diff --git a/src/components/nostr/ChatComponent.vue b/src/components/nostr/ChatComponent.vue
index 8d95a01..b27ede6 100644
--- a/src/components/nostr/ChatComponent.vue
+++ b/src/components/nostr/ChatComponent.vue
@@ -12,6 +12,10 @@
           <Badge v-else variant="secondary" class="text-xs">
             Disconnected
           </Badge>
+          <!-- Total unread count -->
+          <Badge v-if="getTotalUnreadCount() > 0" variant="destructive" class="text-xs">
+            {{ getTotalUnreadCount() }} unread
+          </Badge>
         </div>
         <Button @click="refreshPeers" :disabled="isLoading" size="sm">
           <RefreshCw v-if="isLoading" class="h-4 w-4 animate-spin" />
@@ -67,7 +71,7 @@
               :key="peer.user_id"
               @click="selectPeer(peer)"
               :class="[
-                'flex items-center space-x-3 p-3 rounded-lg cursor-pointer transition-colors touch-manipulation',
+                'flex items-center space-x-3 p-3 rounded-lg cursor-pointer transition-colors touch-manipulation relative',
                 selectedPeer?.user_id === peer.user_id
                   ? 'bg-primary text-primary-foreground'
                   : 'hover:bg-muted active:bg-muted/80'
@@ -85,6 +89,12 @@
                   {{ formatPubkey(peer.pubkey) }}
                 </p>
               </div>
+              <!-- Unread message indicator -->
+              <div v-if="getUnreadCount(peer.pubkey) > 0" class="flex-shrink-0">
+                <Badge variant="destructive" class="h-6 w-6 rounded-full p-0 flex items-center justify-center text-xs font-bold">
+                  {{ getUnreadCount(peer.pubkey) > 99 ? '99+' : getUnreadCount(peer.pubkey) }}
+                </Badge>
+              </div>
             </div>
           </div>
         </ScrollArea>
@@ -95,32 +105,38 @@
     <div v-else-if="isMobile && showChat" class="flex flex-col h-full">
       <!-- Chat Header with Back Button -->
       <div class="flex items-center justify-between p-4 border-b">
-                  <div class="flex items-center space-x-3">
-            <Button 
-              variant="ghost" 
-              size="icon" 
-              @click="goBackToPeers"
-              class="mr-2"
-            >
-              <ArrowLeft class="h-5 w-5" />
-            </Button>
-            <Avatar class="h-8 w-8">
-              <AvatarImage v-if="selectedPeer && getPeerAvatar(selectedPeer)" :src="getPeerAvatar(selectedPeer)!" />
-              <AvatarFallback>{{ selectedPeer ? getPeerInitials(selectedPeer) : 'U' }}</AvatarFallback>
-            </Avatar>
-            <div>
-              <h3 class="font-medium">{{ selectedPeer?.username || 'Unknown User' }}</h3>
-              <p class="text-xs text-muted-foreground">
-                {{ selectedPeer ? formatPubkey(selectedPeer.pubkey) : '' }}
-              </p>
-            </div>
+        <div class="flex items-center space-x-3">
+          <Button 
+            variant="ghost" 
+            size="icon" 
+            @click="goBackToPeers"
+            class="mr-2"
+          >
+            <ArrowLeft class="h-5 w-5" />
+          </Button>
+          <Avatar class="h-8 w-8">
+            <AvatarImage v-if="selectedPeer && getPeerAvatar(selectedPeer)" :src="getPeerAvatar(selectedPeer)!" />
+            <AvatarFallback>{{ selectedPeer ? getPeerInitials(selectedPeer) : 'U' }}</AvatarFallback>
+          </Avatar>
+          <div>
+            <h3 class="font-medium">{{ selectedPeer?.username || 'Unknown User' }}</h3>
+            <p class="text-xs text-muted-foreground">
+              {{ selectedPeer ? formatPubkey(selectedPeer.pubkey) : '' }}
+            </p>
           </div>
-        <Badge v-if="isConnected" variant="default" class="text-xs">
-          Connected
-        </Badge>
-        <Badge v-else variant="secondary" class="text-xs">
-          Disconnected
-        </Badge>
+        </div>
+        <div class="flex items-center space-x-2">
+          <Badge v-if="isConnected" variant="default" class="text-xs">
+            Connected
+          </Badge>
+          <Badge v-else variant="secondary" class="text-xs">
+            Disconnected
+          </Badge>
+          <!-- Unread count for current peer -->
+          <Badge v-if="selectedPeer && getUnreadCount(selectedPeer.pubkey) > 0" variant="destructive" class="text-xs">
+            {{ getUnreadCount(selectedPeer.pubkey) }} unread
+          </Badge>
+        </div>
       </div>
 
       <!-- Messages -->
@@ -181,6 +197,10 @@
           <Badge v-else variant="secondary" class="text-xs">
             Disconnected
           </Badge>
+          <!-- Total unread count -->
+          <Badge v-if="getTotalUnreadCount() > 0" variant="destructive" class="text-xs">
+            {{ getTotalUnreadCount() }} unread
+          </Badge>
         </div>
         <Button @click="refreshPeers" :disabled="isLoading" size="sm">
           <RefreshCw v-if="isLoading" class="h-4 w-4 animate-spin" />
@@ -238,7 +258,7 @@
                 :key="peer.user_id"
                 @click="selectPeer(peer)"
                 :class="[
-                  'flex items-center space-x-3 p-3 rounded-lg cursor-pointer transition-colors',
+                  'flex items-center space-x-3 p-3 rounded-lg cursor-pointer transition-colors relative',
                   selectedPeer?.user_id === peer.user_id
                     ? 'bg-primary text-primary-foreground'
                     : 'hover:bg-muted'
@@ -256,6 +276,12 @@
                     {{ formatPubkey(peer.pubkey) }}
                   </p>
                 </div>
+                <!-- Unread message indicator -->
+                <div v-if="getUnreadCount(peer.pubkey) > 0" class="flex-shrink-0">
+                  <Badge variant="destructive" class="h-6 w-6 rounded-full p-0 flex items-center justify-center text-xs font-bold">
+                    {{ getUnreadCount(peer.pubkey) > 99 ? '99+' : getUnreadCount(peer.pubkey) }}
+                  </Badge>
+                </div>
               </div>
             </div>
           </ScrollArea>
@@ -420,11 +446,16 @@ const goBackToPeers = () => {
 const {
   isConnected,
   messages,
-  sendMessage: sendNostrMessage,
+  isLoggedIn,
   connect,
   disconnect,
   subscribeToPeer,
-  onMessageAdded
+  sendMessage: sendNostrMessage,
+  onMessageAdded,
+  markMessagesAsRead,
+  getUnreadCount,
+  getAllUnreadCounts,
+  getTotalUnreadCount
 } = useNostrChat()
 
 // Computed
@@ -491,6 +522,9 @@ const selectPeer = async (peer: Peer) => {
   selectedPeer.value = peer
   messageInput.value = ''
   
+  // Mark messages as read for this peer
+  markMessagesAsRead(peer.pubkey)
+  
   // On mobile, show chat view
   if (isMobile.value) {
     showChat.value = true
diff --git a/src/composables/useNostrChat.ts b/src/composables/useNostrChat.ts
index 57239d1..de795cb 100644
--- a/src/composables/useNostrChat.ts
+++ b/src/composables/useNostrChat.ts
@@ -20,14 +20,32 @@ export interface NostrRelayConfig {
   write?: boolean
 }
 
-// Get relays from config - requires VITE_NOSTR_RELAYS to be set
-const getRelays = (): NostrRelayConfig[] => {
-  const configuredRelays = config.nostr.relays
-  if (!configuredRelays || configuredRelays.length === 0) {
-    throw new Error('VITE_NOSTR_RELAYS environment variable must be configured for chat functionality')
+// Add notification system for unread messages
+interface UnreadMessageData {
+  lastReadTimestamp: number
+  unreadCount: number
+}
+
+const UNREAD_MESSAGES_KEY = 'nostr-chat-unread-messages'
+
+// Get unread message data for a peer
+const getUnreadData = (peerPubkey: string): UnreadMessageData => {
+  try {
+    const stored = localStorage.getItem(`${UNREAD_MESSAGES_KEY}-${peerPubkey}`)
+    return stored ? JSON.parse(stored) : { lastReadTimestamp: 0, unreadCount: 0 }
+  } catch (error) {
+    console.warn('Failed to load unread data for peer:', peerPubkey, error)
+    return { lastReadTimestamp: 0, unreadCount: 0 }
+  }
+}
+
+// Save unread message data for a peer
+const saveUnreadData = (peerPubkey: string, data: UnreadMessageData): void => {
+  try {
+    localStorage.setItem(`${UNREAD_MESSAGES_KEY}-${peerPubkey}`, JSON.stringify(data))
+  } catch (error) {
+    console.warn('Failed to save unread data for peer:', peerPubkey, error)
   }
-  
-  return configuredRelays.map((url: string) => ({ url, read: true, write: true }))
 }
 
 export function useNostrChat() {
@@ -36,15 +54,112 @@ export function useNostrChat() {
   const isConnected = ref(false)
   const messages = ref<Map<string, ChatMessage[]>>(new Map())
   const currentUser = ref<{ pubkey: string; prvkey: string } | null>(null)
-  const pool = ref<SimplePool | null>(null)
   const processedMessageIds = ref(new Set<string>())
-  
-  // Callback for when messages change
   const onMessageAdded = ref<((peerPubkey: string) => void) | null>(null)
+  const pool = ref<SimplePool | null>(null)
+  
+  // Reactive unread counts
+  const unreadCounts = ref<Map<string, number>>(new Map())
 
   // Computed
   const isLoggedIn = computed(() => !!currentUser.value)
 
+  // Get unread count for a peer
+  const getUnreadCount = (peerPubkey: string): number => {
+    return unreadCounts.value.get(peerPubkey) || 0
+  }
+
+  // Get all unread counts
+  const getAllUnreadCounts = (): Map<string, number> => {
+    return new Map(unreadCounts.value)
+  }
+
+  // Get total unread count across all peers
+  const getTotalUnreadCount = (): number => {
+    let total = 0
+    for (const count of unreadCounts.value.values()) {
+      total += count
+    }
+    return total
+  }
+
+  // Update unread count for a peer
+  const updateUnreadCount = (peerPubkey: string, count: number): void => {
+    if (count > 0) {
+      unreadCounts.value.set(peerPubkey, count)
+    } else {
+      unreadCounts.value.delete(peerPubkey)
+    }
+    // Force reactivity
+    unreadCounts.value = new Map(unreadCounts.value)
+  }
+
+  // Mark messages as read for a peer
+  const markMessagesAsRead = (peerPubkey: string): void => {
+    const currentTimestamp = Math.floor(Date.now() / 1000)
+    const unreadData = getUnreadData(peerPubkey)
+    
+    // Update last read timestamp and reset unread count
+    const updatedData: UnreadMessageData = {
+      lastReadTimestamp: currentTimestamp,
+      unreadCount: 0
+    }
+    
+    saveUnreadData(peerPubkey, updatedData)
+    updateUnreadCount(peerPubkey, 0)
+  }
+
+  // Load unread counts from localStorage
+  const loadUnreadCounts = (): void => {
+    try {
+      const keys = Object.keys(localStorage).filter(key => 
+        key.startsWith(`${UNREAD_MESSAGES_KEY}-`)
+      )
+      
+      for (const key of keys) {
+        const peerPubkey = key.replace(`${UNREAD_MESSAGES_KEY}-`, '')
+        const unreadData = getUnreadData(peerPubkey)
+        if (unreadData.unreadCount > 0) {
+          unreadCounts.value.set(peerPubkey, unreadData.unreadCount)
+        }
+      }
+    } catch (error) {
+      console.warn('Failed to load unread counts from localStorage:', error)
+    }
+  }
+
+  // Initialize unread counts on startup
+  loadUnreadCounts()
+
+  // Clear all unread counts (for testing)
+  const clearAllUnreadCounts = (): void => {
+    unreadCounts.value.clear()
+    unreadCounts.value = new Map(unreadCounts.value)
+    
+    // Also clear from localStorage
+    try {
+      const keys = Object.keys(localStorage).filter(key => 
+        key.startsWith(`${UNREAD_MESSAGES_KEY}-`)
+      )
+      
+      for (const key of keys) {
+        localStorage.removeItem(key)
+      }
+    } catch (error) {
+      console.warn('Failed to clear unread counts from localStorage:', error)
+    }
+  }
+
+  // Get relays from config - requires VITE_NOSTR_RELAYS to be set
+  const getRelays = (): NostrRelayConfig[] => {
+    const configuredRelays = config.nostr.relays
+    if (!configuredRelays || configuredRelays.length === 0) {
+      throw new Error('VITE_NOSTR_RELAYS environment variable must be configured for chat functionality')
+    }
+    
+    return configuredRelays.map((url: string) => ({ url, read: true, write: true }))
+  }
+
   // Initialize Nostr pool
   const initializePool = () => {
     if (!pool.value) {
@@ -316,7 +431,7 @@ export function useNostrChat() {
         id: event.id,
         content: decryptedContent,
         created_at: event.created_at,
-        sent: event.pubkey === currentUser.value!.pubkey,
+        sent: isSentByMe,
         pubkey: event.pubkey
       }
 
@@ -324,12 +439,6 @@ export function useNostrChat() {
       // Always use peerPubkey as the conversation key for both sent and received messages
       const conversationKey = peerPubkey
 
-      console.log('Storing message with conversation key:', conversationKey)
-
-      if (!messages.value.has(conversationKey)) {
-        messages.value.set(conversationKey, [])
-      }
-      
       if (!messages.value.has(conversationKey)) {
         messages.value.set(conversationKey, [])
       }
@@ -342,6 +451,28 @@ export function useNostrChat() {
       // Force reactivity by triggering a change
       messages.value = new Map(messages.value)
       
+      // Track unread messages (only for received messages, not sent ones)
+      if (!isSentByMe) {
+        const unreadData = getUnreadData(peerPubkey)
+        
+        // Check if this message is newer than the last read timestamp
+        if (message.created_at > unreadData.lastReadTimestamp) {
+          const updatedUnreadData: UnreadMessageData = {
+            lastReadTimestamp: unreadData.lastReadTimestamp,
+            unreadCount: unreadData.unreadCount + 1
+          }
+          
+          saveUnreadData(peerPubkey, updatedUnreadData)
+          updateUnreadCount(peerPubkey, updatedUnreadData.unreadCount)
+          
+          console.log(`New unread message from ${peerPubkey}. Total unread: ${updatedUnreadData.unreadCount}`)
+        } else {
+          console.log(`Message from ${peerPubkey} is older than last read timestamp. Skipping unread count.`)
+        }
+      } else {
+        console.log(`Message from ${peerPubkey} was sent by current user. Skipping unread count.`)
+      }
+      
       // Trigger callback if set
       if (onMessageAdded.value) {
         onMessageAdded.value(conversationKey)
@@ -503,7 +634,13 @@ export function useNostrChat() {
     sendMessage,
     getMessages,
     clearMessages,
-    loadCurrentUser,
-    onMessageAdded
+    onMessageAdded,
+    
+    // Notification methods
+    markMessagesAsRead,
+    getUnreadCount,
+    getAllUnreadCounts,
+    getTotalUnreadCount,
+    clearAllUnreadCounts
   }
 } 
\ No newline at end of file