Recently, Monero users have been praising Bulletproofs for their drastic reduction in transaction fees. The chart below describes how Monero’s transaction fees were reduced by 96%. While, the community has acknowledged Monero for their reduction in transaction fees, the real impact of Bulletproofs will be found in their long-term privacy solutions.
One of the most beneficial aspects of Monero Bulletproofs are their ability to conceal the amount of input and output during a transaction. Therefore, no government or entity can track the amounts spent. Bulletproofs are a form of a protocol known as a Zero-Knowledge Proof.
Prior to the innovation of Zero-Knowledge Proofs, there were efforts to conceal transaction amounts. For example, CoinJoin was an idea where groups of people participate in a transaction to hopefully blur the amounts users have spent. By combining all transaction amounts, the idea was to make it computationally difficult to determine the amount included in a user’s transaction. Unfortunately, there are disadvantages to CoinJoin. If people are trading different amounts, it is very easy to track which input belongs to which output because of the amounts involved.
This leads to Zero-Knowledge Proofs, which do a nice job of concealing transaction amounts. But if the amount in the transaction is encrypted, how do we know if the user did not spend what they did not have? And how do we know if the user did not create money from nothing? The breakthrough that allows us to do this is known as Zero-Knowledge Proofs. This protocol can prove something is true without knowing specific underlying data. Zero-Knowledge Proofs involve extremely complex and specialized math, which essentially can add the inputs and outputs together and prove that they add up to zero without knowing the values of the inputs or outputs. This problem seems impossible to solve, yet Zero-Knowledge Proofs are able to provide a solution.
If you encrypt values, A is the input and B is the output. A programmer can then apply a proof that states, ‘A and B must cancel out each other and the sum of the input and the output must equal zero,’ Therefore no new money is being created, it is only being transferred.
Up until now, a problem with non-interactive Zero-Knowledge Proofs is that are very large and use a significant amount of data. For example, a transaction including Zero-Knowledge Proofs may be 20 kilobytes, while a normal transaction is only 200 bytes. This is not a practical or sustainable trade off. This problem drastically lowers the capacity of a blockchain because adding the Zero-Knowledge Proof just made the transaction 100x larger.
The innovation of the Monero Bulletproof solves this sizing problem. A Monero Bulletproof can prove that the numbers in the inputs and outputs are within a range without exhausting as much data. This is truly a great demonstration of the advancement of cryptography, and it shows how the momentum of Bitcoin and cryptocurrencies are continually expanding the scientific boundaries of cryptography. As a result, privacy became a lot cheaper and much more practical for every transaction. This is yet another step in scaling up privacy features which will maintain the integrity and purpose of cryptocurrencies for decades to come. In a cashless society, it is essential for citizens to have a right to privacy. No government should have access to every digital transaction a citizen has ever made. Monero and innovations like Bulletproofs will ensure citizens retain their right to private transactions.