Privacy is essential in blockchain. Many cryptocurrencies record transaction details on public ledgers, exposing financial activity to anyone. This lack of privacy creates risks, from targeted advertising to severe security threats.
CryptoNote is a protocol designed to address this issue. It adds privacy features that obscure transaction details, making payments harder to trace. Monero and other cryptocurrencies use this technology to enhance user confidentiality.
In this interview with Lorena Nessi, Andrey Sabelnikov, co-founder of Zano and the developer behind CryptoNote, shared his insights on blockchain privacy. He explained how CryptoNote works, the challenges of keeping transactions private, and the misconceptions surrounding privacy-focused cryptocurrencies.
But can true anonymity ever be guaranteed in a world of increasing surveillance?
The Inspiration Behind CryptoNote’s Development
Andrey Sabelnikov entered the world of privacy-focused blockchain protocols in 2012 when he joined the CryptoNote team. At the time, he “knew very little about cryptocurrency” and was “skeptical about the whole idea of decentralized internet money.”
However, he soon realized that it involved a level of “rocket science,” as he put it, that he had never encountered before. “It took quite some time to grasp the fundamental concepts of blockchain technology, and the more I learned, the more challenging—and therefore exciting—it became,” he said.
Unlike other protocols based on Bitcoin, CryptoNote “wasn’t a fork of Bitcoin; it was built entirely from scratch.” Sabelnikov explained that the protocol introduced “untraceability” and “unlinkability,” establishing new privacy standards that remain central to privacy-focused cryptocurrencies today.
How CryptoNote Ensures Anonymity
CryptoNote enhances privacy through cryptographic techniques that obscure transaction details. Sabelnikov explained that ring signatures hide the true signer of a transaction by mixing the real input with multiple randomly selected inputs from past transactions on the blockchain.
These additional inputs, known as decoys, make it impossible to determine which input actually belongs to the sender. He elaborated, “The signature proves that one input in the group is valid without revealing which one it is,” making it “computationally infeasible to determine which specific output was actually spent.”
He also highlighted another privacy feature: “Stealth addresses add another layer of privacy by generating a unique, one-time address for every transaction,” ensuring transactions cannot be linked to specific recipients.
CryptoNote has powered multiple privacy-focused cryptocurrencies. “One of the most prominent implementations of the CryptoNote protocol” is Monero (XMR), Sabelnikov said, highlighting its use of ring signatures, stealth addresses, and RingCT to protect user privacy. He also mentioned Zano, which builds on CryptoNote’s foundation while improving usability and scalability.
Challenges in Maintaining Privacy on Public Blockchains
Public blockchains offer transparency, but that also makes privacy harder to maintain. Some of the main challenges come with how privacy coins can be misunderstood and the ongoing struggle to balance privacy and scalability.
Sabelnikov explained that “numerous digital traces can still undermine anonymity,” including network layer metadata, transaction timing, and dust attacks. “Each piece of data can help adversaries form assumptions about users’ activities,” making complete privacy difficult to achieve.
He also addressed a common misconception, saying it is a myth “that these systems are completely anonymous and untraceable. While technologies like ring signatures and stealth addresses make tracking difficult, clever analysis and off-chain data collection can still compromise user anonymity.”
Privacy-focused cryptocurrencies strengthen financial security, but no system guarantees absolute anonymity. Understanding their limitations is just as important as recognizing their benefits.
Misconceptions About Privacy Coins
Privacy coins are often misunderstood. Sabelnikov dismissed claims that they exist solely for illicit activities, calling them an oversimplification. “Many legitimate users rely on privacy measures to protect personal or commercial information,” he stated. Privacy coins “aren’t an all or nothing approach to secrecy; they’re simply designed to grant users greater control over how much information they share publicly.”
The Privacy and Scalability Trade-Off
Balancing privacy and scalability remains a major challenge. Sabelnikov explained that “privacy-enhancing mechanisms—such as ring signatures, stealth addresses, and zero-knowledge proofs—introduce additional computational overhead and increase transaction sizes.”
While solutions like bulletproofs and confidential transactions improve efficiency, achieving both privacy and scalability “remains one of the most active and challenging frontiers in blockchain development.”
Ethical Considerations in Privacy-Focused Blockchain Technology
Sabelnikov believes that “a key ethical consideration when implementing privacy features is maintaining impartiality.” Developers should not dictate how users engage with privacy tools but should focus on “delivering robust and reliable code, not acting as arbiters over how people choose to use it.”
“By remaining neutral and committed to building open-source, censorship-resistant technology, we ensure that privacy remains a fundamental right rather than a tool subject to external influence,” he said.
Developers working on privacy-focused applications must consider all possible data leaks. Sabelnikov advised them to “evaluate how users interact with your app, what metadata might be exposed via off-chain channels, and how external services may undermine anonymity.” He recommended frequent audits and active engagement with the cryptography community to follow best practices.
Public Perception and Regulation of Privacy Coins
Privacy coins face skepticism but also growing interest. Sabelnikov acknowledged that “negative stereotypes—such as the assumption that privacy coins are primarily used for illicit activities—can deter mainstream users.” However, he also noted that “growing awareness of data privacy and the risks of centralized surveillance” has increased demand for privacy-preserving solutions.
Governments play a crucial role in shaping blockchain privacy. “Governments should support privacy-focused innovations as part of preserving basic civil rights,” Sabelnikov stated. He called for “an open dialogue to ensure that new rules accurately address real-world challenges and risks.” Encouraging cryptographic research can help balance privacy rights with regulation.
The Future of Privacy in Blockchain
Privacy features must keep evolving to counter blockchain surveillance. Sabelnikov predicted that “privacy features will need to evolve to stay one step ahead” as blockchain analysis tools become more advanced.
He believes CryptoNote provides “a robust foundation that can be enhanced and adapted to new challenges.” Zero-knowledge proofs and more efficient cryptographic methods will likely strengthen privacy without reducing performance.
By staying at the forefront of cryptographic innovation, CryptoNote will continue shaping the future of privacy-focused blockchain systems.
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