CryptoNote is an open-source technology and concept that allows the creation of completely anonymous cryptocurrencies.
CryptoNote implements the ring signature technology, the sophisticated scheme, which in fact may demand several different public keys for verification. In the case of ring signature, there is a group of individuals, each with their own secret and public key. The statement proved by ring signatures is that the signer of a given message is a member of the group. The main distinction with the ordinary digital signature schemes is that the signer needs a single secret key, but a verifier cannot establish the exact identity of the signer.
Ring signature concept can be used to make digital transactions sent to the network untraceable by using the public keys of other members in the ring signature one will apply to the transaction. This approach proves that the creator of the transaction is eligible to spend the amount specified in the transaction but his identity will be indistinguishable from the users whose public keys he used in his ring signatures.
It should be noted that foreign transactions do not restrict you from spending your own money. Your public key may appear in dozens of others' ring signatures but only as a muddling factor (even if you already used the corresponding secret key for signing your own transaction). Moreover, if two users create ring signatures with the same set of public keys, the signatures will be different (unless they use the same private key).Unlinkable transactions
An important part of CryptoNote protocol is usage of random data by the sender. It always results in a different one-time key even if the sender and the receiver both remain the same for all transactions (that is why the key is called "one-time"). Moreover, even if they are both the same person, all the one-time keys will also be absolutely unique.
Thus, untraceable payments and unlinkable transactions are providing blockchain analysis resilience to CryptoNote technology.Egalitarian proof-of-work
CryptoNote uses CryptoNight hashing algorithm as its proof-of-work.
CryptoNight proof-of-work algorithm is designed to make CPU and GPU mining roughly equally efficient and restrict ASIC mining.
CryptoNote brings the equality with an egalitarian proof-of-work pricing function, which is perfectly suitable for ordinary PCs. It utilizes built-in CPU instructions, which are very hard and too expensive to implement in special purpose devices or fast memory-on-chip devices with low latency.
A new memory-bound algorithm for the proof-of-work pricing function relies on random access to a slow memory and emphasizes latency dependence. As opposed to scrypt, every new block (64 bytes in length) depends on all the previous blocks. As a result a hypothetical "memory-saver" should increase his calculation speed exponentially.