How does Monero ensure fungibility?

Monero ensures fungibility through its privacy-enhancing features and commitment to transaction obfuscation. Fungibility refers to the property of a currency where each unit is interchangeable and indistinguishable from every other unit. Here's how Monero achieves fungibility:

1. **Ring Signatures**: Monero uses ring signatures to obfuscate the origin of funds in a transaction. When a transaction is initiated, the sender's input is mixed with several other inputs from the blockchain, forming a "ring" of possible signers. This makes it impossible to determine the true source of funds, ensuring that all Monero coins are equal in value and cannot be distinguished based on their transaction history.

2. **Stealth Addresses**: Monero generates unique, one-time stealth addresses for each transaction. These addresses are derived from the recipient's public address and a random number, ensuring that each transaction has a unique destination address. This prevents outside observers from linking transactions to specific recipients and enhances the fungibility of Monero coins.

3. **Ring Confidential Transactions (RingCT)**: Monero integrates RingCT, which hides transaction amounts while still allowing for verification of transaction validity. RingCT combines ring signatures with confidential transaction amounts, ensuring that the amount of Monero being transacted remains confidential. This prevents outside observers from analyzing transaction amounts on the blockchain and preserves the fungibility of Monero coins.

4. **Decoy Outputs**: In addition to ring signatures and stealth addresses, Monero includes decoy outputs in each transaction. These decoy outputs are additional unspent transaction outputs (UTXOs) from the blockchain that are included in the ring signature to further obfuscate the transaction. This makes it even more difficult for outside observers to trace the origin of funds or link transactions to specific users, enhancing the fungibility of Monero coins.

Overall, Monero's privacy-enhancing features, including ring signatures, stealth addresses, RingCT, and decoy outputs, work together to ensure the fungibility of Monero coins. By obfuscating transaction details and preserving user privacy, Monero maintains a high level of fungibility, making all coins interchangeable and indistinguishable from one another.