What do you think about Monero?

Created in April 2014, Monero (XMR) is a cryptocurrency with a focus on privacy and untraceability. Monero uses ring signatures, stealth addresses, and ring confidential transactions to hide the transaction’s sender, receiver, and amount. Although Monero has been adopted for applications on the darknet, its privacy implications are important for personal security and currency fungibility.

Monero’s mission is digital currency that has the anonymity of cash, and it’s private by default. When you use Monero to purchase something, the recipient doesn’t need to know who you are or where you received the money. Your transaction history is completely private. In addition to its focus on privacy, Monero is open source. This means anyone can access and use the platform for free. Monero’s transparency is one of its greatest assets in the quest for privacy.

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The Problem with Bitcoin (and Other Cryptocurrencies)

Monero is one of the leaders of a privacy movement in cryptocurrency. This movement is concerned with guaranteeing that you can use cryptocurrency however you want, without fear of having your transaction history tracked or exposed. Privacy isn’t trivial. Even for law-abiding citizens, there are many reasons you might want to keep certain personal or business purchases and payments private.

Here are some examples from Monero’s website of why ordinary citizens should value privacy:

1. You are travelling through parts of a country with a medium to high violent crime rate. You need to use some of your Bitcoin to pay for something. If every person you transact with knows exactly how much money you have, this is a threat to your personal physical safety.
2. You are a business that receives a payment from a supplier. That supplier will be able to see how much money your business has, and therefore can guess at how price sensitive you are in future negotiations.
3. You are a private citizen paying for online goods and services. It is common practice for companies to attempt to use ‘price discrimination’ algorithms to attempt to determine the highest prices they can offer future services to you at, and you would prefer they do not have the information advantage of knowing how much you spend and where you spend it.

This privacy movement, and Monero itself, came as a reaction to Bitcoin’s problems with transaction tracking. On the Bitcoin blockchain, you can see the sender’s address, recipient’s address, and amount for every transaction on the publicly-available blockchain. While the addresses are anonymous, with a little bit of work you can follow transactions to understand which addresses are sending money to where. The web of transactions eventually allows anyone in the world to see who is purchasing what with a little detective work.

Stealth Addresses: Keeping Recipients Private

Unlike Bitcoin, with Monero you don’t receive funds at your public address. Instead, when someone sends your Monero, they place the funds in a new anonymous account and lock that account with a password only you can discover. As a result, your Monero is never associated with your public address.

Every transaction on Monero involves creating one of these new anonymous accounts. Monero calls these new accounts stealth addresses. The idea behind the stealth address is to create a layer of anonymity between your public address and the Monero you own. The addresses on the publicly available Monero blockchain are stealth addresses, so personally identifiable information stays off the blockchain altogether.

Ring Signatures: Disguising Senders

Stealth addresses solve a lot of the problems of traceability and anonymity, but one major challenge remains. Since the person who sent you the Monero in the first place knows about the stealth address (since they created it), they’ll be able to tell when you spend those funds on something else. We need a way to disguise the transactions you send.

Monero’s solution is called a ring signature, and it’s a cryptographic concept with research that dates back to 2001. The basic idea involves gathering a group of possible senders together and authorizing the transaction together:

Imagine Alex wants to send Monero to Betty. Alex would randomly select several other stealth addresses where the funds could potentially come from. The Monero algorithm then mixes these transactions together, recording multiple transactions and potential senders on the blockchain. Even though the owners of these stealth addresses are not currently online, their wallets constantly appear to be transacting in order to mask real transactions.

Ring Confidential Transactions: Hiding How Much Was Sent

Ring Confidential Transactions (Ring CT) are an expansion of ring signatures for Monero. Shen Noether originally proposed the idea for Ring CT in a 2015 white paper as a way to hide the amounts in each transaction. Noether argued that even though Monero transactions are anonymous, they could still be linked together using analysis of the transaction amounts.

His Ring CT solution involves using cryptography on the transaction information and key pairs of the participants in order to hide amounts, origins, and destinations all at once. The cryptography behind this process is known as Multilayered Linkable Spontaneous Anonymous Group Signatures (MLSAG). For a detailed explanation of how MLSAG works, you can review the white paper.