Monero (XMR) Explained - Bloackchain and Transaction Flow
Monero uses an opaque Blockchain along with ring structure. This is instrumental in providing total privacy for the users.
In normal cryptocurrencies when two people engage in a financial transaction, money from one digital wallet is subtracted, and equal amount is added in another’s wallet. In Monero however the transaction is randomized and distributed.
For example say a person ‘A’ wants to transfer 100 Monero to a person ‘B’. Instead of the normal route, the algorithm transfers say 30 Monero from ‘A’ to ‘C’, 50 Monero from ‘A’ to ‘D’, and 20 from ‘A’ to ‘E’. Then ‘C’, ‘D’, and ‘E’ transfer 30, 50, and 20 respectively to ‘B’. Thus the actual transaction of 100 Monero from ‘A’ to ‘B’ has happened but random intermediaries. Larger is the network, larger will be the number of intermediaries.
In a large enough network, this makes it impossible to understand who transferred what amount to whom. What it also does is prevents random strangers from understanding how much total balance you have in your digital wallet, which is a huge failing of Bitcoin. This is very similar to traditional banking, where transactions would not reveal your personal wealth.
Another feature of Monero is that it is fungible or that every coin of the Monero can be used for every other coin. This is a feature that is absent from Bitcoins. When it comes to Bitcoins, certain coins can be banned or devalued, especially if they have been used for illegal purposes. In case of Monero that is not the case.
However this feature has made it notorious for being used by various parties for illegal transactions. The most recent alleged example was when the hacker group ‘The Shadow Brokers’ who were behind the WannaCry ransomware attack, took their ransom in Bitcoins, then converted them into Monero, and then converted them back into Bitcoins.