.derive_key_id(1).unwrap();
 		let key_id2 = keychain.derive_key_id(2).unwrap();
 
-		build::transaction(
+		build::transaction_with_offset(
 			vec![input(5, ZERO_HASH, key_id1), output(3, key_id2), with_fee(2)],
 			&keychain,
-		).map(|(tx, _)| tx)
-			.unwrap()
+		).unwrap()
 	}
 
 	// utility producing a transaction with a single input
 	// and two outputs (one change output)
+	// Note: this tx has an "offset" kernel
 	pub fn tx1i2o() -> Transaction {
 		let keychain = keychain::Keychain::from_random_seed().unwrap();
 		let key_id1 = keychain.derive_key_id(1).unwrap();
 		let key_id2 = keychain.derive_key_id(2).unwrap();
 		let key_id3 = keychain.derive_key_id(3).unwrap();
 
-		build::transaction(
+		build::transaction_with_offset(
 			vec![
 				input(6, ZERO_HASH, key_id1),
 				output(3, key_id2),
@@ -582,7 +668,6 @@ mod test {
 				with_fee(2),
 			],
 			&keychain,
-		).map(|(tx, _)| tx)
-			.unwrap()
+		).unwrap()
 	}
 }
diff --git a/core/src/core/transaction.rs b/core/src/core/transaction.rs
index 427c4a68e..3e697e88b 100644
--- a/core/src/core/transaction.rs
+++ b/core/src/core/transaction.rs
@@ -17,7 +17,7 @@ use blake2::blake2b::blake2b;
 use util::secp::{self, Message, Signature};
 use util::{static_secp_instance, kernel_sig_msg};
 use util::secp::pedersen::{Commitment, RangeProof};
-use std::cmp::min;
+use std::cmp::{min, max};
 use std::cmp::Ordering;
 use std::ops;
 
@@ -26,7 +26,8 @@ use consensus::VerifySortOrder;
 use core::Committed;
 use core::hash::{Hash, Hashed, ZERO_HASH};
 use core::pmmr::Summable;
-use keychain::{Identifier, Keychain};
+use keychain;
+use keychain::{Identifier, Keychain, BlindingFactor};
 use ser::{self, read_and_verify_sorted, Readable, Reader, Writeable, WriteableSorted, Writer};
 use util;
 
@@ -74,8 +75,15 @@ macro_rules! hashable_ord {
 pub enum Error {
 	/// Transaction fee can't be odd, due to half fee burning
 	OddFee,
+	/// Kernel fee can't be odd, due to half fee burning
+	OddKernelFee,
 	/// Underlying Secp256k1 error (signature validation or invalid public key typically)
 	Secp(secp::Error),
+	/// Underlying keychain related error
+	Keychain(keychain::Error),
+	/// The sum of output minus input commitments does not
+	/// match the sum of kernel commitments
+	KernelSumMismatch,
 	/// Restrict number of incoming inputs
 	TooManyInputs,
 	/// Underlying consensus error (currently for sort order)
@@ -98,6 +106,13 @@ impl From<consensus::Error> for Error {
 	}
 }
 
+impl From<keychain::Error> for Error {
+	fn from(e: keychain::Error) -> Error {
+		Error::Keychain(e)
+	}
+}
+
+
 /// A proof that a transaction sums to zero. Includes both the transaction's
 /// Pedersen commitment and the signature, that guarantees that the commitments
 /// amount to zero.
@@ -168,6 +183,30 @@ impl TxKernel {
 		Ok(())
 	}
 
+	/// Build an empty tx kernel with zero values.
+	pub fn empty() -> TxKernel {
+		TxKernel {
+			features: KernelFeatures::DEFAULT_KERNEL,
+			fee: 0,
+			lock_height: 0,
+			excess: Commitment::from_vec(vec![0; 33]),
+			excess_sig: Signature::from_raw_data(&[0; 64]).unwrap(),
+		}
+	}
+
+	/// Builds a new tx kernel with the provided fee.
+	pub fn with_fee(self, fee: u64) -> TxKernel {
+		TxKernel { fee: fee, ..self }
+	}
+
+	/// Builds a new tx kernel with the provided lock_height.
+	pub fn with_lock_height(self, lock_height: u64) -> TxKernel {
+		TxKernel {
+			lock_height: lock_height,
+			..self
+		}
+	}
+	
 	/// Size in bytes of a kernel, necessary for binary storage
 	pub fn size() -> usize {
 		17 + // features plus fee and lock_height
@@ -179,41 +218,37 @@ impl TxKernel {
 /// A transaction
 #[derive(Debug, Clone)]
 pub struct Transaction {
-	/// Set of inputs spent by the transaction.
+	/// List of inputs spent by the transaction.
 	pub inputs: Vec<Input>,
-	/// Set of outputs the transaction produces.
+	/// List of outputs the transaction produces.
 	pub outputs: Vec<Output>,
-	/// Fee paid by the transaction.
-	pub fee: u64,
-	/// Transaction is not valid before this chain height.
-	pub lock_height: u64,
-	/// The signature proving the excess is a valid public key, which signs
-	/// the transaction fee.
-	pub excess_sig: Signature,
+	/// List of kernels that make up this transaction (usually a single kernel).
+	pub kernels: Vec<TxKernel>,
+	/// The kernel "offset" k2
+	/// excess is k1G after splitting the key k = k1 + k2
+	pub offset: BlindingFactor,
 }
 
 /// Implementation of Writeable for a fully blinded transaction, defines how to
 /// write the transaction as binary.
 impl Writeable for Transaction {
 	fn write<W: Writer>(&self, writer: &mut W) -> Result<(), ser::Error> {
-		ser_multiwrite!(
-			writer,
-			[write_u64, self.fee],
-			[write_u64, self.lock_height]
-		);
-		self.excess_sig.write(writer)?;
+		self.offset.write(writer)?;
 		ser_multiwrite!(
 			writer,
 			[write_u64, self.inputs.len() as u64],
-			[write_u64, self.outputs.len() as u64]
+			[write_u64, self.outputs.len() as u64],
+			[write_u64, self.kernels.len() as u64]
 		);
 
 		// Consensus rule that everything is sorted in lexicographical order on the wire.
 		let mut inputs = self.inputs.clone();
 		let mut outputs = self.outputs.clone();
+		let mut kernels = self.kernels.clone();
 
 		try!(inputs.write_sorted(writer));
 		try!(outputs.write_sorted(writer));
+		try!(kernels.write_sorted(writer));
 
 		Ok(())
 	}
@@ -223,23 +258,20 @@ impl Writeable for Transaction {
 /// transaction from a binary stream.
 impl Readable for Transaction {
 	fn read(reader: &mut Reader) -> Result<Transaction, ser::Error> {
-		let (fee, lock_height) =
-			ser_multiread!(reader, read_u64, read_u64);
+		let offset = BlindingFactor::read(reader)?;
 
-		let excess_sig = Signature::read(reader)?;
-
-		let (input_len, output_len) =
-			ser_multiread!(reader, read_u64, read_u64);
+		let (input_len, output_len, kernel_len) =
+			ser_multiread!(reader, read_u64, read_u64, read_u64);
 
 		let inputs = read_and_verify_sorted(reader, input_len)?;
 		let outputs = read_and_verify_sorted(reader, output_len)?;
+		let kernels = read_and_verify_sorted(reader, kernel_len)?;
 
 		Ok(Transaction {
-			fee: fee,
-			lock_height: lock_height,
-			excess_sig: excess_sig,
-			inputs: inputs,
-			outputs: outputs,
+			offset,
+			inputs,
+			outputs,
+			kernels,
 			..Default::default()
 		})
 	}
@@ -253,7 +285,7 @@ impl Committed for Transaction {
 		&self.outputs
 	}
 	fn overage(&self) -> i64 {
-		(self.fee as i64)
+		(self.fee() as i64)
 	}
 }
 
@@ -267,28 +299,34 @@ impl Transaction {
 	/// Creates a new empty transaction (no inputs or outputs, zero fee).
 	pub fn empty() -> Transaction {
 		Transaction {
-			fee: 0,
-			lock_height: 0,
-			excess_sig: Signature::from_raw_data(&[0;64]).unwrap(),
+			offset: BlindingFactor::zero(),
 			inputs: vec![],
 			outputs: vec![],
+			kernels: vec![],
 		}
 	}
 
 	/// Creates a new transaction initialized with
-	/// the provided inputs, outputs, fee and lock_height.
+	/// the provided inputs, outputs, kernels
 	pub fn new(
 		inputs: Vec<Input>,
 		outputs: Vec<Output>,
-		fee: u64,
-		lock_height: u64,
+		kernels: Vec<TxKernel>,
 	) -> Transaction {
 		Transaction {
-			fee: fee,
-			lock_height: lock_height,
-			excess_sig: Signature::from_raw_data(&[0;64]).unwrap(),
+			offset: BlindingFactor::zero(),
 			inputs: inputs,
 			outputs: outputs,
+			kernels: kernels,
+		}
+	}
+
+	/// Creates a new transaction using this transaction as a template
+	/// and with the specified offset.
+	pub fn with_offset(self, offset: BlindingFactor) -> Transaction {
+		Transaction {
+			offset: offset,
+			..self
 		}
 	}
 
@@ -316,74 +354,92 @@ impl Transaction {
 		}
 	}
 
-	/// Builds a new transaction with the provided fee.
-	pub fn with_fee(self, fee: u64) -> Transaction {
-		Transaction { fee: fee, ..self }
+	/// Total fee for a transaction is the sum of fees of all kernels.
+	pub fn fee(&self) -> u64 {
+		self.kernels.iter().fold(0, |acc, ref x| acc + x.fee)
 	}
 
-	/// Builds a new transaction with the provided lock_height.
-	pub fn with_lock_height(self, lock_height: u64) -> Transaction {
-		Transaction {
-			lock_height: lock_height,
-			..self
-		}
+	/// Lock height of a transaction is the max lock height of the kernels.
+	pub fn lock_height(&self) -> u64 {
+		self.kernels.iter().fold(0, |acc, ref x| max(acc, x.lock_height))
 	}
 
-	/// The verification for a MimbleWimble transaction involves getting the
-	/// excess of summing all commitments and using it as a public key
-	/// to verify the embedded signature. The rational is that if the values
-	/// sum to zero as they should in r.G + v.H then only k.G the excess
-	/// of the sum of r.G should be left. And r.G is the definition of a
-	/// public key generated using r as a private key.
-	pub fn verify_sig(&self) -> Result<Commitment, secp::Error> {
-		let rsum = self.sum_commitments()?;
-
-		let msg = Message::from_slice(&kernel_sig_msg(self.fee, self.lock_height))?;
-
-		let secp = static_secp_instance();
-		let secp = secp.lock().unwrap();
-		let sig = self.excess_sig;
-		// pretend the sum is a public key (which it is, being of the form r.G) and
-		// verify the transaction sig with it
-		let valid = Keychain::aggsig_verify_single_from_commit(&secp, &sig, &msg, &rsum);
-		if !valid {
-			return Err(secp::Error::IncorrectSignature);
+	/// To verify transaction kernels we check that -
+	///  * all kernels have an even fee
+	///  * sum of input/output commitments matches sum of kernel commitments after applying offset
+	///  * each kernel sig is valid (i.e. tx commitments sum to zero, given above is true)
+	fn verify_kernels(&self) -> Result<(), Error> {
+		// check that each individual kernel fee is even
+		// TODO - is this strictly necessary given that we check overall tx fee?
+		// TODO - move this into verify_fee() check or maybe kernel.verify()?
+		for k in &self.kernels {
+			if k.fee & 1 != 0 {
+				return Err(Error::OddKernelFee);
+			}
 		}
-		Ok(rsum)
-	}
 
-	/// Builds a transaction kernel
-	pub fn build_kernel(&self, excess: Commitment) -> TxKernel {
-		TxKernel {
-			features: KernelFeatures::DEFAULT_KERNEL,
-			excess: excess,
-			excess_sig: self.excess_sig.clone(),
-			fee: self.fee,
-			lock_height: self.lock_height,
+		// sum all input and output commitments
+		let io_sum = self.sum_commitments()?;
+
+		// sum all kernels commitments
+		let kernel_sum = {
+			let mut kernel_commits = self.kernels
+				.iter()
+				.map(|x| x.excess)
+				.collect::<Vec<_>>();
+
+			let secp = static_secp_instance();
+			let secp = secp.lock().unwrap();
+
+			// add the offset in as necessary (unless offset is zero)
+			if self.offset != BlindingFactor::zero() {
+				let skey = self.offset.secret_key(&secp)?;
+				let offset_commit = secp.commit(0, skey)?;
+				kernel_commits.push(offset_commit);
+			}
+
+			secp.commit_sum(kernel_commits, vec![])?
+		};
+
+		// sum of kernel commitments (including the offset) must match
+		// the sum of input/output commitments (minus fee)
+		if kernel_sum != io_sum {
+			return Err(Error::KernelSumMismatch);
 		}
+
+		// verify all signatures with the commitment as pk
+		for kernel in &self.kernels {
+			kernel.verify()?;
+		}
+
+		Ok(())
 	}
 
 	/// Validates all relevant parts of a fully built transaction. Checks the
 	/// excess value against the signature as well as range proofs for each
 	/// output.
-	pub fn validate(&self) -> Result<Commitment, Error> {
-		if self.fee & 1 != 0 {
+	pub fn validate(&self) -> Result<(), Error> {
+		if self.fee() & 1 != 0 {
 			return Err(Error::OddFee);
 		}
 		if self.inputs.len() > consensus::MAX_BLOCK_INPUTS {
 			return Err(Error::TooManyInputs);
 		}
 		self.verify_sorted()?;
+
 		for out in &self.outputs {
 			out.verify_proof()?;
 		}
-		let excess = self.verify_sig()?;
-		Ok(excess)
+
+		self.verify_kernels()?;
+
+		Ok(())
 	}
 
 	fn verify_sorted(&self) -> Result<(), Error> {
 		self.inputs.verify_sort_order()?;
 		self.outputs.verify_sort_order()?;
+		self.kernels.verify_sort_order()?;
 		Ok(())
 	}
 }
diff --git a/core/src/ser.rs b/core/src/ser.rs
index 6afde4039..b18f6ad96 100644
--- a/core/src/ser.rs
+++ b/core/src/ser.rs
@@ -22,7 +22,7 @@
 use std::{cmp, error, fmt};
 use std::io::{self, Read, Write};
 use byteorder::{BigEndian, ByteOrder, ReadBytesExt};
-use keychain::{Identifier, IDENTIFIER_SIZE};
+use keychain::{Identifier, BlindingFactor, IDENTIFIER_SIZE};
 use consensus;
 use consensus::VerifySortOrder;
 use core::hash::Hashed;
@@ -30,7 +30,12 @@ use core::transaction::{SWITCH_COMMIT_HASH_SIZE, SwitchCommitHash};
 use util::secp::pedersen::Commitment;
 use util::secp::pedersen::RangeProof;
 use util::secp::Signature;
-use util::secp::constants::{MAX_PROOF_SIZE, PEDERSEN_COMMITMENT_SIZE, AGG_SIGNATURE_SIZE};
+use util::secp::constants::{
+	MAX_PROOF_SIZE,
+	PEDERSEN_COMMITMENT_SIZE,
+	AGG_SIGNATURE_SIZE,
+	SECRET_KEY_SIZE,
+};
 
 /// Possible errors deriving from serializing or deserializing.
 #[derive(Debug)]
@@ -325,6 +330,19 @@ impl Writeable for Commitment {
 	}
 }
 
+impl Writeable for BlindingFactor {
+	fn write<W: Writer>(&self, writer: &mut W) -> Result<(), Error> {
+		writer.write_fixed_bytes(self)
+	}
+}
+
+impl Readable for BlindingFactor {
+	fn read(reader: &mut Reader) -> Result<BlindingFactor, Error> {
+		let bytes = reader.read_fixed_bytes(SECRET_KEY_SIZE)?;
+		Ok(BlindingFactor::from_slice(&bytes))
+	}
+}
+
 impl Writeable for Identifier {
 	fn write<W: Writer>(&self, writer: &mut W) -> Result<(), Error> {
 		writer.write_fixed_bytes(self)
@@ -590,11 +608,14 @@ impl AsFixedBytes for ::util::secp::pedersen::RangeProof {
 		return self.plen;
 	}
 }
-impl AsFixedBytes for ::util::secp::key::SecretKey {
-	fn len(&self) -> usize {
-		return 1;
-	}
-}
+// // TODO - is this (single byte) so we do not ever serialize a secret_key?
+// // Note: we *can* serialize a blinding_factor built from a secret_key
+// // but this needs to be done explicitly (tx kernel offset for example)
+// impl AsFixedBytes for ::util::secp::key::SecretKey {
+// 	fn len(&self) -> usize {
+// 		return 1;
+// 	}
+// }
 impl AsFixedBytes for ::util::secp::Signature {
 	fn len(&self) -> usize {
 		return 64;
@@ -605,6 +626,11 @@ impl AsFixedBytes for ::util::secp::pedersen::Commitment {
 		return PEDERSEN_COMMITMENT_SIZE;
 	}
 }
+impl AsFixedBytes for BlindingFactor {
+	fn len(&self) -> usize {
+		return SECRET_KEY_SIZE;
+	}
+}
 impl AsFixedBytes for SwitchCommitHash {
 	fn len(&self) -> usize {
 		return SWITCH_COMMIT_HASH_SIZE;
diff --git a/grin/src/miner.rs b/grin/src/miner.rs
index 8efccded9..9e3a353a8 100644
--- a/grin/src/miner.rs
+++ b/grin/src/miner.rs
@@ -594,7 +594,7 @@ impl Miner {
 		let txs: Vec<&Transaction> = txs_box.iter().map(|tx| tx.as_ref()).collect();
 
 		// build the coinbase and the block itself
-		let fees = txs.iter().map(|tx| tx.fee).sum();
+		let fees = txs.iter().map(|tx| tx.fee()).sum();
 		let height = head.height + 1;
 		let block_fees = BlockFees {
 			fees,
diff --git a/keychain/src/blind.rs b/keychain/src/blind.rs
index 6c915eb81..6de15e76d 100644
--- a/keychain/src/blind.rs
+++ b/keychain/src/blind.rs
@@ -13,28 +13,90 @@
 // limitations under the License.
 /// Encapsulate a secret key for the blind_sum operation
 
+use std::cmp::min;
+use rand::thread_rng;
 
-use util::secp::{self, Secp256k1};
 use extkey::Identifier;
 use keychain::Error;
+use util;
+use util::secp::{self, Secp256k1};
+use util::secp::constants::SECRET_KEY_SIZE;
 
-#[derive(Clone, Debug, PartialEq)]
-pub struct BlindingFactor(secp::key::SecretKey);
+
+#[derive(Clone, Copy, Debug, PartialEq, Serialize, Deserialize)]
+pub struct BlindingFactor([u8; SECRET_KEY_SIZE]);
+
+impl AsRef<[u8]> for BlindingFactor {
+	fn as_ref(&self) -> &[u8] {
+		&self.0
+	}
+}
 
 impl BlindingFactor {
-	pub fn new(secret_key: secp::key::SecretKey) -> BlindingFactor {
-		BlindingFactor(secret_key)
+	pub fn from_secret_key(skey: secp::key::SecretKey) -> BlindingFactor {
+		BlindingFactor::from_slice(&skey.as_ref())
 	}
 
-	pub fn secret_key(&self) -> secp::key::SecretKey {
-		self.0
+	pub fn from_slice(data: &[u8]) -> BlindingFactor {
+		let mut blind = [0; SECRET_KEY_SIZE];
+		for i in 0..min(SECRET_KEY_SIZE, data.len()) {
+			blind[i] = data[i];
+		}
+		BlindingFactor(blind)
 	}
 
-	pub fn from_slice(secp: &Secp256k1, data: &[u8]) -> Result<BlindingFactor, Error> {
-		Ok(BlindingFactor(
-			secp::key::SecretKey::from_slice(&secp, data)?,
-		))
+	pub fn zero() -> BlindingFactor {
+		BlindingFactor::from_secret_key(secp::key::ZERO_KEY)
 	}
+
+	pub fn to_hex(&self) -> String {
+		util::to_hex(self.0.to_vec())
+	}
+
+	pub fn from_hex(hex: &str) -> Result<BlindingFactor, Error> {
+		let bytes = util::from_hex(hex.to_string()).unwrap();
+		Ok(BlindingFactor::from_slice(&bytes))
+	}
+
+	pub fn secret_key(&self, secp: &Secp256k1) -> Result<secp::key::SecretKey, Error> {
+		if *self == BlindingFactor::zero() {
+			// TODO - need this currently for tx tests
+			// the "zero" secret key is not actually a valid secret_key
+			// and secp lib checks this
+			Ok(secp::key::ZERO_KEY)
+		} else {
+			secp::key::SecretKey::from_slice(secp, &self.0)
+				.map_err(|e| Error::Secp(e))
+		}
+	}
+
+	/// Split a blinding_factor (aka secret_key) into a pair of blinding_factors.
+	/// We use one of these (k1) to sign the tx_kernel (k1G)
+	/// and the other gets aggregated in the block_header as the "offset".
+	/// This prevents an actor from being able to sum a set of inputs, outputs and kernels
+	/// from a block to identify and reconstruct a particular tx from a block.
+	/// You would need both k1, k2 to do this.
+	pub fn split(&self, secp: &Secp256k1) -> Result<SplitBlindingFactor, Error> {
+		let skey_1 = secp::key::SecretKey::new(secp, &mut thread_rng());
+
+		// use blind_sum to subtract skey_1 from our key (to give k = k1 + k2)
+		let skey = self.secret_key(secp)?;
+		let skey_2 = secp.blind_sum(vec![skey], vec![skey_1])?;
+
+		let blind_1 = BlindingFactor::from_secret_key(skey_1);
+		let blind_2 = BlindingFactor::from_secret_key(skey_2);
+
+		Ok(SplitBlindingFactor {
+			blind_1,
+			blind_2,
+		})
+	}
+}
+
+#[derive(Clone, Debug, Serialize, Deserialize)]
+pub struct SplitBlindingFactor {
+	pub blind_1: BlindingFactor,
+	pub blind_2: BlindingFactor,
 }
 
 /// Accumulator to compute the sum of blinding factors. Keeps track of each
@@ -74,9 +136,46 @@ impl BlindSum {
 		self
 	}
 
-	/// Subtractss the provided key to the sum of blinding factors.
+	/// Subtracts the provided key to the sum of blinding factors.
 	pub fn sub_blinding_factor(mut self, blind: BlindingFactor) -> BlindSum {
 		self.negative_blinding_factors.push(blind);
 		self
 	}
 }
+
+#[cfg(test)]
+mod test {
+	use rand::thread_rng;
+
+	use blind::BlindingFactor;
+	use util::secp::Secp256k1;
+	use util::secp::key::{SecretKey, ZERO_KEY};
+
+	#[test]
+	fn split_blinding_factor() {
+		let secp = Secp256k1::new();
+		let skey_in = SecretKey::new(&secp, &mut thread_rng());
+		let blind = BlindingFactor::from_secret_key(skey_in);
+		let split = blind.split(&secp).unwrap();
+
+		// split a key, sum the split keys and confirm the sum matches the original key
+		let mut skey_sum = split.blind_1.secret_key(&secp).unwrap();
+		let skey_2 = split.blind_2.secret_key(&secp).unwrap();
+		let _ = skey_sum.add_assign(&secp, &skey_2).unwrap();
+		assert_eq!(skey_in, skey_sum);
+	}
+
+	// Sanity check that we can add the zero key to a secret key and it is still
+	// the same key that we started with (k + 0 = k)
+	#[test]
+	fn zero_key_addition() {
+		let secp = Secp256k1::new();
+		let skey_in = SecretKey::new(&secp, &mut thread_rng());
+		let skey_zero = ZERO_KEY;
+
+		let mut skey_out = skey_in.clone();
+		let _ = skey_out.add_assign(&secp, &skey_zero).unwrap();
+
+		assert_eq!(skey_in, skey_out);
+	}
+}
diff --git a/keychain/src/keychain.rs b/keychain/src/keychain.rs
index 2b24d62e9..0d4cd322c 100644
--- a/keychain/src/keychain.rs
+++ b/keychain/src/keychain.rs
@@ -258,20 +258,20 @@ impl Keychain {
 		pos_keys.extend(&blind_sum
 			.positive_blinding_factors
 			.iter()
-			.map(|b| b.secret_key())
+			.filter_map(|b| b.secret_key(&self.secp).ok())
 			.collect::<Vec<SecretKey>>());
 
 		neg_keys.extend(&blind_sum
 			.negative_blinding_factors
 			.iter()
-			.map(|b| b.secret_key())
+			.filter_map(|b| b.secret_key(&self.secp).ok())
 			.collect::<Vec<SecretKey>>());
 
-		let blinding = self.secp.blind_sum(pos_keys, neg_keys)?;
-		Ok(BlindingFactor::new(blinding))
+		let sum = self.secp.blind_sum(pos_keys, neg_keys)?;
+		Ok(BlindingFactor::from_secret_key(sum))
 	}
 
-	pub fn aggsig_create_context(&self, transaction_id: &Uuid, sec_key:SecretKey) 
+	pub fn aggsig_create_context(&self, transaction_id: &Uuid, sec_key:SecretKey)
 		-> Result<(), Error>{
 		let mut contexts = self.aggsig_contexts.write().unwrap();
 		if contexts.is_none() {
@@ -381,11 +381,12 @@ impl Keychain {
 		self.aggsig_verify_single(sig, &msg, Some(&nonce_sum), pubkey, true)
 	}
 
-	pub fn aggsig_calculate_partial_sig(&self,
+	pub fn aggsig_calculate_partial_sig(
+		&self,
 		transaction_id: &Uuid,
-		other_pub_nonce:&PublicKey,
-		fee:u64,
-		lock_height:u64) -> Result<Signature, Error>{
+		other_pub_nonce: &PublicKey,
+		fee: u64,
+		lock_height: u64) -> Result<Signature, Error>{
 		// Add public nonces kR*G + kS*G
 		let (_, sec_nonce) = self.aggsig_get_private_keys(transaction_id);
 		let mut nonce_sum = other_pub_nonce.clone();
@@ -396,8 +397,9 @@ impl Keychain {
 		self.aggsig_sign_single(transaction_id, &msg, Some(&sec_nonce), Some(&nonce_sum), Some(&nonce_sum))
 	}
 
-	/// Helper function to calculate final singature
-	pub fn aggsig_calculate_final_sig(&self,
+	/// Helper function to calculate final signature
+	pub fn aggsig_calculate_final_sig(
+		&self,
 		transaction_id: &Uuid,
 		their_sig: &Signature,
 		our_sig: &Signature,
@@ -459,7 +461,8 @@ impl Keychain {
 		msg: &Message,
 		blinding: &BlindingFactor,
 	) -> Result<Signature, Error> {
-		let sig = aggsig::sign_single(secp, &msg, &blinding.secret_key(), None, None, None)?;
+		let skey = &blinding.secret_key(&secp)?;
+		let sig = aggsig::sign_single(secp, &msg, skey, None, None, None)?;
 		Ok(sig)
 	}
 
@@ -474,7 +477,8 @@ impl Keychain {
 		msg: &Message,
 		blinding: &BlindingFactor,
 	) -> Result<Signature, Error> {
-		let sig = self.secp.sign(msg, &blinding.secret_key())?;
+		let skey = &blinding.secret_key(&self.secp)?;
+		let sig = self.secp.sign(msg, &skey)?;
 		Ok(sig)
 	}
 
@@ -485,7 +489,12 @@ impl Keychain {
 
 #[cfg(test)]
 mod test {
+	use rand::thread_rng;
+
+	use uuid::Uuid;
+
 	use keychain::{BlindSum, BlindingFactor, Keychain};
+	use util::kernel_sig_msg;
 	use util::secp;
 	use util::secp::pedersen::ProofMessage;
 	use util::secp::key::SecretKey;
@@ -608,10 +617,374 @@ mod test {
 		// in the same way (convenience function)
 		assert_eq!(
 			keychain.blind_sum(&BlindSum::new()
-				.add_blinding_factor(BlindingFactor::new(skey1))
-				.add_blinding_factor(BlindingFactor::new(skey2))
+				.add_blinding_factor(BlindingFactor::from_secret_key(skey1))
+				.add_blinding_factor(BlindingFactor::from_secret_key(skey2))
 			).unwrap(),
-			BlindingFactor::new(skey3)
+			BlindingFactor::from_secret_key(skey3),
 		);
 	}
+
+	#[test]
+	fn aggsig_sender_receiver_interaction() {
+		let sender_keychain = Keychain::from_random_seed().unwrap();
+		let receiver_keychain = Keychain::from_random_seed().unwrap();
+
+		// tx identifier for wallet interaction
+		let tx_id = Uuid::new_v4();
+
+		// Calculate the kernel excess here for convenience.
+		// Normally this would happen during transaction building.
+		let kernel_excess = {
+			let skey1 = sender_keychain.derived_key(
+				&sender_keychain.derive_key_id(1).unwrap(),
+			).unwrap();
+
+			let skey2 = receiver_keychain.derived_key(
+				&receiver_keychain.derive_key_id(1).unwrap(),
+			).unwrap();
+
+			let keychain = Keychain::from_random_seed().unwrap();
+			let blinding_factor = keychain.blind_sum(
+				&BlindSum::new()
+					.sub_blinding_factor(BlindingFactor::from_secret_key(skey1))
+					.add_blinding_factor(BlindingFactor::from_secret_key(skey2))
+			).unwrap();
+
+			keychain.secp.commit(
+				0,
+				blinding_factor.secret_key(&keychain.secp).unwrap(),
+			).unwrap()
+		};
+
+		// sender starts the tx interaction
+		let (sender_pub_excess, sender_pub_nonce) = {
+			let keychain = sender_keychain.clone();
+
+			let skey = keychain.derived_key(
+				&keychain.derive_key_id(1).unwrap(),
+			).unwrap();
+
+			// dealing with an input here so we need to negate the blinding_factor
+			// rather than use it as is
+			let blinding_factor = keychain.blind_sum(
+				&BlindSum::new()
+					.sub_blinding_factor(BlindingFactor::from_secret_key(skey))
+			).unwrap();
+
+			let blind = blinding_factor.secret_key(&keychain.secp()).unwrap();
+
+			keychain.aggsig_create_context(&tx_id, blind);
+			keychain.aggsig_get_public_keys(&tx_id)
+		};
+
+		// receiver receives partial tx
+		let (receiver_pub_excess, receiver_pub_nonce, sig_part) = {
+			let keychain = receiver_keychain.clone();
+			let key_id = keychain.derive_key_id(1).unwrap();
+
+			// let blind = blind_sum.secret_key(&keychain.secp())?;
+			let blind = keychain.derived_key(&key_id).unwrap();
+
+			keychain.aggsig_create_context(&tx_id, blind);
+			let (pub_excess, pub_nonce) = keychain.aggsig_get_public_keys(&tx_id);
+			keychain.aggsig_add_output(&tx_id, &key_id);
+
+			let sig_part = keychain.aggsig_calculate_partial_sig(
+				&tx_id,
+				&sender_pub_nonce,
+				0,
+				0,
+			).unwrap();
+			(pub_excess, pub_nonce, sig_part)
+		};
+
+		// check the sender can verify the partial signature
+		// received in the response back from the receiver
+		{
+			let keychain = sender_keychain.clone();
+			let sig_verifies = keychain.aggsig_verify_partial_sig(
+				&tx_id,
+				&sig_part,
+				&receiver_pub_nonce,
+				&receiver_pub_excess,
+				0,
+				0,
+			);
+			assert!(sig_verifies);
+		}
+
+		// now sender signs with their key
+		let sender_sig_part = {
+			let keychain = sender_keychain.clone();
+			keychain.aggsig_calculate_partial_sig(
+				&tx_id,
+				&receiver_pub_nonce,
+				0,
+				0,
+			).unwrap()
+		};
+
+		// check the receiver can verify the partial signature
+		// received by the sender
+		{
+			let keychain = receiver_keychain.clone();
+			let sig_verifies = keychain.aggsig_verify_partial_sig(
+				&tx_id,
+				&sender_sig_part,
+				&sender_pub_nonce,
+				&sender_pub_excess,
+				0,
+				0,
+			);
+			assert!(sig_verifies);
+		}
+
+		// Receiver now builds final signature from sender and receiver parts
+		let (final_sig, final_pubkey) = {
+			let keychain = receiver_keychain.clone();
+
+			// Receiver recreates their partial sig (we do not maintain state from earlier)
+			let our_sig_part = keychain.aggsig_calculate_partial_sig(
+				&tx_id,
+				&sender_pub_nonce,
+				0,
+				0,
+			).unwrap();
+
+			// Receiver now generates final signature from the two parts
+			let final_sig = keychain.aggsig_calculate_final_sig(
+				&tx_id,
+				&sender_sig_part,
+				&our_sig_part,
+				&sender_pub_nonce,
+			).unwrap();
+
+			// Receiver calculates the final public key (to verify sig later)
+			let final_pubkey = keychain.aggsig_calculate_final_pubkey(&tx_id, &sender_pub_excess).unwrap();
+
+			(final_sig, final_pubkey)
+		};
+
+		// Receiver checks the final signature verifies
+		{
+			let keychain = receiver_keychain.clone();
+
+			// Receiver check the final signature verifies
+			let sig_verifies = keychain.aggsig_verify_final_sig_build_msg(
+				&final_sig,
+				&final_pubkey,
+				0,
+				0,
+			);
+			assert!(sig_verifies);
+		}
+
+		// Check we can verify the sig using the kernel excess
+		{
+			let keychain = Keychain::from_random_seed().unwrap();
+
+			let msg = secp::Message::from_slice(
+				&kernel_sig_msg(
+					0,
+					0,
+				),
+			).unwrap();
+
+			let sig_verifies = Keychain::aggsig_verify_single_from_commit(
+				&keychain.secp,
+				&final_sig,
+				&msg,
+				&kernel_excess,
+			);
+
+			assert!(sig_verifies);
+		}
+	}
+
+	#[test]
+	fn aggsig_sender_receiver_interaction_offset() {
+		let sender_keychain = Keychain::from_random_seed().unwrap();
+		let receiver_keychain = Keychain::from_random_seed().unwrap();
+
+		// tx identifier for wallet interaction
+		let tx_id = Uuid::new_v4();
+
+		// This is the kernel offset that we use to split the key
+		// Summing these at the block level prevents the
+		// kernels from being used to reconstruct (or identify) individual transactions
+		let kernel_offset = SecretKey::new(&sender_keychain.secp(), &mut thread_rng());
+
+		// Calculate the kernel excess here for convenience.
+		// Normally this would happen during transaction building.
+		let kernel_excess = {
+			let skey1 = sender_keychain.derived_key(
+				&sender_keychain.derive_key_id(1).unwrap(),
+			).unwrap();
+
+			let skey2 = receiver_keychain.derived_key(
+				&receiver_keychain.derive_key_id(1).unwrap(),
+			).unwrap();
+
+			let keychain = Keychain::from_random_seed().unwrap();
+			let blinding_factor = keychain.blind_sum(
+				&BlindSum::new()
+					.sub_blinding_factor(BlindingFactor::from_secret_key(skey1))
+					.add_blinding_factor(BlindingFactor::from_secret_key(skey2))
+					// subtract the kernel offset here like as would when
+					// verifying a kernel signature
+					.sub_blinding_factor(BlindingFactor::from_secret_key(kernel_offset))
+			).unwrap();
+
+			keychain.secp.commit(
+				0,
+				blinding_factor.secret_key(&keychain.secp).unwrap(),
+			).unwrap()
+		};
+
+		// sender starts the tx interaction
+		let (sender_pub_excess, sender_pub_nonce) = {
+			let keychain = sender_keychain.clone();
+
+			let skey = keychain.derived_key(
+				&keychain.derive_key_id(1).unwrap(),
+			).unwrap();
+
+			// dealing with an input here so we need to negate the blinding_factor
+			// rather than use it as is
+			let blinding_factor = keychain.blind_sum(
+				&BlindSum::new()
+					.sub_blinding_factor(BlindingFactor::from_secret_key(skey))
+					// subtract the kernel offset to create an aggsig context
+					// with our "split" key
+					.sub_blinding_factor(BlindingFactor::from_secret_key(kernel_offset))
+			).unwrap();
+
+			let blind = blinding_factor.secret_key(&keychain.secp()).unwrap();
+
+			keychain.aggsig_create_context(&tx_id, blind);
+			keychain.aggsig_get_public_keys(&tx_id)
+		};
+
+		// receiver receives partial tx
+		let (receiver_pub_excess, receiver_pub_nonce, sig_part) = {
+			let keychain = receiver_keychain.clone();
+			let key_id = keychain.derive_key_id(1).unwrap();
+
+			let blind = keychain.derived_key(&key_id).unwrap();
+
+			keychain.aggsig_create_context(&tx_id, blind);
+			let (pub_excess, pub_nonce) = keychain.aggsig_get_public_keys(&tx_id);
+			keychain.aggsig_add_output(&tx_id, &key_id);
+
+			let sig_part = keychain.aggsig_calculate_partial_sig(
+				&tx_id,
+				&sender_pub_nonce,
+				0,
+				0,
+			).unwrap();
+			(pub_excess, pub_nonce, sig_part)
+		};
+
+		// check the sender can verify the partial signature
+		// received in the response back from the receiver
+		{
+			let keychain = sender_keychain.clone();
+			let sig_verifies = keychain.aggsig_verify_partial_sig(
+				&tx_id,
+				&sig_part,
+				&receiver_pub_nonce,
+				&receiver_pub_excess,
+				0,
+				0,
+			);
+			assert!(sig_verifies);
+		}
+
+		// now sender signs with their key
+		let sender_sig_part = {
+			let keychain = sender_keychain.clone();
+			keychain.aggsig_calculate_partial_sig(
+				&tx_id,
+				&receiver_pub_nonce,
+				0,
+				0,
+			).unwrap()
+		};
+
+		// check the receiver can verify the partial signature
+		// received by the sender
+		{
+			let keychain = receiver_keychain.clone();
+			let sig_verifies = keychain.aggsig_verify_partial_sig(
+				&tx_id,
+				&sender_sig_part,
+				&sender_pub_nonce,
+				&sender_pub_excess,
+				0,
+				0,
+			);
+			assert!(sig_verifies);
+		}
+
+		// Receiver now builds final signature from sender and receiver parts
+		let (final_sig, final_pubkey) = {
+			let keychain = receiver_keychain.clone();
+
+			// Receiver recreates their partial sig (we do not maintain state from earlier)
+			let our_sig_part = keychain.aggsig_calculate_partial_sig(
+				&tx_id,
+				&sender_pub_nonce,
+				0,
+				0,
+			).unwrap();
+
+			// Receiver now generates final signature from the two parts
+			let final_sig = keychain.aggsig_calculate_final_sig(
+				&tx_id,
+				&sender_sig_part,
+				&our_sig_part,
+				&sender_pub_nonce,
+			).unwrap();
+
+			// Receiver calculates the final public key (to verify sig later)
+			let final_pubkey = keychain.aggsig_calculate_final_pubkey(&tx_id, &sender_pub_excess).unwrap();
+
+			(final_sig, final_pubkey)
+		};
+
+		// Receiver checks the final signature verifies
+		{
+			let keychain = receiver_keychain.clone();
+
+			// Receiver check the final signature verifies
+			let sig_verifies = keychain.aggsig_verify_final_sig_build_msg(
+				&final_sig,
+				&final_pubkey,
+				0,
+				0,
+			);
+			assert!(sig_verifies);
+		}
+
+		// Check we can verify the sig using the kernel excess
+		{
+			let keychain = Keychain::from_random_seed().unwrap();
+
+			let msg = secp::Message::from_slice(
+				&kernel_sig_msg(
+					0,
+					0,
+				),
+			).unwrap();
+
+			let sig_verifies = Keychain::aggsig_verify_single_from_commit(
+				&keychain.secp,
+				&final_sig,
+				&msg,
+				&kernel_excess,
+			);
+
+			assert!(sig_verifies);
+		}
+	}
 }
diff --git a/pool/src/graph.rs b/pool/src/graph.rs
index c216a6d9e..3e567cc00 100644
--- a/pool/src/graph.rs
+++ b/pool/src/graph.rs
@@ -337,8 +337,16 @@ mod tests {
 				.range_proof(100, &key_id1, output_commit, msg)
 				.unwrap(),
 		};
-		let outputs = vec![output];
-		let test_transaction = core::transaction::Transaction::new(inputs, outputs, 5, 0);
+
+		let kernel = core::transaction::TxKernel::empty()
+			.with_fee(5)
+			.with_lock_height(0);
+
+		let test_transaction = core::transaction::Transaction::new(
+			inputs,
+			vec![output],
+			vec![kernel],
+		);
 
 		let test_pool_entry = PoolEntry::new(&test_transaction);
 
diff --git a/pool/src/pool.rs b/pool/src/pool.rs
index 49c246f6b..e8cb85e9e 100644
--- a/pool/src/pool.rs
+++ b/pool/src/pool.rs
@@ -160,9 +160,9 @@ where
 		}
 
 		let head_header = self.blockchain.head_header()?;
-		if head_header.height < tx.lock_height {
+		if head_header.height < tx.lock_height() {
 			return Err(PoolError::ImmatureTransaction {
-				lock_height: tx.lock_height,
+				lock_height: tx.lock_height(),
 			});
 		}
 
@@ -583,7 +583,7 @@ where
 				tx_weight = 1;
 			}
 			let threshold = (tx_weight as u64) * self.config.accept_fee_base;
-			if tx.fee < threshold {
+			if tx.fee() < threshold {
 				return Err(PoolError::LowFeeTransaction(threshold));
 			}
 		}
@@ -1242,8 +1242,7 @@ mod tests {
 		}
 		tx_elements.push(build::with_fee(fees as u64));
 
-		let (tx, _) = build::transaction(tx_elements, &keychain).unwrap();
-		tx
+		build::transaction(tx_elements, &keychain).unwrap()
 	}
 
 	fn test_transaction_with_coinbase_input(
@@ -1272,8 +1271,7 @@ mod tests {
 		}
 		tx_elements.push(build::with_fee(fees as u64));
 
-		let (tx, _) = build::transaction(tx_elements, &keychain).unwrap();
-		tx
+		build::transaction(tx_elements, &keychain).unwrap()
 	}
 
 	/// Very un-dry way of building a vanilla tx and adding a lock_height to it.
@@ -1303,8 +1301,7 @@ mod tests {
 		tx_elements.push(build::with_fee(fees as u64));
 
 		tx_elements.push(build::with_lock_height(lock_height));
-		let (tx, _) = build::transaction(tx_elements, &keychain).unwrap();
-		tx
+		build::transaction(tx_elements, &keychain).unwrap()
 	}
 
 	/// Deterministically generate an output defined by our test scheme
diff --git a/wallet/src/receiver.rs b/wallet/src/receiver.rs
index a0430ba98..bc9527f6f 100644
--- a/wallet/src/receiver.rs
+++ b/wallet/src/receiver.rs
@@ -25,9 +25,9 @@ use uuid::Uuid;
 
 use api;
 use core::consensus::reward;
-use core::core::{build, Block, Output, Transaction, TxKernel, amount_to_hr_string};
+use core::core::{build, Block, Committed, Output, Transaction, TxKernel, amount_to_hr_string};
 use core::{global, ser};
-use keychain::{Identifier, Keychain};
+use keychain::{Identifier, Keychain, BlindingFactor};
 use types::*;
 use util::{LOGGER, to_hex, secp};
 
@@ -52,7 +52,7 @@ fn handle_sender_initiation(
 	keychain: &Keychain,
 	partial_tx: &PartialTx
 ) -> Result<PartialTx, Error> {
-	let (amount, _sender_pub_blinding, sender_pub_nonce, _sig, tx) = read_partial_tx(keychain, partial_tx)?;
+	let (amount, _sender_pub_blinding, sender_pub_nonce, kernel_offset, _sig, tx) = read_partial_tx(keychain, partial_tx)?;
 
 	let root_key_id = keychain.root_key_id();
 
@@ -60,9 +60,9 @@ fn handle_sender_initiation(
 	// we don't necessarily want to just trust the sender
 	// we could just overwrite the fee here (but we won't) due to the ecdsa sig
 	let fee = tx_fee(tx.inputs.len(), tx.outputs.len() + 1, None);
-	if fee != tx.fee {
+	if fee != tx.fee() {
 		return Err(Error::FeeDispute {
-			sender_fee: tx.fee,
+			sender_fee: tx.fee(),
 			recipient_fee: fee,
 		});
 	}
@@ -82,8 +82,8 @@ fn handle_sender_initiation(
 
 	let out_amount = amount - fee;
 
-	//First step is just to get the excess sum of the outputs we're participating in
-	//Output and key needs to be stored until transaction finalisation time, somehow
+	// First step is just to get the excess sum of the outputs we're participating in
+	// Output and key needs to be stored until transaction finalisation time, somehow
 
 	let key_id = WalletData::with_wallet(&config.data_file_dir, |wallet_data| {
 		let (key_id, derivation) = next_available_key(&wallet_data, keychain);
@@ -104,7 +104,7 @@ fn handle_sender_initiation(
 	})?;
 
 	// Still handy for getting the blinding sum
-	let (_, blind_sum) = build::transaction(
+	let (_, blind_sum) = build::partial_transaction(
 		vec![
 			build::output(out_amount, key_id.clone()),
 		],
@@ -114,16 +114,19 @@ fn handle_sender_initiation(
 	warn!(LOGGER, "Creating new aggsig context");
 	// Create a new aggsig context
 	// this will create a new blinding sum and nonce, and store them
-	let result = keychain.aggsig_create_context(&partial_tx.id, blind_sum.secret_key());
-	if let Err(_) = result {
-		return Err(Error::DuplicateTransactionId);
-	}
+	let blind = blind_sum.secret_key(&keychain.secp())?;
+	keychain.aggsig_create_context(&partial_tx.id, blind);
 	keychain.aggsig_add_output(&partial_tx.id, &key_id);
 
-	let sig_part=keychain.aggsig_calculate_partial_sig(&partial_tx.id, &sender_pub_nonce, fee, tx.lock_height).unwrap();
+	let sig_part = keychain.aggsig_calculate_partial_sig(
+		&partial_tx.id,
+		&sender_pub_nonce,
+		fee,
+		tx.lock_height(),
+	).unwrap();
 
 	// Build the response, which should contain sR, blinding excess xR * G, public nonce kR * G
-	let mut partial_tx = build_partial_tx(&partial_tx.id, keychain, amount, Some(sig_part), tx);
+	let mut partial_tx = build_partial_tx(&partial_tx.id, keychain, amount, kernel_offset, Some(sig_part), tx);
 	partial_tx.phase = PartialTxPhase::ReceiverInitiation;
 
 	Ok(partial_tx)
@@ -146,33 +149,66 @@ fn handle_sender_confirmation(
 	keychain: &Keychain,
 	partial_tx: &PartialTx
 ) -> Result<PartialTx, Error> {
-	let (amount, sender_pub_blinding, sender_pub_nonce, sender_sig_part, tx) = read_partial_tx(keychain, partial_tx)?;
-	let sender_sig_part=sender_sig_part.unwrap();
-	let res = keychain.aggsig_verify_partial_sig(&partial_tx.id, &sender_sig_part, &sender_pub_nonce, &sender_pub_blinding, tx.fee, tx.lock_height);
+	let (amount, sender_pub_blinding, sender_pub_nonce, kernel_offset, sender_sig_part, tx) = read_partial_tx(keychain, partial_tx)?;
+	let sender_sig_part = sender_sig_part.unwrap();
+	let res = keychain.aggsig_verify_partial_sig(
+		&partial_tx.id,
+		&sender_sig_part,
+		&sender_pub_nonce,
+		&sender_pub_blinding,
+		tx.fee(), tx.lock_height(),
+	);
 
 	if !res {
 		error!(LOGGER, "Partial Sig from sender invalid.");
 		return Err(Error::Signature(String::from("Partial Sig from sender invalid.")));
 	}
 
-	//Just calculate our sig part again instead of storing
-	let our_sig_part=keychain.aggsig_calculate_partial_sig(&partial_tx.id, &sender_pub_nonce, tx.fee, tx.lock_height).unwrap();
+	// Just calculate our sig part again instead of storing
+	let our_sig_part = keychain.aggsig_calculate_partial_sig(
+		&partial_tx.id,
+		&sender_pub_nonce,
+		tx.fee(),
+		tx.lock_height(),
+	).unwrap();
 
 	// And the final signature
-	let final_sig=keychain.aggsig_calculate_final_sig(&partial_tx.id, &sender_sig_part, &our_sig_part, &sender_pub_nonce).unwrap();
+	let final_sig = keychain.aggsig_calculate_final_sig(
+		&partial_tx.id,
+		&sender_sig_part,
+		&our_sig_part,
+		&sender_pub_nonce,
+	).unwrap();
 
 	// Calculate the final public key (for our own sanity check)
-	let final_pubkey=keychain.aggsig_calculate_final_pubkey(&partial_tx.id, &sender_pub_blinding).unwrap();
+	let final_pubkey = keychain.aggsig_calculate_final_pubkey(
+		&partial_tx.id,
+		&sender_pub_blinding,
+	).unwrap();
 
-	//Check our final sig verifies
-	let res = keychain.aggsig_verify_final_sig_build_msg(&final_sig, &final_pubkey, tx.fee, tx.lock_height);
+	// Check our final sig verifies
+	let res = keychain.aggsig_verify_final_sig_build_msg(
+		&final_sig,
+		&final_pubkey,
+		tx.fee(),
+		tx.lock_height(),
+	);
 
 	if !res {
 		error!(LOGGER, "Final aggregated signature invalid.");
 		return Err(Error::Signature(String::from("Final aggregated signature invalid.")));
 	}
 
-	let final_tx = build_final_transaction(&partial_tx.id, config, keychain, amount, &final_sig, tx.clone())?;
+	let final_tx = build_final_transaction(
+		&partial_tx.id,
+		config,
+		keychain,
+		amount,
+		kernel_offset,
+		&final_sig,
+		tx.clone(),
+	)?;
+
 	let tx_hex = to_hex(ser::ser_vec(&final_tx).unwrap());
 
 	let url = format!("{}/v1/pool/push", config.check_node_api_http_addr.as_str());
@@ -180,7 +216,8 @@ fn handle_sender_confirmation(
 		.map_err(|e| Error::Node(e))?;
 
 	// Return what we've actually posted
-	let mut partial_tx = build_partial_tx(&partial_tx.id, keychain, amount, Some(final_sig), tx);
+	// TODO - why build_partial_tx here? Just a naming issue?
+	let mut partial_tx = build_partial_tx(&partial_tx.id, keychain, amount, kernel_offset, Some(final_sig), tx);
 	partial_tx.phase = PartialTxPhase::ReceiverConfirmation;
 	Ok(partial_tx)
 }
@@ -200,7 +237,7 @@ impl Handler for WalletReceiver {
 		if let Ok(Some(partial_tx)) = struct_body {
 			match partial_tx.phase {
 				PartialTxPhase::SenderInitiation => {
-					let resp_tx=handle_sender_initiation(&self.config, &self.keychain, &partial_tx)
+					let resp_tx = handle_sender_initiation(&self.config, &self.keychain, &partial_tx)
 					.map_err(|e| {
 						error!(LOGGER, "Phase 1 Sender Initiation -> Problematic partial tx, looks like this: {:?}", partial_tx);
 						api::Error::Internal(
@@ -211,7 +248,7 @@ impl Handler for WalletReceiver {
 					Ok(Response::with((status::Ok, json)))
 				},
 				PartialTxPhase::SenderConfirmation => {
-					let resp_tx=handle_sender_confirmation(&self.config, &self.keychain, &partial_tx)
+					let resp_tx = handle_sender_confirmation(&self.config, &self.keychain, &partial_tx)
 					.map_err(|e| {
 						error!(LOGGER, "Phase 3 Sender Confirmation -> Problematic partial tx, looks like this: {:?}", partial_tx);
 						api::Error::Internal(
@@ -317,35 +354,35 @@ fn build_final_transaction(
 	config: &WalletConfig,
 	keychain: &Keychain,
 	amount: u64,
+	kernel_offset: BlindingFactor,
 	excess_sig: &secp::Signature,
 	tx: Transaction,
 ) -> Result<Transaction, Error> {
-
 	let root_key_id = keychain.root_key_id();
 
 	// double check the fee amount included in the partial tx
 	// we don't necessarily want to just trust the sender
 	// we could just overwrite the fee here (but we won't) due to the ecdsa sig
 	let fee = tx_fee(tx.inputs.len(), tx.outputs.len() + 1, None);
-	if fee != tx.fee {
+	if fee != tx.fee() {
 		return Err(Error::FeeDispute {
-			sender_fee: tx.fee,
+			sender_fee: tx.fee(),
 			recipient_fee: fee,
 		});
 	}
 
-    if fee > amount {
+	if fee > amount {
 		info!(
 			LOGGER,
 			"Rejected the transfer because transaction fee ({}) exceeds received amount ({}).",
 			amount_to_hr_string(fee),
 			amount_to_hr_string(amount)
 		);
-        return Err(Error::FeeExceedsAmount {
-            sender_amount: amount,
-            recipient_fee: fee,
-        });
-    }
+		return Err(Error::FeeExceedsAmount {
+			sender_amount: amount,
+			recipient_fee: fee,
+		});
+	}
 
 	let out_amount = amount - fee;
 
@@ -374,19 +411,35 @@ fn build_final_transaction(
 
 	// Build final transaction, the sum of which should
 	// be the same as the exchanged excess values
-	let (mut final_tx, _) = build::transaction(
+	let mut final_tx = build::transaction(
 		vec![
 			build::initial_tx(tx),
 			build::output(out_amount, key_id.clone()),
+			build::with_offset(kernel_offset),
 		],
 		keychain,
 	)?;
 
-	final_tx.excess_sig = excess_sig.clone();
+	// build the final excess based on final tx and offset
+	let final_excess = {
+		// sum the input/output commitments on the final tx
+		let tx_excess = final_tx.sum_commitments()?;
 
-	// make sure the resulting transaction is valid (could have been lied to on
- // excess).
-	let _ = final_tx.validate()?;
+		// subtract the kernel_excess (built from kernel_offset)
+		let offset_excess = keychain.secp().commit(0, kernel_offset.secret_key(&keychain.secp()).unwrap()).unwrap();
+		keychain.secp().commit_sum(vec![tx_excess], vec![offset_excess])?
+	};
+
+	// update the tx kernel to reflect the offset excess and sig
+	assert_eq!(final_tx.kernels.len(), 1);
+	final_tx.kernels[0].excess = final_excess.clone();
+	final_tx.kernels[0].excess_sig = excess_sig.clone();
+
+	// confirm the kernel verifies successfully before proceeding
+	final_tx.kernels[0].verify()?;
+
+	// confirm the overall transaction is valid (including the updated kernel)
+	final_tx.validate()?;
 
 	debug!(
 		LOGGER,
diff --git a/wallet/src/sender.rs b/wallet/src/sender.rs
index c6118f83a..155064df4 100644
--- a/wallet/src/sender.rs
+++ b/wallet/src/sender.rs
@@ -12,16 +12,19 @@
 // See the License for the specific language governing permissions and
 // limitations under the License.
 
+use rand::thread_rng;
 use uuid::Uuid;
+
 use api;
 use client;
 use checker;
 use core::core::{build, Transaction, amount_to_hr_string};
 use core::ser;
-use keychain::{BlindingFactor, Identifier, Keychain};
+use keychain::{BlindingFactor, BlindSum, Identifier, Keychain};
 use receiver::TxWrapper;
 use types::*;
 use util::LOGGER;
+use util::secp::key::SecretKey;
 use util;
 
 /// Issue a new transaction to the provided sender by spending some of our
@@ -45,7 +48,7 @@ pub fn issue_send_tx(
 	// proof of concept - set lock_height on the tx
 	let lock_height = chain_tip.height;
 
-	let (tx, blind_sum, coins, change_key, amount_with_fee) = build_send_tx(
+	let (tx, blind, coins, change_key, amount_with_fee) = build_send_tx(
 		config,
 		keychain,
 		amount,
@@ -55,16 +58,32 @@ pub fn issue_send_tx(
 		max_outputs,
 		selection_strategy_is_use_all,
 	)?;
-	/*
-	 * -Sender picks random blinding factors for all outputs it participates in, computes total blinding excess xS
-	 * -Sender picks random nonce kS
-	 * -Sender posts inputs, outputs, Message M=fee, xS * G and kS * G to Receiver
-	*/
 
-// Create a new aggsig context
+	// TODO - wrap this up in build_send_tx or even the build() call?
+	// Generate a random kernel offset here
+	// and subtract it from the blind_sum so we create
+	// the aggsig context with the "split" key
+	let kernel_offset = BlindingFactor::from_secret_key(
+		SecretKey::new(&keychain.secp(), &mut thread_rng())
+	);
+
+	let blind_offset = keychain.blind_sum(
+		&BlindSum::new()
+			.add_blinding_factor(blind)
+			.sub_blinding_factor(kernel_offset)
+	).unwrap();
+
+	//
+	// -Sender picks random blinding factors for all outputs it participates in, computes total blinding excess xS
+	// -Sender picks random nonce kS
+	// -Sender posts inputs, outputs, Message M=fee, xS * G and kS * G to Receiver
+	//
+	// Create a new aggsig context
 	let tx_id = Uuid::new_v4();
-	let _ = keychain.aggsig_create_context(&tx_id, blind_sum.secret_key());
-	let partial_tx = build_partial_tx(&tx_id, keychain, amount_with_fee, None, tx);
+	let skey = blind_offset.secret_key(&keychain.secp())?;
+	keychain.aggsig_create_context(&tx_id, skey);
+
+	let partial_tx = build_partial_tx(&tx_id, keychain, amount_with_fee, kernel_offset, None, tx);
 
 	// Closure to acquire wallet lock and lock the coins being spent
 	// so we avoid accidental double spend attempt.
@@ -117,17 +136,25 @@ pub fn issue_send_tx(
 	 * -Sender computes their part of signature, sS = kS + e * xS
 	 * -Sender posts sS to receiver
 	*/
-	let (_amount, recp_pub_blinding, recp_pub_nonce, sig, tx) = read_partial_tx(keychain, &res.unwrap())?;
-	let res = keychain.aggsig_verify_partial_sig(&tx_id, &sig.unwrap(), &recp_pub_nonce, &recp_pub_blinding, tx.fee, lock_height);
+	let (_amount, recp_pub_blinding, recp_pub_nonce, kernel_offset, sig, tx) = read_partial_tx(keychain, &res.unwrap())?;
+	let res = keychain.aggsig_verify_partial_sig(
+		&tx_id,
+		&sig.unwrap(),
+		&recp_pub_nonce,
+		&recp_pub_blinding,
+		tx.fee(),
+		lock_height,
+	);
 	if !res {
 		error!(LOGGER, "Partial Sig from recipient invalid.");
 		return Err(Error::Signature(String::from("Partial Sig from recipient invalid.")));
 	}
 
-	let sig_part=keychain.aggsig_calculate_partial_sig(&tx_id, &recp_pub_nonce, tx.fee, tx.lock_height).unwrap();
+	let sig_part = keychain.aggsig_calculate_partial_sig(&tx_id, &recp_pub_nonce, tx.fee(), tx.lock_height()).unwrap();
 
 	// Build the next stage, containing sS (and our pubkeys again, for the recipient's convenience)
-	let mut partial_tx = build_partial_tx(&tx_id, keychain, amount_with_fee, Some(sig_part), tx);
+	// offset has not been modified during tx building, so pass it back in
+	let mut partial_tx = build_partial_tx(&tx_id, keychain, amount_with_fee, kernel_offset, Some(sig_part), tx);
 	partial_tx.phase = PartialTxPhase::SenderConfirmation;
 
 	// And send again
@@ -146,7 +173,8 @@ pub fn issue_send_tx(
 		rollback_wallet()?;
 		return Err(e);
 	}
-	//All good so
+
+	// All good so
 	update_wallet()?;
 	Ok(())
 }
@@ -228,7 +256,7 @@ fn build_send_tx(
 	// on tx being sent (based on current chain height via api).
 	parts.push(build::with_lock_height(lock_height));
 
-	let (tx, blind) = build::transaction(parts, &keychain)?;
+	let (tx, blind) = build::partial_transaction(parts, &keychain)?;
 
 	Ok((tx, blind, coins, change_key, amount_with_fee))
 }
@@ -270,7 +298,7 @@ pub fn issue_burn_tx(
 	parts.push(build::output(amount - fee, Identifier::zero()));
 
 	// finalize the burn transaction and send
-	let (tx_burn, _) = build::transaction(parts, &keychain)?;
+	let tx_burn = build::transaction(parts, &keychain)?;
 	tx_burn.validate()?;
 
 	let tx_hex = util::to_hex(ser::ser_vec(&tx_burn).unwrap());
@@ -336,7 +364,7 @@ fn inputs_and_change(
 
 #[cfg(test)]
 mod test {
-	use core::core::build::{input, output, transaction};
+	use core::core::build;
 	use core::core::hash::ZERO_HASH;
 	use keychain::Keychain;
 
@@ -348,8 +376,8 @@ mod test {
 		let keychain = Keychain::from_random_seed().unwrap();
 		let key_id1 = keychain.derive_key_id(1).unwrap();
 
-		let (tx1, _) = transaction(vec![output(105, key_id1.clone())], &keychain).unwrap();
-		let (tx2, _) = transaction(vec![input(105, ZERO_HASH, key_id1.clone())], &keychain).unwrap();
+		let tx1 = build::transaction(vec![build::output(105, key_id1.clone())], &keychain).unwrap();
+		let tx2 = build::transaction(vec![build::input(105, ZERO_HASH, key_id1.clone())], &keychain).unwrap();
 
 		assert_eq!(tx1.outputs[0].features, tx2.inputs[0].features);
 		assert_eq!(tx1.outputs[0].commitment(), tx2.inputs[0].commitment());
diff --git a/wallet/src/types.rs b/wallet/src/types.rs
index ff4c027fd..c37bb0e70 100644
--- a/wallet/src/types.rs
+++ b/wallet/src/types.rs
@@ -38,6 +38,7 @@ use core::core::{transaction, Transaction};
 use core::core::hash::Hash;
 use core::ser;
 use keychain;
+use keychain::BlindingFactor;
 use util;
 use util::secp;
 use util::secp::Signature;
@@ -717,6 +718,7 @@ pub struct PartialTx {
 	pub amount: u64,
 	pub public_blind_excess: String,
 	pub public_nonce: String,
+	pub kernel_offset: String,
 	pub part_sig: String,
 	pub tx: String,
 }
@@ -728,6 +730,7 @@ pub fn build_partial_tx(
 	transaction_id : &Uuid,
 	keychain: &keychain::Keychain,
 	receive_amount: u64,
+	kernel_offset: BlindingFactor,
 	part_sig: Option<secp::Signature>,
 	tx: Transaction,
 ) -> PartialTx {
@@ -747,6 +750,7 @@ pub fn build_partial_tx(
 		amount: receive_amount,
 		public_blind_excess: util::to_hex(pub_excess),
 		public_nonce: util::to_hex(pub_nonce),
+		kernel_offset: kernel_offset.to_hex(),
 		part_sig: match part_sig {
 			None => String::from("00"),
 			Some(p) => util::to_hex(p.serialize_der(&keychain.secp())),
@@ -760,11 +764,15 @@ pub fn build_partial_tx(
 pub fn read_partial_tx(
 	keychain: &keychain::Keychain,
 	partial_tx: &PartialTx,
-) -> Result<(u64, PublicKey, PublicKey, Option<Signature>, Transaction), Error> {
+) -> Result<(u64, PublicKey, PublicKey, BlindingFactor, Option<Signature>, Transaction), Error> {
 	let blind_bin = util::from_hex(partial_tx.public_blind_excess.clone())?;
 	let blinding = PublicKey::from_slice(keychain.secp(), &blind_bin[..])?;
+
 	let nonce_bin = util::from_hex(partial_tx.public_nonce.clone())?;
 	let nonce = PublicKey::from_slice(keychain.secp(), &nonce_bin[..])?;
+
+	let kernel_offset = BlindingFactor::from_hex(&partial_tx.kernel_offset.clone())?;
+
 	let sig_bin = util::from_hex(partial_tx.part_sig.clone())?;
 	let sig = match sig_bin.len() {
 		1 => None,
@@ -774,7 +782,7 @@ pub fn read_partial_tx(
 	let tx = ser::deserialize(&mut &tx_bin[..]).map_err(|_| {
 		Error::Format("Could not deserialize transaction, invalid format.".to_string())
 	})?;
-	Ok((partial_tx.amount, blinding, nonce, sig, tx))
+	Ok((partial_tx.amount, blinding, nonce, kernel_offset, sig, tx))
 }
 
 /// Amount in request to build a coinbase output.