Bitcoin is the world’s most popular cryptocurrency, far surpassing any other alternative. But is it the world’s most private cryptocurrency? That’s a straight “no.” Bitcoin is many things, but it isn’t 100 percent private.
There are many privacy-focused cryptocurrencies that protect your identity, transactions, and interactions. Monero remains one of the most popular private cryptocurrencies. But how does it compare to Bitcoin?
Bitcoin Privacy Issues
As the cryptocurrency at the top of the pile, Bitcoin receives most of the headlines. Its performance is tracked and analyzed constantly, and it appears in the news alongside fiat market trends. In that, Bitcoin pushes cryptocurrencies further into the mainstream all of the time.
Bitcoin has shortcomings, however. One of Bitcoin’s issues regards privacy, and a common myth regarding Bitcoin is that it is completely anonymous. That isn’t true. Bitcoin is pseudo-anonymous. With enough time, someone can link together Bitcoin transactions and Bitcoin wallet addresses to begin linking them to an individual user.
Each and every Bitcoin transaction records to the blockchain, the immutable public ledger that forms the backbone of the cryptocurrency. Anyone can download it, analyze it, and begin piecing data together.
Of course, there are other mitigating circumstances. If a user has poor operational security, it is easier to link transactions and wallet addresses together. That can mean linking a fiat bank account to a Bitcoin exchange, using a personal email address to sign up for multiple services, adding personal information to user accounts, and so on.
For the most part, that’s not an issue. Most people use Bitcoin as a store of wealth or a speculative trading token. But if you do want to use Bitcoin as a payment method and you want to maintain your privacy, you have to work a little harder to remain anonymous.
Or, you can switch to a privacy-focused Bitcoin alternative, like Monero.
Bitcoin vs. Monero
Monero is one of the world’s most well-known privacy-focused cryptocurrencies. Its main selling point is its strong focus on privacy, protecting the identity of users, transactions, and blockchain records.
Unlike Bitcoin, every transaction on the Monero blockchain is untraceable. You can use Monero to send and receive funds, but the source, recipient, and amount remain hidden. Let’s take a look at some of Monero’s privacy features, and how they stack up against Bitcoin.
Monero uses stealth addresses to promote privacy. Each Monero address is a one-time use wallet address. You cannot link a Monero address to a previous wallet or shared standard address. As each incoming and outgoing transaction uses a completely new wallet address, creating a connection between wallet addresses and transactions is almost impossible as there is no continuity between tokens on the Monero blockchain.
You should note that stealth addresses focus more on the privacy of the recipient.
Some Bitcoin-only wallets do offer a stealth wallet option. For example, the privacy-focused Samourai Wallet for Bitcoin allows users to select between regular and stealth addresses—but both parties must use a stealth address Bitcoin wallet for the privacy feature to work. Samourai Wallet also features in our list of the best privacy-focused Bitcoin wallets.
Ring Confidential Transactions (RingCT)
If stealth addresses focus on improving the privacy of the recipient, then Ring Confidential Transactions boost the privacy of the sender.
RingCT combines two privacy technologies: ring signatures and confidential transactions.
First up, consider how a regular Bitcoin transaction works. You enter the amount of Bitcoin you want to send from your wallet, hit send, and the transaction processes. The transaction carries your Bitcoin addresses private key, proving ownership and potentially linking you to the transaction. Once the transaction processes, you can view the content of the recipient wallet, and track the Bitcoin you sent if it is sent to another wallet.
Ring signatures alter that process, mixing “decoy” funds into the transaction to confuse the links between wallet addresses. Instead of seeing a single value process from one account to another, the Monero transaction contains many values which makes it difficult to trace to a single sending wallet. Senders also have control over the ring signature process. Some liken this mixing process to Bitcoin tumbling, although it isn’t exactly the same.
You can increase the RingCT level to include more decoy values, thus further distancing the sending wallet address from the sender identity.
The process doesn’t create double-spend, and each transaction is still cryptographically secure. Users can use a cryptographic primitive known as a Pederson Commitment to check the sending and receiving ends of the transaction, confirming the values included in the transactions without revealing who is sending to whom, and how much Monero is changing hands.
If you want a much more detailed explanation as to how stealth addresses and RingCT protect privacy while using Monero, please read this Monero StackExchange post.
Fungibility is vital for privacy. The dollar bill in your pocket is almost indistinguishable to the dollar bill in the tip jar on the bar or in the bakery’s till, or your co-worker, and so on. That’s because fiat cash is fungible. One dollar is interchangeable with another, and everyone has the same.
With cryptocurrencies, fungibility is different. With regards to Bitcoin, fungibility causes a lack of privacy. Yes, you can exchange 1 Bitcoin for another Bitcoin and have the same amount of the cryptocurrency. But you also know the history of that Bitcoin, such as the wallets it traveled through, the transactions it was used in, and so on. If your Bitcoin comes from a “dodgy” source, there is a chance someone will spot it and reject it. The chance is very small, but it can happen.
Monero doesn’t have that issue. Every Monero transaction uses the integrated privacy features to sever the link between the sender and recipient. You can use Monero without worrying about its past use. In that, Monero’s fungibility is similar to fiat cash.
Is Monero More Private than Bitcoin?
The single biggest difference between Monero and Bitcoin is the application of privacy features. Bitcoin was always meant to act as an open and immutable blockchain, allowing anyone to access and analyze data. The spectacular growth and usage of the Bitcoin blockchain was always going to create issues regarding privacy, especially when so many Bitcoin and cryptocurrency users are privacy advocates.
Bitcoin’s privacy features are bolt-ons. Developers are adding Bitcoin privacy features as quickly as possible. But because of the nature of the Bitcoin blockchain and its previous development, privacy features are optional, rather than mandatory. The idea that Bitcoin will protect your privacy is wrong. Bitcoin can help enhance your privacy if you use it in a certain manner, using specific privacy-focused wallets, purchasing your Bitcoin anonymously, and so on.
Whereas, with Monero, those privacy features are built-in, switched-on, and waiting to go. In that, yet, Monero is more private than Bitcoin.
The difficulty is that for all of Monero’s excellent security and privacy features, there are only a few thousand Monero transactions per day, versus hundreds of thousands of Bitcoin transactions. The rate of Bitcoin adoption continues to grow. The same does not apply to Monero, even with the prospect of new privacy features. Even the introduction of a Monero update that slashed Monero transaction fees didn’t rouse the Monero blockchain.
The reality is that Monero will remain a handy-but-specialist privacy-focused blockchain, competing with the other privacy-focused cryptocurrencies.
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