Monero Gears Up for Full-Chain Membership Proofs to Strengthen Privacy
The new update is a response to the Chainalysis leak, in which the company revealed a method for tracing some of Monero’s transactions.
Monero is preparing to release Full-Chain Membership Proofs (FCMP), which are currently undergoing extensive blockchain audits. FCMP is Monero’s response to a leaked Chainalysis video that revealed a method for tracing Monero transactions.
Traditionally, Monero relies on Ring Signatures to anonymize transactions on the blockchain. These signatures conceal the actual transaction by mixing it with 15 decoy transactions selected from the blockchain.
However, Chainalysis discovered a way to trace these transactions by deploying malicious nodes and linking them to centralized data providers, such as wallets and exchanges. By operating numerous XMR nodes across different geographical locations, they captured transaction IP addresses and timestamps. When combined with fake "decoy" inputs, this method compromised the anonymity of certain Monero transactions.
While this approach is labor-intensive and does not guarantee the de-anonymization of every transaction, its ability to expose some transactions poses a significant challenge for a cryptocurrency marketed as bulletproof for privacy.
Full-Chain Membership Proofs aim to address this vulnerability for senders. With FCMP, any output on the Monero blockchain can act as the spent output. This significantly expands the anonymity set of transactions from 1-in-16 to over 1-in-100 million, making transaction analysis methods like those used by Chainalysis impractical.
To further combat this issue, it has been recommended that node operators block a list of suspected spy node IP addresses to enhance network privacy. Currently, Monero operates over 4,800 nodes, with more than 3,200 located in the U.S. and the rest distributed globally. The suspected number of spy nodes on this list is estimated at over 400.
When compared to Zcash, it’s worth noting that Zcash’s technology is theoretically superior. Zero-knowledge proofs, employed by Zcash, do not hide transactions among others but instead use advanced cryptographic techniques to enable fully private transactions without revealing any details on the blockchain.
However, the best technology does not always win. Factors like user adoption and network effects also play a crucial role. Monero has consistently prioritized privacy over regulatory compliance, refusing to compromise on its core values. This stance has earned it strong support from the crypto community, particularly among privacy advocates, in contrast to Zcash, which has taken a more regulation-friendly approach since its inception.
Despite its technical advancements, Monero and other privacy coins are currently facing challenges. They are being delisted from centralized exchanges, which aim to comply with regulatory requirements.
Examining Monero’s transaction activity since 2021 reveals a steady but stagnant trend. This indicates that, despite regulatory pressures and delistings, there remains a strong use case for Monero among its user base. However, the lack of growth also highlights limitations in further development and adoption.
While Monero appears capable of addressing its technical privacy concerns, the regulatory landscape remains a significant obstacle. The cryptocurrency industry is increasingly leaning toward regulation-friendly practices, leaving privacy-focused projects like Monero in a precarious position.
To survive and thrive, Monero will need to explore innovative strategies to grow its adoption and use. Otherwise, it risks being marginalized in a world that increasingly prioritizes regulatory compliance over privacy.
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