In the cryptocurrency world, Monero (XMR), which has been around since 2014, is the most popular coin for people who want their transactions to be as private and untraceable as possible. Its design obscures the identity of the sender/receiver as well as the amount being sent. Until now, its transactions were thought by many—especially its users—to be completely private and untraceable.
Now, however, thanks to a joint paper by a group of researchers from several top universities, (including Princeton and MIT), it seems that such high confidence may have been misplaced. In particular, they point out to two weaknesses in Monero’s strategy for ensuring that transactions are untraceable.
Monero uses ring signature technology, which enables transaction mixing to hide the true source of funds in a transaction. What this means is that when a user is sending funds, several other users’ funds also show up in the transaction as possible sources for the funds being sent; the greater the number of “mixins” (or decoys), the longer the transaction time and the greater the transaction cost; the default value is 4. Unfortunately, many mixins can be ruled out by deduction. And the second problem is that 80% of the time, the real “input” is the “newest” (most recent) one.
Although these two weaknesses have been known to Monero’s developers since 2015, it was not until February 2017, when Monero’s implementation was modified, that these concerns were addressed, thus making post hoc de-anonymization more difficult. According to the researchers, transactions prior to this date are at significant risk of being identified.
When Wired recently contacted one of Monero’s two known core developers, Riccardo Spagni, regarding the researchers’ findings, he said that:
“Privacy isn’t a thing you achieve, it’s a constant cat-and-mouse battle.”
Finally, when it comes to privacy-focused cryptocurrencies, it is important to note that a vulnerability might be discovered at some point in future that allow discovering what happened in the past since the blockchain provides a permanent record of every transaction that has taken place.