PrivateSend ensures the financial privacy of users by obscuring the origins of their coins. This makes it no longer clear from which sender the coins originate. Coins in a wallet usually come from different "inputs", each of which can be seen as a separate coin. PrivateSend uses an innovative process to mix the different inputs of one user with those of two other users. The coins do not have to leave their wallet. This process is called Coin Mixing and is done by the Masternodes. The user retains full control of his balance at all times.
The PrivateSend process works as follows:
- For PrivateSend it is necessary that the odd transaction inputs be split into standardized denominations. These denominations are 0.001 Coin, 0.01 Coin, 0.1 Coin, 1 Coin and 10 Coins. These are similar to the notes and coins used in everyday life.
- The user's wallet then sends requests to specially configured software nodes, the so-called "Masternodes". These masternodes indicate which denominations should be mixed. However, no identity-related information is forwarded to the master nodes. That's why it's not known who "sent" the requests.
- If two more users signal that they want to mix the same denomination, the mixing process is initiated. The Masternodes mix the inputs. They instruct the wallets of the users to transfer the mixed inputs back to themselves. The wallet pays off the denomination itself, but sends it to another address (the change address).
- To completely disguise your balance, your wallet must repeat this process several times for each denomination. Each time the process is completed, this is called a "round". Every round of PrivateSend makes it exponentially harder to determine where your money came from. The user can choose between 1-16 mixing rounds.
- The mixing process takes place in the background without the user having to intervene. When the amounts are used for a transaction, they are already anonymized. The transaction requires no additional waiting.
It is important to note that PrivateSend transactions are rounded up, as all the input from an address is sent. Everything extra is integrated into the transaction costs.
IMPORTANT: A wallet contains only 1000 "change addresses". Each time an operation is used, an address is used. Once all addresses have been used up, the wallet has to generate new ones. This is only possible if automatic backups are enabled. Therefore, PrivatSend is only for users who have activated their backups.
Most of this information was acquired and generalized by Dash Core, for the most part.