What is Monero Untraceability and How it Works


Cryptocurrencies revolutionized our perception of money. Only 5 years ago it almost inconceivable that someone could send values to somebody else using a network owned “by nobody”, faster and cheaper than any bank in the world. That you would generate value by “mining” with your own computer. And yet, this happened, and a whole new world unfolded. But even if the middle-man was eliminated by the decentralized blockchain, allowing for much lower transaction fees and less control over your own funds, one issue was still not tackled entirely: privacy. And by privacy means the fundamental right to protect your identity.

Introducing Monero XMR.

What is Monero Untraceability?

In the world of crypto, Monero XMR solved exactly the privacy issues that were lagging behind in all the other contenders. Let’s make things clear, Monero is still a cryptocurrency, it still uses a blockchain to record all the transactions (with all the packed benefits of a blockchain: nearly 100% uptime, the immutability of the ledger, and so on).

But it also makes the identity of a user undetectable. And when we say undetectable, we mean the following:

  • Although you do have a public address on the Monero blockchain, nobody can tell how many funds are on it;
  • When you send funds from your own public address, nobody knows where exactly those funds are going;
  • When you receive funds on your public address, nobody knows where exactly those funds are coming from.

What Sorcery Is This? Is This Thing Even Real?

Well, yes. It is real and it’s working and it powers a currency with almost $2 billions market cap (at the moment of writing).

Let’s see how Monero achieves all that.

First of all: unlinkability.

The Secret View Keys

So, when a transaction is initiated on the Monero blockchain, the actual receiver is obviously known, but funds are instead sent to a different address. It’s a one-time address, also known as “stealth”, which is linked cryptographically to your public address.

One of the consequences of this approach is also that two transactions sent to your public address could not be associated or added up as belonging to the same receiver. Each time somebody sends funds to your public address, it actually goes to a different public destination.

So how do you even get the funds in your wallet?

Well, when a transaction occurs, you get a “secret view key”, which links any of the “stealth” addresses containing funds addressed to you. Nobody can see this relationship unless they have the “secret view key”. Obviously, again, if you hand this “secret view key” to a third party, they will be able to see everything you see.

So each time you start your Monero wallet, the blockchain scanning will actually look for all the matching “secret view keys” and calculate the ammount of funds you get from all these links.

But that’s just the first layer. To make things even more interesting, the funds in every transaction are split amongst many addresses.

It’s a thing called “the Monero dance”.

The Monero Dance

When a transaction occurs, funds are split, like I said, between many addresses. The addresses included are though aware of the grand total and of the destination. It’s just that the funds are spread across many individual addresses (belonging to other people in the network, most of the time) in a thing called “ring signature”.

When the transaction is completed, the “ring signature” guarantees that the final receiver will have the exact amount of funds sent, (after the “secret key view” was created and also after all the addresses included in the “ring” made their magic and re-composed the funds together).

This split happens all the time, actually, even if you don’t transact. Your addresses are used by this “Monero dance” all the time, splitting and recomposing various amounts transacted in the network, but with the end result being that all balances are checking out, all the time.

Now, the size of the “ring”, or the number of addresses included in the transaction split, is called “mixin”. The higher the “mixin”, the bigger the complexity of the transactions involved, and also the cost of the transactions. It’s good to keep that in mind if your wallet allows you to adjust the “mixin” variable.

In addition to that, Monero XMR introduced at the beginning of 2017 a new feature, called RingCT, which actually hides all the funds from being viewable on the blockchain. While the validity of the transactions themselves is guaranteed, only the sender and the receiver can see the actual funds being transferred.


Future Plans

In the Monero XMR roadmap, there is even more planned in this direction. One very interesting path is the introduction of the I2P or Internet Invisible Project. Codenamed “Kovri”, this enhancement will reroute all the Monero traffic through this new type of network, making it impossible for a passive observer to know if you’re even using Monero at all. It will be obvious that you’re using I2P, but no-one will know what for.

As you can see, the level of privacy in Monero is way above what other, more prominent crypto-currencies, are offering at the moment.

MinerGate is one of the most well-known mining pools for Monero, so if you want to join the “Monero dance”, you could safely start there. MinerGate state of the art UI (both on the graphical clients for Windows, Mac OS or Linux, and Console solution) will always let you know where you stand compared with the overall hashing power of the pool and will give you a real-time update of your profitability. Oh, and it’s also really, really simple, you can literally join the mining pool with just a valid email account.

Privacy is a fundamental right, but that doesn’t mean you should use cryptocurrencies, or Monero, to break the law. While we all want and should always fight for a higher degree of liberty from oppressing structures, please use this freedom responsibly.