Monero is a cryptocurrency that allows a high degree of anonymity. First, you have to understand what anonymity means on the blockchain.
Bitcoin is Partially Anonymous
Bitcoin is only anonymous to a certain extent. For every transaction stored on the blockchain, you can see the sender address, the recipient address, and the amount transferred. There are different analysis methods and attacks (dusting attack) to get at identities. Basically, the Bitcoin blockchain is extremely transparent, as all transaction flows can be traced forever.
Monero offers FULL Anonymity
Monero implements Cryptonode, a protocol that obscures all operations on the blockchain. Each recipient receives a unique address for each transaction, a so-called stealth address, which cannot be assigned to his public address. The recipient can use his private key to identify the transaction on the blockchain.
The transmitter is masked by so-called ring signatures. Random transactions on the blockchain are mixed with the correct transaction. The miners can use a cryptographic process to confirm that one of the transactions in the ring signature was signed with the correct key. But you dont know which ones. So, looking at the blockchain, you cant tell which of the transactions was issued. The number of transactions for the ring signature is variable. The more participating transactions there are, of course, the more secure the whole thing is.
Anonymous? Read onRing signature vulnerability
However, the ring signature is also a weak point. For example, an attack called FloodXMR was presented that exploited this vulnerability. A lot of mini-amount transactions were created. The greater the number of these transactions in relation to the rest of the transactions on the blockchain, the more precisely the sender can be identified. This uses random transactions on the blockchain for the ring signature in order to hide in it.
If in the worst case, it takes all transactions from one party to merge, this party can understand which transaction is the sender transaction and ...
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