Since its launch in 2014, Monero (XMR symbol) has become one of the leading cryptocurrencies and the most popular anonymous currency of all. Is Monero so secure? And what Monero privacy features make it the winner? Let's take a closer look.
"Privacy is the basic human right" —Riccardo Spagni, Monero's lead developer
How is Monero anonymous?
To deliver the highest level of privacy, Monero employs dozens of sophisticated cryptographic methods, including enforced privacy, stealth addresses, confidential ring transactions, ring signatures, bulletproofs, separate transaction units, and IP obfuscation technology Kovri.
"Since the suspect used a combination of Tor and Monero, we could not trace the funds. We could not trace the IP addresses. Which means, we hit the end of the road. Whatever happened on the Bitcoin blockchain was visible, and that's why we were able to get reasonably far." —Jerek Jakubcek, Europol's Strategic Analyst
To learn more about Monero anonymity, and how does Monero privacy work (and differ from Bitcoin), let's take a detailed look at each feature.
While most cryptocurrencies have transactions public by default, Monero uses enforced privacy for all transactions. With transactions private by default, no user can be accidentally or intentionally traceable.
Address re-use is one of the most common privacy concerns cryptocurrencies face. When you receive multiple payments into a single public address, anyone who knows this address can easily monitor its balance and transaction history. Even worse, due to the way how cryptocurrencies deal with change, different addresses in your wallet can be easily connected. Luckily, this is not the case with Monero.
For each Monero transaction, senders are required to generate a one-time address by using the receiver's public address. Therefore, even if you sent funds to the same public address twice, no one would ever be able to find it out. Additionally, no analysis executed on Monero's blockchain would ever disclose the exact destination address you use to receive funds.
Ring Confidential Transactions
To hide the amount that has been sent in a transaction, Monero implements Ring Confidential Transactions or short, RingCT. To obscure the transacted amount, Ring CTs use range proofs and cryptographic commitments, clearly explained in this video:
Ring Signatures are a method for mixing transactions. When sending Monero, the sender cryptographically signs their transaction input with ten other inputs. Simply said, when funds are sent, they are sent as a group of randomly picked transactions of the same amount. By giving the sender plausible deniability, no one would ever be able to determine which address sent a given transaction.
Bulletproofs is a relatively new feature introduced in October 2018. Thanks to Bulletproofs, transactions can be verified without knowing the sender, receiver, or amount.
Separate Transaction Units
When sending Monero, it will be delivered in several different transaction units. For example, when you send 21 XMR, they will be delivered as separate units of 10, 6, and 5 XMR, each sent to a unique stealth address.
Monero's final privacy feature takes advantage of Kovri, an open-source technology for obfuscation of IP addresses. Once released out of beta, Monero will become the most trusted and fully anonymous cryptocurrency of all. To learn more about Kovri, check out the official video:
Is Monero anonymous?
Europol, the European Union's Agency for Law Enforcement Cooperation, has confirmed that Monero transactions are anonymous.
During the Blockchain Alliance webinar, the Europol's strategic analyst Jerek Jakubcek has also confirmed that Monero transactions cannot be traced or recorded, preventing investigators from tracking the location of suspects.
How to make Bitcoin anonymous with Monero
Mr. Jakubcek stated that Monero's blockchain was the endpoint of several investigations. He added that the transactions were initially traced on the Bitcoin blockchain. However, as soon as the funds moved from BTC to XMR, that was the point where the investigation ended.
"But with Monero blockchain, that was the point where the investigation has ended. This is a classic example of one of several cases we had where suspects decided to move funds from Bitcoin or Ethereum to Monero." —Jerek Jakubcek, Europol's Strategic Analyst
They suspect that to avoid being monitored, crypto funds from Bitcoin might be converted into Monero. Such a conversion seems to be a way how to make Bitcoin anonymous with Monero—something our anonymization service Tumbler.to does to protect the privacy of your coins.
How anonymous is Monero
In a paper on Empirical analysis of traceability in the Monero blockchain, a team of researchers from Princeton, Carnegie Mellon, Boston University, MIT, and the University of Illinois pointed to several flaws that make it possible to obtain individual transactions.
While one of the issues was fixed in 2017, another still lingers. The flaw relates to how Monero hides the source of payment by combining the coin someone spends with other coins used as decoys.
The flaw can help to identify the sender, not the receiver, as Monero protects the receiver's address with the Stealth addresses method described above. However, if someone made a payment to a Monero exchange that knew their identity, and then later to an undercover cop activng as a dark web drug dealer, the second payment could be linked to the first, and consequently to their identity.
Even with the above flaws outlined in the paper, Monero is by far the most anonymous digital currency. If you are serious about your security and privacy, then you should opt for Monero.
If you a Bitcoin user who would welcome the privacy features of Monero, then you can use Tumbler.to—an online service that converts Bitcoins to Monero, and returns you a clear set of Bitcoins without their previous history.