Monero is the leading cryptocurrency in the privacy category. It has held its status very well over the years. Monero is by far the biggest and the best-known privacy coin out there. This article is the Monero beginner’s guide. We’ll go through the history, technology, and future potential of Monero.
Monero is the king of privacy coins
We like to split cryptocurrencies into three categories: platforms, tokens, and currencies. Let’s go through these categories in order to understand Monero’s place in the crypto universe.
Platforms are also known as operating systems for distributed apps (Dapps). You can think of them as iOS or Android. The best-known platform is Ethereum. Other popular platforms include Cardano, Tron, and Zilliqa.
Tokens are created on these platforms, which means they don’t have their own blockchain. Tokens are typically either utility tokens or governance tokens. Chainlink is the best-known token with DeFi tokens, such as Aave and Uniswap.
Bitcoin is the king of the currency category. Other popular currencies include Bitcoin Cash, Litecoin, Dash, and Monero. These coins are designed to function as digital P2P money with no other major use cases.
Monero is not a direct competitor of Bitcoin, because it belongs to a sub-category called privacy coins. There is a handful of popular privacy coins in the market, including Zcash, PIVX, and Verge.
As the title reveals, Monero is the king of privacy coins. It has had this status for many years. The ticker of Monero is XMR. Next, we’ll go through the history and technology of this cryptocurrency.
Monero is a decentralized project
Monero is a different project compared to almost every other cryptocurrency. It is run by a decentralized group of people, which makes it a lot like Bitcoin. This is one reason why many Bitcoin OGs like Monero of all altcoins.
The history of Monero goes back over five years. It started in April 2014, when a Bitcointalk.org forum user ‘thankful_for_today’ made an announcement of a new cryptocurrency called BitMonero. This was a fork of Bytecoin.
Technically, BitMonero was a clone of the Bytecoin code. BitMonero has its own blockchain and it is not a forked branch of Bytecoin (like Bitcoin Cash to Bitcoin).
An interesting fact: the word monero means “the smallest part of the money” or “a coin” in Esperanto.
In Esperanto, Monero is a word composed of three elements freely put together, one syllabus each: mon + er + o. Each has a meaning. Which means ‘monero’ can be analyzed as meaning: “a noun that describes the smallest part of money”. Or, a coin.
mon- : money
-er- : the smallest part
-o : a thing (grammatically speaking : a noun)
BitMonero didn’t gain much popularity and thankful_for_today departed from the project early on. After this, the Bitcointalk.org community took over and changed the name from BitMonero to Monero.
Bitcointalk.org users ‘Johnny Mnemonic’ and ‘Tacotime’ had a pivotal role at the beginning of the project.
As mentioned earlier, Monero is based on Bytecoin, which was the first privacy coin in the market. Bytecoin was founded in 2012 (this is debated, though) and it is based on open source technology called CryptoNote. The person behind the CryptoNote white paper is also an alias.
Monero is still a decentralized, open-source project. A lot of people associate Monero with Riccardo Spagni a.k.a. Fluffypony.
Many newbies have thought Spagni is the founder or CEO of Monero, but this is not the case. Spagni has often called himself the “Chief Entertaining Officer”. His official role has been the Lead Maintainer.
Unfortunately, Spagni stepped down from the Lead Maintainer position in late 2019. He is still involved with Monero but in a smaller role.
Monero has no CEO or known founder. The development isn’t run by a specific tech company either. This makes Monero different from almost every crypto project there is. Monero is a decentralized project where many of the team members are still behind nicknames.
Monero is linked to criminality and negative news more than most cryptocurrencies. This is due to the fact that XMR is a popular choice for criminals in ransom cases.
One of the most famous incidents happened in 2018. Criminals kidnapped the wife of a Norwegian billionaire and demanded 10 million USD in Monero.
There has been also drama related to cryptocurrency exchanges.
— The Block (@TheBlock__) September 16, 2019
As the tweet above shows, OKEx became one of the exchanges kicking all privacy coins out, including Monero. Coinbase UK and CEX.io are other examples of such scrutiny.
The ever-tightening KYC/AML law is behind these actions. The problem with Monero is there is no way to track where the transaction came from and where the outgoing payments are going. This is the information exchanges are required to have, depending on the jurisdiction.
Monero has kept its status as one of the top 20 cryptocurrencies despite all the negative publicity. It has an ever-growing group of fans, who appreciate privacy. This is not going to change in the future.
Decentralized exchanges and atomic swaps will provide solutions for acquiring Monero, even if exchanges would have to remove it.
Privacy coins hide the transaction data
In order to understand privacy coins, one must first understand the concept of a public blockchain. Bitcoin’s blockchain is a public ledger, which is available for anyone at any time.
Click this link to view the latest blocks in the Bitcoin blockchain. You can click the block number or hash to see all transactions included in that block.
You can view any transaction and see how many bitcoins have been moved from address A to address B. Next, you can click any of the addresses and view its transaction history.
The sender and receiver are protected by public-key cryptography. Even if you can see an address, you don’t know whose address it is.
However, there are situations where an address can be linked to a person. For example, if your friend sends you bitcoins, you can see the address it was sent from. Or, if you see a Bitcoin address anywhere online, you can just copy-paste it to a block explorer and see the history.
This is the reason why Bitcoin (and other public blockchains) are not suited for all use cases. Not just criminals, but normal people and corporations too, want to keep their transactions private.
Would you like to post your bank statements online for anyone to see?
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Another significant point comes from the transaction history. When you buy or receive a coin directly from another user (P2P), you receive a coin with history data included. This coin might have been used in illegal activities by its previous owners.
This means that Bitcoin lacks total fungibility. A freshly minted bitcoin is not identical to a bitcoin that has been used in transactions.
When you look at privacy from this point of view, you’ll notice it’s quite valuable for anyone to have. Not just criminals. It becomes even more valuable when we talk about the commercial use of blockchains.
One can make rich lists and collect lots of data from the Bitcoin blockchain. Nowadays there are quite sophisticated AI algorithms, which can connect millions of transactions to real people.
Monero is solving this problem. Next, we’ll see how it is done in practice.
Monero and the view key
Bitcoin transactions are coins being sent from one address to another, meaning from one public key to another. These addresses (keys) are visible in the Bitcoin blockchain, as explained earlier. The private key is only known by the wallet owner.
Monero is solving the privacy issue by using three different keys: a private key, a public key, and a view key. The private and the public key work just like they do in the Bitcoin blockchain.
The view key is only known by the wallet owner. It can be given to a third party, though, if the address needs to be audited by an authority.
A Monero transaction is done just like a Bitcoin transaction if we look at it from the end user’s perspective. Your coins are being sent from your address to the receiving address.
The video below shows how the Monero wallet works. Sending or receiving Monero isn’t any more complicated than sending or receiving Bitcoin. The difference is that the heavy encryption requires the client to be up-to-date with the whole blockchain each time it’s used. This means the blockchain info must be downloaded before each use, which can take some time.
In practice, the following happens. Your XMR coins are not sent to the address visible in the wallet. A temporary address is created by using your real address (= public key), view key, and a hash function. This is address is called a stealth address and it’s the foundation of Monero’s privacy features.
These are basically one-time addresses. Only the recipient’s private key “knows” it can spend funds from this stealth address. This method helps to keep the receiver’s privacy intact. Nobody can view the transaction history of a stealth address, because there is none.
Ring Signatures hide the receiver
The Monero network is not only protecting the receiver, but it also hides the sender. This is done using the Ring Signature technology, where the sender address is mixed with many decoy addresses. See the image below (source: Monero Youtube).
After this, each transaction is also divided into smaller parts. If you send 12.5 XMR, you might be sending in reality 10 XMR, 2.0 XMR, and 0.5 XMR, meaning three different transactions.
The downside of this technology used to be the fact that the transaction amounts were visible. This was the case a couple of years ago, but not any longer.
Monero made an update called Ring Signature Confidential Transactions (shorter: Ring CT) in January 2017. This enhanced Monero’s privacy features by making transaction amounts also invisible. It also improved the privacy of the Ring Signature technology, because now the Monero wallet can pick decoy addresses among any addresses available.
So, Monero is keeping the sender and receiver private and it also hides the transaction amount. These features make it a unique cryptocurrency and 100% private by default. There are some cryptocurrencies, which have optional privacy functions. In Monero, all transactions are always private.
You can also enhance Monero’s privacy further by integrating i2P-zero support to your Monero client. This will hide the IP address as well.
Monero vs competition
Monero is currently the number one privacy coin, but there is also serious competition in the market. Zcash has been the biggest rival for years.
Zcash gets its privacy features from zk-SNARKs technology, which some analysts prefer over Monero’s solution. Zcash has also privacy features as optional, meaning a default transaction is done publicly.
Zcash project is run by a tech company, which makes a big difference to many investors. See the video below for some privacy coin comparisons.
Dash is another well-known cryptocurrency with privacy features. The PrivateSend option is done by implementing CoinJoin technology, which is all about mixing different addresses. Dash MasterNodes play also a significant part in this.
You can read more about PrivateSend vs Monero from this article. In practice, Dash is competing more with Litecoin and Bitcoin Cash. The PrivateSend is just an additional feature and not that much used.
PIVX, Grin, and Private Chain are other less-known privacy coins. Each privacy coin handles the privacy tech in a different way.
There are also differences when it comes to mining. Monero has been built as ASIC resistant from the beginning and its mining algorithm has been updated often.
Equihash, used by Zcash, and X11, used by Dash, can be mined with ASIC devices.
You’ll find a lot of articles from Google and Youtube when searching Monero vs Zcash, Monero vs Dash, etc.
Monero is a mineable cryptocurrency, just like Bitcoin. They both use the Proof of Work consensus method, which is also used by coins like Bitcoin Cash, Litecoin, and Ethereum.
The mining algorithm used by Monero was called CryptoNight until it was upgraded to RandomX at the end of 2019. The community began to fear there have been ASIC miners developed in secret and wanted to deal with this threat.
Bitcoin mining has been dominated by ASIC machines for many, many years. These machines are expensive to buy and use, which centralizes the mining for big mining farms. Over half of Bitcoin’s hash power is located in China.
Monero has been able to resist the ASIC revolution all these years. This has been done by upgrading the mining algorithm. The community has been able to stay ahead of the ASIC developers.
Not all have agreed with this ASIC-resistant approach. This has triggered some Monero forks over the years, which have taken a different path. These currencies have had no success, though.
Monero blockchain has new blocks every two minutes. New XMR coins are born when a block is mined, just like the case is with bitcoins.
The mining reward will gradually go towards zero until May of 2020. That is when the block reward plan reaches its end. By then, there are 18.132 million XMR coins in the market.
The block reward won’t disappear entirely, though. This is the case with Bitcoin, which many analysts don’t feel comfortable with.
Monero has something called a tale emission, which kicks in. There will be 0.6 XMR minted in every block until the year 2040. Then, there should be about 21 million XMR coins in the market. The same number as the maximum number of bitcoins.
Monero as an investment
The future of Monero looks bright at the moment. Some of the biggest names in the crypto niche believe strongly in Monero. Privacy is more and more valuable to people each year, which should increase the demand for privacy coins as well.
Monero’s features are needed by normal people and companies alike. This is not just cryptocurrency used by criminals. As mentioned earlier, privacy is a desired feature in many use cases.
Bitcoin’s anonymity is enough for many people…for now. In the future, they might want real privacy.
Privacy brings some problems too, as mentioned earlier. In September 2019, Korean exchange OKEx removed all privacy coins from its offering. Similar moves have been done earlier by Coinbase UK, CEX.io, and Japanese exchanges. This problem is not just about Monero, but all privacy coins.
— The Block (@TheBlock__) September 16, 2019
According to the official statement, privacy coins were breaking the rules of the FATF (Financial Action Task Force). These regulations force exchanges to keep track of each customer and their transactions. If the receiver is unknown, these rules can’t be followed.
It is unlikely that regulations could kill privacy coins entirely. In fact, such bans and blocks only underline why privacy is important.
One must consider the long-term price effects, though. If privacy coins are removed from the biggest exchanges, they are going to have fewer buyers as well.
It is unlikely Monero would ever reach massive popularity due to previously mentioned restrictions. However, there should be more than enough fans to keep the demand up and to keep Monero in the top 20 list of cryptocurrencies.
Monero price and how to buy Monero
The best place to buy Monero is Binance, which is the leading cryptocurrency exchange. You can make a bank wire or a credit card deposit and purchase XMR easily.
If you buy Monero from an exchange, you should your coins to safer storage. There is a secure desktop wallet available. You can download it from getmonero.org/downloads.
We don’t recommend Monero for beginners. Updating the wallet software and setting up the Ledger functionality requires some IT skills.
You’d follow these social media accounts to keep up with Monero developments. The official Twitter handle is @monero and Riccardo Spagni can be found at @fluffypony. The official Reddit page is reddit.com/r/monero and the website can be reached at getmonero.org.
Monero is quite old for a cryptocurrency, which means there’s lots of information available online. If you prefer Youtube, search for Riccardo Spagni interviews. Below is one by Ivan On Tech channel.
Article image: Wikipedia