One of the most prominent features of cryptocurrency is the transactional privacy that pseudonymity offers. However, most cryptocurrency transactions are recorded on public blockchains, limiting user privacy. To address this issue, privacy-focused cryptocurrency Monero uses ring signatures to enable anonymous transactions.

Read on as we discuss what ring signatures are and how this technology works. 

What Are Ring Signatures?

Ring signatures are cryptographic digital signatures that ensure secure and private transactions without revealing the identity of the transactor. 

Traditionally, digital signatures only use one key, which anyone can easily link to a specific user. This means tracing a transaction back to the party that executed it is possible. 

In 2021, a group of researchers called the Rivest, Shamir, and Tauman (RST) group recognized this problem and introduced ring signatures to sign messages as a group and keep the identity of the actual signer anonymous. 

The privacy-based cryptocurrency Monero uses ring signatures in its infrastructure to protect its users’ identity during transactions. 

How Do Ring Signatures Work?

Ring signatures utilize the discrete logarithmic problem to allow group members to sign a message using their keys jointly. The computations make it impossible for any third party to determine the private keys used for the signature creation. 

In a Monero (XMR) transaction, ring signatures work as follows:

  1. A transaction is initiated by a user. Let’s call her Alice, who is the actual signer. The signer is a one-time, unique spend-key that corresponds with an output being sent from their wallet. 
  2. The transaction is broadcast to the Monero network. 
  3. The blockchain then automatically pulls signatures from past transactions, which will act as the other extra signatures in the final ring signature. However, the other additional signatures are just decoys.
  4. Once all the signatures are together, they form one signature, which will be used to complete the transaction. To an outside party/observer, all the signatures, which include Alice’s original signature and the decoy signature, appear the same until the transaction is complete. This helps to hide her identity and ensure transaction privacy. 

Advantages of Ring Signatures

Ring signatures offer several benefits, such as: 

  • Transactional privacy and user anonymity: Ring signatures provide transactional privacy and anonymity for cryptocurrency users. 
  • Increased security: Third parties cannot tamper with or forge ring signatures. 
  • Scalability: The concept of signing a message on behalf of a large group of users has potential for applications beyond transactions. Examples of such applications include anonymous communication, whistleblowing, group authentication, and voting systems.  

Disadvantages of Ring Signatures

Ring signatures have some downsides: 

  • Transaction speed & fees: Unlike traditional digital signatures, ring signatures are larger, given the feature of using group keys as decoys. Consequently, this can cause network congestion and slow down transactions, subjecting users to higher fees. 
  • Anonymity is not always guaranteed: It is possible to trace transactions in small groups, especially if the user’s real identity is known. 

The Role of Ring Signatures in Monero’s Transactional Privacy

Launched in 2014, Monero (XMR) is an open-source cryptocurrency focused on anonymity. The main privacy-enhanced technology used on the Monero network is ring signatures. 

The level of privacy that Monero’s ring signatures offer is exceptional to the point where the IRS issued a bounty in 2020 to anyone who could crack the privacy layers. 

Sending XMR involves several users appearing to be the source of the funds. There are no ways to revoke the ring signature used in the transaction, ensuring the sender remains anonymous. 

For example, say you want to send XMR to another user. If your ring signature size is 10, one input will be from your wallet, and the remaining nine will come from past transaction outputs from the Monero blockchain. The nine decoys then fuse with the legitimate input to form a group of 10 possible signers. The network uses a key image to confirm that no one has spent the XMR before. However, a third party cannot confirm the legitimate input. 

Ring signatures are an essential technology in advancing privacy as a fundamental right. The need for anonymity and privacy continues growing, and such tools could be used for applications beyond cryptocurrency transactions.