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How Monero’s Blockchain Ensures Complete Anonymity

By Clayton Richard Published December 25, 2024

Bitcoin originally set out to provide traders complete anonymity. Sadly, this in practice resulted only in pseudonymous transactions, leaving users vulnerable to surveillance and tracking. Created in 2014, Monero has since emerged as the leader in catering to this audience, leaving the sender, recipient, and amount transacted a matter for nobody’s eyes but the people’s concluding the deal. 

In this article, we’ll explore the mechanisms Monero uses to ensure that every transaction remains confidential, discussing its key features like ring signatures, stealth addresses, and RingCT. We will discuss why it deserves to be lauded above the other options, while tempered by the fact that certain circumstances may slow its popularization.

What is Monero?

Monero (or XMR) is designed to provide unparalleled privacy in the cryptocurrency space. Monero has gone above and beyond to employ a combination of sophisticated cryptographic techniques to safeguard user information. 

Though Monero is not available on all centralized exchanges, it’s not too hard to find websites for transactions. Decentralized peer-to-peer platforms are also a reliable place to engage in an XMR exchange.

Core features

Monero’s core privacy features are built around three main components. Let’s take a closer look at each of these features and how they contribute to Monero’s complete anonymity.

Ring signatures

These allow a sender to sign a transaction in a way that obscures their identity. When a Monero user sends coins, the transaction is not signed by just one person but rather a group of possible signers known as a “ring”. This creates ambiguity, making it impossible to determine which member of the group initiated the transaction. All members of the ring appear equally likely to be the originator.

The number of “decoys” in a ring can vary, but typically Monero uses a ring size of at least 10 signatures. The size of these rings has increased over time and impacted how other privacy coins have evolved as well.

Stealth addresses

This special detail protects the recipient’s identity due to the fact that when a transaction is made, the sender doesn’t send funds directly to the recipient’s public address. The address is derived from the recipient’s public address but it doesn’t appear on the blockchain. Thus external parties cannot associate the transaction with any one person or entity.

The process entails that when a user wants to receive a transaction, they provide their public address to the sender. From that, a one-time stealth address is generated using a process called Elliptic Curve Diffie-Hellman (ECDH) key exchange. After the transaction is made, only the recipient can decrypt the transaction and associate it with their public address, using their private key. 

RingCT (Ring Confidential Transactions)

In addition to hiding the identities of the parties, Monero also uses RingCT to conceal the transaction amounts. This entails a cryptographic technique that hides the amount involved while still allowing it to be validated. A combination of range proofs and zero-knowledge proofs is employed to preserve anonymity yet still validate the transaction. 

These are a cryptographic method that allows one party to prove to another party that a statement is true without revealing any additional information beyond the validity of the statement, for instance, that the required funds are available on the sender’s account. These create an environment protected from external scrutiny and surveillance.

Prior to RingCT, Monero used a simpler form of confidentiality called Confidential Transactions, however, it had limitations in terms of scalability and efficiency. The Monero community has been exploring ways to optimize this technology further. One such focus is bulletproofs – a technique that improves the efficiency and size of RingCT, reducing the amount of data required to prove the validity of a transaction, rendering them faster and cheaper. 

Future Prospects for Monero

The very intent of Monero’s creation entails an implicit battle with authority and those who seek to profile traders. There is a fine line between a government ensuring law and order and overstepping its bounds and abusing people’s basic rights.

Fungibility

One of the primary reasons stealth addresses are so important to Monero is their impact on fungibility – the property of an asset where each unit is interchangeable and indistinguishable from any other unit of the same value. With many cryptocurrencies, the traceability of addresses provides the basis to distinguish between coins that have been involved in illicit activities or have not, undermining their fungibility. This is not the case with Monero.

Government regulation

On the other hand, this comes with certain drawbacks. Governments are always on the lookout to stop potential lawbreakers. These include drug traffickers, terrorism financing, money laundering, and tax evasion. For that reason, governments are quite hostile to anonymity in financial transactions. Merkle Science weighed the benefits against the downside of privacy coins in a recent article.

Many businesses, merchants, and individuals are inhibited from using anonymous digital assets with regulations. This in turn will be a challenge for Monero’s developers. Another issue is that the altcoin is complicated to use. On top of that, it has to rely on a group of individuals to obfuscate the parties to transactions and thus they take longer to complete. 

Predictions

Government intervention further reduces the number of people available to be part of rings. Whether or not anonymity or government regulation wins out will likely be determined by how user-friendly the cryptocurrency will become, how efficient it grows, and whether or not it will be able to be efficiently integrated with decentralized exchanges.

How Monero has added to people’s lives

Monero provides a broad variety of practical uses. Let’s take a look at what they are.

The virtue of privacy 

Governments will always say that their intent is to prevent evil and wrongdoing, however, surveillance, censorship, and financial repression are currently the favorite tactics of many authoritarian regimes around the world. A lot of them try to control the population, monitor their opposition, and prevent dissent. Despite this, Monero is managing to move money across borders without government interference or surveillance. This has been a crucial lifeline for people seeking to protect their wealth and maintain their personal freedom.

Monero has been a popular currency for donations to causes that require discretion. Charities, NGOs, and activists working on political causes have been able to receive donations without having to compromise their anonymity and face reprisal. Thus, it’s an important tool for freedom of speech.

Privacy in spending habits

People have gotten concerned with how heavily they are being tracked by online advertisers and how frequently their data is being sold. People do not want to be manipulated with marketing tactics as a result of their shopping history by merchants and third-party tracking services. Business News Daily recently investigated the ways advertisers are currently using consumer data, which many people have reservations about. 

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Clayton Richard

Hi! I'm Clayton. I've been on several management teams over my career, I went to school for management (Go Tommies), and I'm currently a senior writer managing a team of creative content writers. My passion is excellent leadership, and I'm excited to share my thoughts with Tweak Your Biz readers.

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Contents
What is Monero?
Core features
Ring signatures
Stealth addresses
RingCT (Ring Confidential Transactions)
Future Prospects for Monero
Fungibility
Government regulation
Predictions
How Monero has added to people’s lives
The virtue of privacy
Privacy in spending habits

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