A cryptographic digital signature that obfuscates the identities of two parties within a transaction.
Ring signatures are a cryptographic tool that help to deliver anonymity to users. This technology is used by privacy coins such as Monero — making it difficult for outsiders to deduce the sender and recipient in a transaction.
Let’s imagine that Tracy wants to send 50 XMR to Nicky. She would be given a one-time spend key. To ensure that her identity can withheld, a number of people involved in past transactions would be selected at random in order to serve as decoys. This means that, to a casual observer, it would be possible that any single one of them could be involved.
In future, Tracy’s public key may end up being used to serve as a decoy in other ring signatures.
Over recent years, several government agencies have expressed concern about Monero and similar digital assets, amid concerns that these altcoins could be used for tax evasion, money laundering, or to finance terrorism.
Indeed, the US has made a concerted effort to crack Monero’s systems in order to ensure that the true participant in a ring signature can be identified. The IRS has spent hundreds of thousands of dollars in an attempt to find a workaround.