Notes on Cryptonote

Submitted by befrank on Sat, 02/03/2018 - 16:37

Bitcoin's challenges

Cryptonote's creators spotted some (ideological?) issues in Bitcoin's (Blockchain's poster child currency) approach, and set out to solve them. The key issues seemed to be:

  1. Bitcoin is fundamentally a pseudo-anonymous electronic cash system. Workarounds have been made but they remain just that: workarounds. For example: the IRS analyzing transactions to find tax cheats

  2. Bitcoin's implementation of proof of work, which includes a risk of failure on the "one CPU one vote" principle as well as on propagation over system updates.

  3. Bitcoin's irregular emission of the hashrate as a consequence of halving the mining reward every 4 years. This could create dips that risk to be opportunities for bad actors. 

  4. Inefficiency in system change because of hardcoded constants (e.g., block size), which combined with #2 create unpredictable situation that risk the success of the network.  For example: the much debated Bitcoin (Core) and Bitcoin Cash debacle.

CryptoNote's solutions

  • CryptoNote provides anonymous transactions via unlinkable public keys and ring signatures. In other words: 3rd parties can't figure out sender, receiver or even the amount on the transaction.

  • CryptoNote lowers the barrier to serve as a miner in the network because of the more egalitarian proof of work via algorithm's efficiency on regular CPUs (versus GPU or specialized ASIC hardware). In other words: your desktop / laptop / server or even mobile phone can add relative significance to the network.

  • CryptoNote has a smooth emission of new coins.

  • CryptoNote is resilient as it adapts its network dynamically (as opposed to developer made code changes) via its dynamic parameters. In other words: you are not dependent on the whims of a handful of developers as the network monitors its behavior and adapts accordingly.

Philosophical alignment

As the cherry of the cake we've found that CryptoNote's philosophy aligns very well with BeFrank's why.

CryptoNote philosophy is built on privacy as a fundamental human right, and egalitarianism.[24] According to the whitepaper, the CryptoNight algorithm is intended to make the coin adhere to Satoshi Nakamoto's original vision of “one-CPU-one-vote” system. Thus the tremendous advantage GPUs have over CPUs in most cryptocurrencies is considerably decreased in CryptoNight. Whether if this is a good thing or not is debatable.[25]

Further reading


This summarises the CryptoNote white paper very well. I would like to add that the "level of anonymity" is configurable per transaction. The more diffuse (thus more other keys involved in the ring), the more expensive your transaction is for the miners. That means that this is compatible with my ideology that anonymity should be a choice, and that those who do not need it are rewarded.

Thanks. If I understand it correctly this means that the user can essentially choose for every transaction (with default for usability of course) what level of anonymity they want, and have a related potential cost for that transaction.

More reading on the subject:

  • A StackExchange Q&A which explains how the level can be chosen by the number of mixins (ring signature terminology) for the transaction. In other words how many other keys you want to mix your transaction with. The more keys the higher the level of anonymity.
  • A CryptoNote forum discussion describing the cost of anonymity and the comparison with Bitcoin.