diff --git a/mux.go b/mux.go
index cdef530..1d66496 100644
--- a/mux.go
+++ b/mux.go
@@ -51,7 +51,7 @@ func (m *Mux) DialStream() *Stream {
 func Dial(conn net.Conn, theirKey ed25519.PublicKey) (*Mux, error) {
 	// exchange versions
 	var theirVersion [1]byte
-	if _, err := conn.Write([]byte{2}); err != nil {
+	if _, err := conn.Write([]byte{3}); err != nil {
 		return nil, fmt.Errorf("could not write our version: %w", err)
 	} else if _, err := io.ReadFull(conn, theirVersion[:]); err != nil {
 		return nil, fmt.Errorf("could not read peer version: %w", err)
@@ -62,7 +62,7 @@ func Dial(conn net.Conn, theirKey ed25519.PublicKey) (*Mux, error) {
 		m, err := muxv1.Dial(conn, theirKey)
 		return &Mux{m1: m}, err
 	}
-	m, err := muxv2.Dial(conn, theirKey)
+	m, err := muxv2.Dial(conn, theirKey, theirVersion[0])
 	return &Mux{m2: m}, err
 }
 
@@ -72,7 +72,7 @@ func Accept(conn net.Conn, ourKey ed25519.PrivateKey) (*Mux, error) {
 	var theirVersion [1]byte
 	if _, err := io.ReadFull(conn, theirVersion[:]); err != nil {
 		return nil, fmt.Errorf("could not read peer version: %w", err)
-	} else if _, err := conn.Write([]byte{2}); err != nil {
+	} else if _, err := conn.Write([]byte{3}); err != nil {
 		return nil, fmt.Errorf("could not write our version: %w", err)
 	} else if theirVersion[0] == 0 {
 		return nil, errors.New("peer sent invalid version")
@@ -81,7 +81,7 @@ func Accept(conn net.Conn, ourKey ed25519.PrivateKey) (*Mux, error) {
 		m, err := muxv1.Accept(conn, ourKey)
 		return &Mux{m1: m}, err
 	}
-	m, err := muxv2.Accept(conn, ourKey)
+	m, err := muxv2.Accept(conn, ourKey, theirVersion[0])
 	return &Mux{m2: m}, err
 }
 
diff --git a/spec_v2.md b/spec_v2.md
index c04ed08..e0431a7 100644
--- a/spec_v2.md
+++ b/spec_v2.md
@@ -33,18 +33,18 @@ The *dialing peer* generates an X25519 keypair and sends:
 
 | Length | Type   | Description   |
 |--------|--------|---------------|
-|   0    | uint8  | Version       |
+|   1    | uint8  | Version       |
 |   32   | []byte | X25519 pubkey |
 
-The current version is 2.
+The current version is 3.
 
-The *accepting* peer derives the shared X25519 secret, hashes it with BLAKE2b
-for use as a ChaCha20-Poly1305 key, hashes that key *again* to derive the
-initial nonce value, and responds with:
+The *accepting* peer generates an X25519 keypair, derives the shared X25519
+secret, hashes it with BLAKE2b for use as a ChaCha20-Poly1305 key, hashes that
+key *again* to derive the initial nonce value, and responds with:
 
 | Length | Type   | Description        |
 |--------|--------|--------------------|
-|   0    | uint8  | Version            |
+|   1    | uint8  | Version            |
 |   32   | []byte | X25519 pubkey      |
 |   64   | []byte | Ed25519 signature  |
 |   24   |        | Encrypted settings |
@@ -60,7 +60,7 @@ The settings are:
 |   4    | uint32 | Max timeout | 120000-7200000 |
 
 Settings are encrypted in the same manner as [Packets](#packets): a ciphertext
-(8 bytes in this case) followed by a 16-byte tag.
+(8 bytes in this case) followed by a 16-byte authentication tag.
 
 Peers agree upon settings by choosing the minimum of the two packet sizes and
 the maximum of the two timeouts. The timeout is an integer number of
@@ -116,8 +116,9 @@ must not be split across packet boundaries. (In other words, the maximum size of
 a frame's payload is `n - (4 + 2 + 2)`.)
 
 A separate nonce is tracked for both the dialing and accepting peer, incremented
-after each use. The initial value for both nonces is the first 12 bytes of
-BLAKE2b(BLAKE2b(shared secret)). To increment a nonce, interpret its leading 8
+after each use. The initial value for the nonces is the first 12 bytes of
+BLAKE2b(BLAKE2b(shared secret)), but the most significant bit of the accepting
+peer's nonce is flipped. To increment a nonce, interpret its least-significant 8
 bytes as a 64-bit unsigned integer.
 
 ### Covert Frames
diff --git a/v2/handshake.go b/v2/handshake.go
index e552165..0179e7a 100644
--- a/v2/handshake.go
+++ b/v2/handshake.go
@@ -128,7 +128,7 @@ func mergeSettings(ours, theirs connSettings) (connSettings, error) {
 	return merged, nil
 }
 
-func initiateHandshake(conn net.Conn, theirKey ed25519.PublicKey, ourSettings connSettings) (*seqCipher, connSettings, error) {
+func initiateHandshake(conn net.Conn, theirKey ed25519.PublicKey, theirVersion uint8, ourSettings connSettings) (*seqCipher, connSettings, error) {
 	xsk, xpk := generateX25519KeyPair()
 
 	// write pubkey
@@ -142,12 +142,16 @@ func initiateHandshake(conn net.Conn, theirKey ed25519.PublicKey, ourSettings co
 		return nil, connSettings{}, fmt.Errorf("could not read handshake response: %w", err)
 	}
 
-	// verify signature
+	// verify signature and derive shared cipher
 	var rxpk [32]byte
 	copy(rxpk[:], buf[:32])
+	msg := append(xpk[:], rxpk[:]...)
+	if theirVersion == 2 {
+		sigHash := blake2b.Sum256(msg)
+		msg = sigHash[:]
+	}
 	sig := buf[32:][:64]
-	sigHash := blake2b.Sum256(append(xpk[:], rxpk[:]...))
-	if !ed25519.Verify(theirKey, sigHash[:], sig) {
+	if !ed25519.Verify(theirKey, msg, sig) {
 		return nil, connSettings{}, errors.New("invalid signature")
 	}
 
@@ -156,6 +160,10 @@ func initiateHandshake(conn net.Conn, theirKey ed25519.PublicKey, ourSettings co
 	if err != nil {
 		return nil, connSettings{}, fmt.Errorf("failed to derive shared cipher: %w", err)
 	}
+	if theirVersion > 2 {
+		// flip the most significant bit of their nonce
+		cipher.theirNonce[len(cipher.theirNonce)-1] ^= 0x80
+	}
 
 	// decrypt settings
 	var mergedSettings connSettings
@@ -175,7 +183,7 @@ func initiateHandshake(conn net.Conn, theirKey ed25519.PublicKey, ourSettings co
 	return cipher, mergedSettings, nil
 }
 
-func acceptHandshake(conn net.Conn, ourKey ed25519.PrivateKey, ourSettings connSettings) (*seqCipher, connSettings, error) {
+func acceptHandshake(conn net.Conn, ourKey ed25519.PrivateKey, theirVersion uint8, ourSettings connSettings) (*seqCipher, connSettings, error) {
 	xsk, xpk := generateX25519KeyPair()
 
 	// read pubkey
@@ -191,10 +199,18 @@ func acceptHandshake(conn net.Conn, ourKey ed25519.PrivateKey, ourSettings connS
 	if err != nil {
 		return nil, connSettings{}, fmt.Errorf("failed to derive shared cipher: %w", err)
 	}
+	if theirVersion > 2 {
+		// flip the most significant bit of our nonce
+		cipher.ourNonce[len(cipher.ourNonce)-1] ^= 0x80
+	}
 
 	// write pubkey, signature, and settings
-	sigHash := blake2b.Sum256(append(rxpk[:], xpk[:]...))
-	sig := ed25519.Sign(ourKey, sigHash[:])
+	msg := append(rxpk[:], xpk[:]...)
+	if theirVersion == 2 {
+		sigHash := blake2b.Sum256(msg)
+		msg = sigHash[:]
+	}
+	sig := ed25519.Sign(ourKey, msg)
 	copy(buf, xpk[:])
 	copy(buf[32:], sig)
 	encodeConnSettings(buf[32+64:], ourSettings)
diff --git a/v2/mux.go b/v2/mux.go
index 542a4ef..66dbe40 100644
--- a/v2/mux.go
+++ b/v2/mux.go
@@ -383,8 +383,8 @@ func newMux(conn net.Conn, cipher *seqCipher, settings connSettings) *Mux {
 }
 
 // Dial initiates a mux protocol handshake on the provided conn.
-func Dial(conn net.Conn, theirKey ed25519.PublicKey) (*Mux, error) {
-	cipher, settings, err := initiateHandshake(conn, theirKey, defaultConnSettings)
+func Dial(conn net.Conn, theirKey ed25519.PublicKey, theirVersion uint8) (*Mux, error) {
+	cipher, settings, err := initiateHandshake(conn, theirKey, theirVersion, defaultConnSettings)
 	if err != nil {
 		return nil, fmt.Errorf("handshake failed: %w", err)
 	}
@@ -392,8 +392,8 @@ func Dial(conn net.Conn, theirKey ed25519.PublicKey) (*Mux, error) {
 }
 
 // Accept reciprocates a mux protocol handshake on the provided conn.
-func Accept(conn net.Conn, ourKey ed25519.PrivateKey) (*Mux, error) {
-	cipher, settings, err := acceptHandshake(conn, ourKey, defaultConnSettings)
+func Accept(conn net.Conn, ourKey ed25519.PrivateKey, theirVersion uint8) (*Mux, error) {
+	cipher, settings, err := acceptHandshake(conn, ourKey, theirVersion, defaultConnSettings)
 	if err != nil {
 		return nil, fmt.Errorf("handshake failed: %w", err)
 	}
@@ -408,12 +408,12 @@ var anonPubkey = anonPrivkey.Public().(ed25519.PublicKey)
 // DialAnonymous initiates a mux protocol handshake to a party without a
 // pre-established identity. The counterparty must reciprocate the handshake with
 // AcceptAnonymous.
-func DialAnonymous(conn net.Conn) (*Mux, error) { return Dial(conn, anonPubkey) }
+func DialAnonymous(conn net.Conn) (*Mux, error) { return Dial(conn, anonPubkey, 3) }
 
 // AcceptAnonymous reciprocates a mux protocol handshake without a
 // pre-established identity. The counterparty must initiate the handshake with
 // DialAnonymous.
-func AcceptAnonymous(conn net.Conn) (*Mux, error) { return Accept(conn, anonPrivkey) }
+func AcceptAnonymous(conn net.Conn) (*Mux, error) { return Accept(conn, anonPrivkey, 3) }
 
 // A Stream is a duplex connection multiplexed over a net.Conn. It implements
 // the net.Conn interface.
diff --git a/v2/mux_test.go b/v2/mux_test.go
index 03dc110..3d3a560 100644
--- a/v2/mux_test.go
+++ b/v2/mux_test.go
@@ -87,7 +87,7 @@ func TestMux(t *testing.T) {
 			if err != nil {
 				return err
 			}
-			m, err := Accept(conn, serverKey)
+			m, err := Accept(conn, serverKey, 3)
 			if err != nil {
 				return err
 			}
@@ -111,7 +111,7 @@ func TestMux(t *testing.T) {
 	if err != nil {
 		t.Fatal(err)
 	}
-	m, err := Dial(conn, serverKey.Public().(ed25519.PublicKey))
+	m, err := Dial(conn, serverKey.Public().(ed25519.PublicKey), 3)
 	if err != nil {
 		t.Fatal(err)
 	}