An Analysis of Privacy Preserving Blockchain Monero

Blockchain is a public ledger with its transactions available for verification by anyone in the network. Their ledgers are transparent and open for public view. Blockchains are supposed to provide anonymity so that the user addresses cannot be linked to real-world identities. 

Among all the public blockchains, Monero is a private digital currency working on a privacy-preserving blockchain. It was created in 2014 and originally known as BitMonero, as a derivative of a proof-of-concept currency, CryptoNote. It uses privacy-enhancing technologies to provide anonymity for its users. Furthermore, it creates confidential and untraceable transactions. Anonymity is provided by default to all its users. It hides sender and receiver addresses and the amount involved in a transaction.

A new feature called atomic swap is coming on Monero soon which would provide trade between Bitcoin and Monero without the need to trust any party. With a steady increase in its trading volume, Monero (XMR) is currently trading at $394. In April, a Monero based DEX, called Haveno, was launched for trading XMR for fiat and cryptocurrencies.

We will analyze how Monero is different from other digital cryptocurrencies in the following sections.

How Monero Blockchain Can Help Privacy Issues in Blockchain

Third parties like a central authority have been let go to achieve decentralization in governing a digital currency. Now to verify any exchange between parties, its complete transaction history must be publicly visible. Most blockchains store transactions in clear text to facilitate verification by community users. Here an open ledger defies the privacy of its users by publicizing their complete history. To address this lack of privacy, Bitcoin users can obfuscate their identity by the use of temporary intermediate addresses for each transaction. However, it is still possible to analyze money flows and link these addresses. Many other analyses are still possible like finding network topology, studying transaction patterns, linking senders with receivers. The transparency makes such currencies pseudo-anonymous.

Also, financial confidentiality is not available in most blockchains. The transaction amount for each exchange is publicly visible. High volume transactions can attract attackers in attempts to steal their currency. There is insufficient financial privacy for any commercial and personal transactions.

How Does Monero Blockchain Help?

Monero is a cryptocurrency built with the sole purpose to provide censorship resistance and user privacy otherwise insufficient in other digital currencies. It uses powerful cryptographic techniques. It allows parties to interact without revealing the sender, receiver, or transaction amount. Even without actually knowing the transaction amount or account balances, the participants in the network can assess the validity of the transaction.  One can think of Monero as an opaque blockchain providing all the benefits of a decentralized and trustless cryptocurrency without risking the privacy of its users.

It provides a solution to address the privacy issue by storing only stealth, single-use addresses in the blockchain, it also uses ring signatures for authenticating transactions, thus confiscating user identity. This reduces the chance of an observer to find the origin of funds among the users and find any link between the parties of a transaction. Monero also uses confidential transactions in which transaction amounts are concealed behind cryptographic constructions without revealing the value itself.

Features of Monero

To provide a great deal of opacity to the users Monero makes use of the following cryptographic features:

  • Monero is supported by over 100K miners, working on a PoW based consensus algorithm called RandomX. It is an ASIC-resistant algorithm to prevent specialized mining hardware from centralizing the network. It is optimized and works efficiently for a general-purpose CPU.
  • Ring Confidential Transactions: They conceal the amount in a Monero transaction. RingCT keeps this sensitive information private by allowing the sender to still prove that they have enough balance for a transaction. It is done by the use of cryptographic commitments and range proofs. It reveals just enough information for the network to confirm the legitimacy of the transaction, while not publicly disclosing the amount itself. The transaction amount is hidden by a cryptographic commitment. A valid commitment guarantees that the transaction is not fraudulently creating or overspending Monero. Range proofs, also used in RingCT, is a method to ensure that the committed amount is greater than zero, and less than a certain number. This is necessary to prevent senders from committing negative or high amounts of Monero.
  • Stealth Addresses: These ensure that the recipient’s address is not recorded on the blockchain. To achieve this, each Monero transaction is instead sent to a unique disposable one-time address. The recipient can access funds sent to a stealth address, without exposing any links to their wallet’s public addresses. To create a stealth address, the sender will use the public keys of the receiver along with some random data to generate a unique one-time public key. An observer can’t connect these random stealth addresses back to the originating wallets. This prevents multiple payments to the same address of a user from being linked together.
  • Ring Signature: This protects the sender by obfuscating the source of Monero being spent. Ring signatures are used in Monero to blend the keys from multiple outputs on the blockchain, to obfuscate which output is actually being spent. This allows one member from the ring to digitally sign the message on behalf of the group while mixing in the public keys of the other members so that it is unclear who actively signed the message. It is possible to cryptographically verify that one of the ring members signed the message, but impossible to determine which of the members actually crafted the signature. A significant consequence of ring signatures is that an outside observer is unable to definitively prove that an output has been spent.
  • Kovri: It breaks the link between transactions and the physical location of a sender by obfuscating the broadcast origin and concealing network signs of Monero activity. Since broadcasting to the Monero network reveals an IP address, a node receiving a transaction may be able to identify the physical location of the sender. Kovri is based on the decentralized Invisible Internet Project (I2P) specifications. It is designed to use encryption and sophisticated routing techniques to create a private network for Monero distributed across the internet.
  • Atomic Swaps: This feature is getting developed under a community-funded project called Farcaster. The COMIT team is also developing a software implementation for Monero-to-Bitcoin atomic swaps. It makes use of Adapter signature also called one-time Verifiably Encrypted Signatures (VES) and zero-knowledge proofs. As some countries have suppressed the use of private currencies like Monero, using atomic swaps will make Monero as available as Bitcoin. Atomic swaps will hide the movement of Bitcoin and provide privacy by routing value through the opaque Monero blockchain.

Uses and Market of Monero

Monero works on several exchanges and is accepted by many merchants. A lot of Monero has been recently on the move. The project has recently celebrated its 7th anniversary and is currently on a high ride. It attracts special users which prefer privacy and confidentiality for their transactions. But owing to its upcoming features of atomic swaps and bulletproofs, Monero is expected to be the mainline cryptocurrency.


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