Privacy is an essential point in the cryptocurrency space. Neither corporations nor people require to make every their data unrestricted on the public blockchain, which may be viewed freely, without any limitations, by local or international authorities, family features, colleagues, or opponents.
At the moment, there are many experiments and studies on different ways to achieving privacy in blockchains, but a sufficiently detailed review of this problem has not yet been presented.
Privacy in Bitcoin
Bitcoin was created as a pseudonymous (as opposed to anonymous) cryptocurrency that only maintained user privacy insofar as there was no way to link real-world entities to addresses on the Bitcoin network. However, thanks to the known creator of the Bitcoin blockchain, it immediately grew obvious that it was likely to recognize users based on models in their use of specific locations and related activities.
It became easy to exchange cryptocurrencies after using btc to etn calculator. Besides, network nodes, when disseminating information about transactions, even disclose IP addresses.
In response to the decline in Bitcoin’s privacy, so-called cryptocurrency mixing services like CoinJoin has been designed to increase anonymity when applying the blockchain. In CoinJoin, users collectively produce transactions that shuffle their currency, which anonymizes the user inside a given set of coins. This method is then duplicated between various users to improve the overall anonymity of the participants. Mixing services like these have historically been used for illegal purposes to combine identifiable bitcoins with other media and make it hard to track down their source.
However, CoinJoin has its drawbacks. Privacy here is achieved through the large size of the anonymity set of coins.
Advantageous characteristics of Monero
Monero is an open-source scheme with no limitations at all. There is no power to prevent the use of cryptocurrency. Benefits of Monero:
- Privacy is the main argument for offering users true anonymity while preventing others from seeing your balance. Many other cryptocurrencies lack this.
- Interchangeability. For a digital asset to become fungible, its value must be independent of its cause or use. If many cryptocurrencies can be blacklisted due to, for example, theft, they will not be fungible. The Monero cryptocurrency is not tracked, so it is fungible.
- Independence from special-purpose ASICs. Mining is real only with ASIC hardware. Monero will use an alternative hashing algorithm CryptoNight with superior functionality to make it unprofitable to manufacture integrated circuits proper for mining Monero. Therefore, Monero mining is done using GPUs.
- Scalability. The Monero blockchain is limitless; this scalability should prevent fees from skyrocketing as usage increases.
Monero applies a key system that is different from Bitcoin or Ethereum – certain currencies operate with one set of keys: public and private. How Monero keys work:
- for hidden public addresses, only public viewing keys are created;
- to check the blockchain, to confirm the receipt of supplies, a private viewing key is required;
- the public key of the expense is needed to confirm the digital name of the transaction;
- private spending keys for outgoing transactions.