Comparison: Bitcoin vs. Monero
Anonymity was not a major concern for the inventor of Bitcoin, Satoshi Nakamoto. In Bitcoin’s whitepaper Satoshi wrote that there are ways to preserve anonymity:
The necessity to announce all transactions publicly precludes this method, but privacy can still be maintained by breaking the flow of information in another place: by keeping public keys anonymous.
However, Satoshi did not implement any special privacy features. The Bitcoin blockchain is therefore only pseudo anonymous. In principle, every Bitcoin transaction on the blockchain can be traced by a blockchain explorer. Although the blockchain initially only shows the value of the transaction, the sender and receiver addresses, as well as the amount of bitcoin on the address, without providing personal data and information about who owns the address, the blockchain does not show the value of the transaction. However, the personal data is often deposited with stock exchanges, which can then connect the personal data, e.g. at the request of authorities or companies, with the Bitcoin block chain addresses.
With a little detective work, all transactions can be traced back to understand what the transaction flow was like. This is where Monero comes in. Monero was launched in April 2014 with the goal of creating a completely anonymous crypto currency.
You can view the current Monero price on our Monero course overview. If you want to buy Monero, take a closer look at our 5-minute Monero Buying Guide. If you want to check the price of Bitcoin, Ethereum, or other Altcoins, take a closer look at our course overview of the 2,000 most popular Altcoins.
The origin of Monero (XMR) lies in the Bytecoin (BCN) source code. Monero is a hard fork from Bytecoin, a crypto currency that was released in 2012. Bytecoin (BCN) is based on the CryptoNote protocol developed in response to Bitcoin’s lack of anonymity and traceability. BCN was the first crypto currency to implement the CryptoNote protocol.
Due to differences of opinion in April 2014 there was a hard fork which caused Monero (XMR) to come into being. A strong developer community quickly developed around Monero, which became the key to Monero’s success. Without a central person or a company that controls the currency or has accumulated a large amount of coins through pre-mining, major controversies were avoided.
It is Monero’s goal to develop a completely anonymous crypto currency, as described, completely in the sense of the Cypherpunks. Privacy coins, such as Monero, Dash, Verge or ZCash, often have the image of being used exclusively by criminals. However, this is not the whole truth. Although XMR enjoys great popularity in Darknet, its impact on privacy and personal security should interest even law-abiding citizens. There are many reasons why certain personal or business transactions should remain private. For example, no one will want anyone but your house bank to know how much money you have in your bank account. As explained in the introduction, this can happen at Bitcoin as soon as a Bitcoin address can be publicly assigned to someone (e.g. through a public BTC donation account, a public BTC payment address for business customers). One could also say that Monero only wants to transfer the anonymity of cash into the digital world.
By default, therefore, all transactions in Monero are not traceable. Neither the transaction amount, nor the sender’s address, nor the recipient’s address are visible to the public, so it is not possible to determine who sent the payment to whom.
How does Monero work?
Monero guarantees that transactions are anonymous and untraceable by using three technologies – Ring Signatures, Stealth Addresses, and Ring Confidential Transactions – in addition to the CryptoNight algorithm.
CryptoNight Algorithm and Monero Mining
Monero’s proof-of-work uses Bytecoin’s CryptoNight algorithm. In contrast to many other crypto currencies, Monero can still be mined from home. The mining algorithm is suitable for both GPUs and CPUs.
ASICs are excluded by a decision of the Monero community after Bitmain announced a new ASIC, the Antminer X3, in March 2018. Riccardo Spagni, a core developer at Monero, explained that the protocol is changed every six months to remain ASIC-resistant and avoid centralization of the network through ASICs.
In order to guarantee the anonymity of the sender and destination addresses, a new anonymous address, the so-called stealth address, is generated for each transaction. These stealth addresses are designed in such a way that only the owner himself has access to the associated data on the Monero block chain using the “private view key”. Publicly, the addresses are camouflaged in such a way that other people cannot recognize to whom a transaction was sent.
Ring signatures protect the anonymity of the sender and can be introduced as mixers. If a person wants to send a transaction to another person, this transaction is divided into smaller pieces. These pieces are assigned to different rings, each of which has the same amount. The transaction is then automatically mixed with many other transactions (“mixer”) and signed equally by all participants in the ring. This means that it is impossible to find out from which address the payment originated. Due to the division of the transaction amount, this is also no longer comprehensible. In practice, ring signatures make it almost impossible to trace the origin of payments.
Ring Confidential Transactions
Ring Confidential Transactions (Ring CT) are an extension of ring signatures for Monero to hide the amounts in each transaction (or ring) using cryptography. This was necessary because Monero transactions were anonymous, but could be linked by analyzing the transaction amounts. Ring CT went live in January 2017 and has updated the original ring signature protocol
Last updated: 06/07/2019