Many large cryptocurrencies available today market themselves as bastions of business transparency by making their transaction data pseudonymously available on immutable, public databases. Because this information is so accessible, it’s easy to trace the activities of the individuals and institutions making use of these currencies.

The popular privacy coin Monero, however, distinguishes itself from its competition by taking the opposite approach. It promises users entirely anonymous, untraceable transactions, no matter the amount or circumstances.

Monero is a fully decentralized cryptocurrency, which means no regulating institutions or authorities govern it or how it is used. Transactions made with Monero likewise cannot be linked back to their original users, and even the amounts involved remain entirely confidential to all parties besides the sender and the receiver. Those who make use of a free Monero wallet can even transact locally via their browsers, out of sight of any possible third parties observing the Monero network. 

These stringent anonymization and obfuscation protocols have made Monero the world’s most popular privacy-focused coin. Curious readers who wonder how exactly these features work and what makes them so effective need only keep scrolling. This article will tell you everything you need to know about the specific steps Monero takes to protect user privacy.

Ring Signatures

The untraceability of Monero transactions is rooted in the fact that it’s impossible for outside observers to tell how or when users are spending the coin. People aiming to track the movement of any particular funds on the Monero network cannot tell who is sending the funds to whom or which transactions are legitimate. This is because, to observers, it appears as though the same funds are being used in multiple transactions constantly, with no way of separating true transactions from fake ones.

This obfuscating effect is achieved through a cryptographic function known as a ring signature. Instead of just one authorized user signing off on a transaction, multiple users gather to sign and execute it, creating a unique “ring” of digital keys. This is similar to when a group of account owners sign to authenticate a joint bank account. The difference is that, in the case of Monero transactions, no one is aware of the true signer’s identity.

Using a group of keys in this way makes it impossible, or at least extremely computationally difficult, to identify which specific user key was used to create the ring signature in the first place. Unlike the security protocols employed by other cryptocurrencies, the anonymity of a ring signature can’t be undone by any user, which protects the transaction histories of Monero users for the long term.

Ring Confidential Transactions (RingCT)

Ring Confidential Transactions (RingCT) are an updated method of accomplishing ring signatures that emerged in 2016 and have since become a compulsory feature of all Monero transactions. This new protocol allows Monero buyers and sellers to hide their transaction amounts from anyone except each other. Although the transaction remains visible on the blockchain, there is no way for any external party to determine the exact amount that has been sent and received. This algorithm can likewise be used to hide the place of origin and the destination of the transaction. 

Stealth Addressing

To ensure that transactions can’t be linked back to particular senders and receivers, all spending activities involving Monero are required to make use of stealth addresses. These are randomized, one-time-only addresses users sending Monero must create for the recipients of their transactions. Even if the same sender transfers money to a single recipient multiple times, stealth addresses ensure that no one else will be able to tell that these payments were made to the same person.

The use of stealth addresses ensures that a recipient’s public address never appears and is never recorded on the Monero blockchain. Recipients of Monero transactions instead receive secret view keys, which they use to scan the blockchain, locate their designated stealth addresses, and retrieve the received funds.

Decentralization

As mentioned previously, no central middleman or third party exists to regulate Monero transactions. Instead, all transactions are automatically verified, executed, and recorded on the blockchain. Because of this, Monero users retain complete control over how they spend the coin. 

The hyper-decentralization of Monero carries with it numerous benefits when it comes to enhancing security and also cutting unnecessary costs. Not only is user anonymity assured when using Monero, but doing so also eliminates the need to pay additional transfer and clearing fees. Monero transactions are likewise not beholden to any particular legal or geographical jurisdictions and don’t require long holding periods. This means that Monero transactions, in addition to being fully anonymous, are some of the fastest and cheapest cryptocurrency transactions currently available.

Full Fungibility

A fungible asset is an asset that can be interchanged with other assets of the same type and amount without losing any of its value. Monero coins are fully fungible, as they’re devoid of serial numbers and any other identifying information that might allow someone to trace a particular coin’s movement and history. Thus, users never need to worry that the particular coins in their possession may have once been used in fraudulent activities and might thus be rejected or invalidated by trading platforms.

At present, there are thousands of existing cryptocurrencies, each promising their users different perks and advantages. No coin, however, is currently more committed to safeguarding user privacy than Monero. Its sophisticated anonymization features make it the go-to coin for crypto users aiming to protect their personal privacy rights or those of their organizations.