Monero (XMR) was among the first cryptocurrencies to feature cryptography that offered real advances in privacy and fungibility over available alternatives.
Its key differentiator was its ability to allow users to send and receive transactions without making this data available to anyone examining its blockchain.
As such, Monero is often classed with other privacy cryptocurrencies such as Zcash (ZEC) that have sought to address privacy weaknesses in Bitcoin (BTC). (On Bitcoin, transactions reveal the amount exchanged as well as data about the sender and receiver by default.)
This, in turn, enables bitcoins to be traced, making them less fungible, as companies are able to identify and blacklist coins involved in suspected criminal enterprise, as an example.
However, while projects like Zcash enjoyed media fanfare and backing from venture capitalists, Monero’s origins are more comparable to Bitcoin’s, involving a small online tech community that grew quietly over time as the project gained credibility and market share.
But Monero has also differentiated in other areas apart from just privacy.
For example, Monero’s software is programmed to update every six months, a regular schedule that has helped it more aggressively add new features without much controversy.
This has meant that Monero has been able to continue to introduce cryptographic advances like stealth addresses (which allow users to create one-time addresses) and ring confidential transactions (which hide transaction amounts).
Given its willingness to pioneer such advances, Monero continues to attract interest from cryptographers and researchers looking to push the limits of what’s possible in cryptocurrency.
Who Created Monero?
Monero’s origins are among the more unusual among major cryptocurrencies, involving unknown developers, accusations of fraud, and ultimately, multiple rebrandings of the project.
The story begins in 2013 with the release of the CryptoNote white paper, authored by developer Nicolas van Saberhagen. The paper would draw notice in the cryptography community, with renowned Bitcoin developers Gregory Maxwell and Andrew Poelstra authoring their own work on its implications for cryptocurrencies.
However, initially, this didn’t translate into success for its pioneering ideas.
Soon after, CryptoNote was used to create a new cryptocurrency called “Bytecoin,” though the project would collapse under allegations its developers had tampered with its supply.
The codebase that would eventually form the basis for Monero was later launched in April 2014 as “Bitmonero.” Developers, however, had to fork again amid controversy, shortening the cryptocurrency’s name to Monero, Esperanto for the word “coin.”
How Does Monero Work?
Aside from its privacy features, Monero works similarly to other major cryptocurrencies, using proof-of-work mining to control the issuance of XMR and to incentivize miners to add blocks to the blockchain. New blocks are added roughly every two minutes.
Notably, though, hobbyists may find that mining XMR is easier than on other cryptocurrencies, as the algorithm that governs this process is designed to prevent against specialized hardware.
This means users may be able to generate XMR when mining with a laptop (CPU) or graphics card (GPU), lower-cost forms of hardware that are more widely available.
Monero stands out in the cryptocurrency world for its focus on privacy and anonymity. Unlike Bitcoin and many other cryptocurrencies where transactions are publicly viewable on the blockchain, Monero transactions are obfuscated to protect user confidentiality. Here’s a breakdown of the key technologies that enable Monero’s privacy features:
- Ring Signatures: Traditional transactions on a blockchain reveal the sender’s address. Monero utilizes ring signatures to hide the sender’s identity. In a ring signature, a group of users’ public keys are combined, making it impossible to identify which key originated the transaction. It’s like a group signing a document where you can’t tell who actually wrote it.
- Stealth Addresses: Monero generates a one-time unique address for each transaction recipient. This eliminates the possibility of linking addresses to specific users and tracking their transaction history. Imagine a new mailbox created for every delivery, making it difficult to trace who receives what.
- RingCT (Ring Confidential Transactions): Not only does Monero hide the sender’s identity, but it also conceals the transaction amount. RingCT utilizes complex cryptography to ensure that only the sender and receiver know the amount transferred, while still allowing the network to verify the transaction’s validity.
Overall Effect:
These technologies working together make Monero transactions opaque. It’s difficult to trace the origin, destination, or amount of funds being transferred. This level of privacy makes Monero appealing to users who value financial anonymity and fungibility (where every unit of Monero is interchangeable).
Additional Points:
- Trade-offs for Privacy: Monero’s privacy features come with some trade-offs. The complex cryptography used for anonymity can make transactions larger and slower compared to some other cryptocurrencies.
- Regulation and Potential for Abuse: Monero’s privacy features have drawn scrutiny from regulators who are concerned about its potential use in illegal activities. It’s important to remember that using cryptocurrency for illegal purposes is a crime.
- Technology is Still Evolving: The world of cryptocurrency and blockchain technology is constantly evolving. While Monero’s privacy features are robust, there’s always the possibility of new techniques emerging that could challenge its anonymity.
In conclusion, Monero leverages a combination of cryptographic techniques like ring signatures, stealth addresses, and RingCT to provide a high level of privacy for its users. This makes Monero unique in the cryptocurrency landscape, but it’s important to be aware of the trade-offs and considerations surrounding its use.
What Makes Monero Private?
Not all privacy cryptocurrencies achieve privacy in the same way, and as a result, users should not consider them equal offerings or interchangeable.
XMR, for example, should be viewed as a tool that, when used correctly, obscures user data on the blockchain, making its users more difficult to trace.
The technology that makes this obfuscation possible, Monero uses Ring Signatures to mix the digital signature of the individual making an XMR transaction with the signatures of other users before recording it on the blockchain. This way, should you look at the data, it would appear as if the transaction was sent by any one of the signers.
Monero’s claim to fame is its focus on obfuscating transactions on the blockchain, making them difficult to trace and anonymizing the sender, receiver, and even the amount of cryptocurrency transferred. Here’s a deeper dive into the specific technologies that achieve this remarkable privacy:
- Ring Signatures: In a typical blockchain transaction, the sender’s address is visible for everyone to see. Monero utilizes ring signatures to shroud the sender’s identity. Here’s how it works:
- A group of users on the network (including the actual sender) combine their public keys to create a ring signature.
- When a transaction is broadcast, it includes this ring signature along with the recipient’s address and the transaction amount (initially).
- Anyone looking at the transaction on the blockchain can verify its validity using the ring signature, but they cannot pinpoint which key within the ring actually originated the transaction. It’s like a group signing a document – you can confirm it’s valid but can’t tell who actually wrote it.
- Ring Confidential Transactions (RingCT): This technology goes beyond hiding the sender’s identity. It conceals the transaction amount as well. Here’s the gist:
- RingCT utilizes complex cryptography to break down the transaction amount into random one-time amounts for each member of the ring signature (including the real sender).
- Only the sender possesses a special key that can recombine these one-time amounts to reveal the true transaction amount.
- The recipient also gets a copy of this key along with the transaction. This allows them to verify that they received the intended amount without revealing it to anyone else on the network.
- Stealth Addresses: Monero ditches the typical reusable public address system for receiving funds. Instead, it generates a unique one-time address for each recipient. Here’s the benefit:
- By using a new address for every transaction, it becomes nearly impossible to link addresses to specific users and track their transaction history. Imagine a new mailbox created for every package delivery – there’s no way to trace who receives what based on the addresses alone.
Synergy for Privacy:
These three technologies work in concert to create a strong shield around Monero transactions. The ring signature hides the sender, RingCT conceals the amount, and stealth addresses prevent tracing the recipient.
Important Considerations:
- Privacy vs. Scalability: The complex cryptography behind Monero’s privacy features can lead to larger transaction sizes and slower processing times compared to some other cryptocurrencies.
- Regulation and Potential Misuse: Monero’s privacy features have raised concerns with regulators who fear it might be used for illegal activities. It’s crucial to remember that using any cryptocurrency for illegal purposes is a crime.
- Evolving Landscape: The world of cryptocurrency and blockchain technology is constantly developing. While Monero’s privacy measures are strong today, new techniques might emerge in the future that could challenge its anonymity.
Ring Signatures
Over the years, Monero has experimented with altering the number of signatures involved in this mixing process, at one time even allowing users to specify a desired number.
As of 2019, however, a default monero transaction is now set, adding 10 signatures to every transaction group and mixing 11 signatures in total.
Stealth Addresses
Yet another feature contributing to Monero’s privacy is Stealth Addresses, which enable users to publish one address that automatically creates many one-time accounts for every transaction.
Using a secret “view key,” the owner can then identify their incoming funds as their wallet can scan the blockchain to identify any transactions with that key.
RingCT
Introduced in 2017, Ring Confidential Transactions hide the amount users exchange in transactions recorded on the blockchain. In effect, RingCT makes it so transactions can have many inputs and outputs, while preserving anonymity and protecting against double spends.
Why Use XMR?
The big reason to learn how to use Monero may be for its privacy. As transactions can’t easily be traced on its blockchain, users may more freely exercise their ability to send and accept crypto in all types of transactions.
Besides being secure and untraceable, this makes XMR fungible. This means companies can’t reject XMR because they may have been involved in objectionable activity.
Likewise, investors who believe cryptocurrency users will eventually demand more privacy may find it to be a valuable addition to their portfolio.
Further, XMR may be appealing to any user who wants to push the boundaries of cryptography in cryptocurrencies, paving the way for money systems that allow individuals around the world to save and pay without oppression.
Why Does XMR Have Value?
Traders should note that Monero is also rare among major cryptocurrencies in that it doesn’t have a fixed supply. That means that, unlike Bitcoin, which ensures just 21 million bitcoins will ever be minted, Monero is programmed to continuously create new XMR.
Under Monero’s software rules, rewards for new blocks will never drop to zero. (After May 2022, block rewards are scheduled to be fixed at 0.6 XMR per block.)
At that time, roughly 18.4 million XMR are expected to have been issued.
However, because the supply of XMR is known and users can prove they have ownership over their coins, XMR is able to serve as a form of value in the similar way as BTC.
Still, investors and traders should note the XMR money supply will continue to grow, meaning it may not be as strongly suited to acting as a savings mechanism.
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