Monero is a decentralized and privacy-oriented cryptocurrency dedicated to protecting its user’s anonymity by obfuscating information on senders, recipients and the amounts featured in transactions.
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What Is Monero?
The Monero platform and its XMR token were designed with one mission statement in mind: making it possible for each user to control the level of visibility of their personal data online. It came into existence in 2012 with the launch of Bytecoin, an anonymity-focused cryptocurrency from which Monero was launched as a fork back in July 2014. The idea for the project was born out of the perception that the Bytecoin’s reputation took a hit after the public learned that the majority of its supposedly mineable coins were already in existence. Despite the fact that the parent Bytecoin network has been built from scratch using CryptoNote, a powerful privacy-oriented open-source application layer protocol, the future designers of Monero went on to do their own thing.
Two among these, David Latapie and Riccardo Spagni, named their pet crypto after the Esperanto word for “coin”. The Monero team kept the Cryptonote protocol from the Bytecoin, pairing it with ring signatures, ring confidential transactions (RCT) and stealth address technologies. The goal was to create the first fully untraceable and secure cryptocurrency which puts forward the protection of privacy as its main selling point.
What Is Monero Trying To Achieve?
Monero’s mission is hardly limited to outperforming other privacy-oriented coins, with its goals extended to correcting what its developers see as the weak points of mainstream cryptocurrencies such as Bitcoin:
- Monero treats privacy and anonymity as key areas to be provided for, if the cryptos are to become genuine electronic cash. In the eyes of Monero devs, the traceability of transactions remains an original sin of the majority of cryptos, as this does not allow them to move away from the standards of traditional fiat-based banking. These transactions can be easily traced to its points of origin and recipients since the majority of those taking place among the network users remain public. Monero moves away from this model by making all of the incoming transactions equally probable to come from as many diverse sources as possible. Understanding that peer-to-peer payments should neither involve nor concern third parties, Monero goes an extra mile to protect the relationship between its users and the stuff they purchase or transact with, which is the foundation of its electronic cash ideal.
- Protecting the privacy is not restricted to the parties to transactions, as this equally concerns the nature of a transaction itself. Based on this goal, Monero’s hidden and public ledgers feature support for private transactions not only with regard to the sender, but to the transaction’s destinations as well. The same goes for obfuscating the info on the transaction amounts. Monero is supposed to correct Bitcoin’s “pseudonymity” that is seen as often being mistaken for true anonymity. It also promises fungibility, meaning that its coins are interchangeable and resistant to being tainted by being involved in hacking or theft. The Monero team developed Kovri as a decentralized anonymous layer built around I2P (the Invisible Internet Project) architecture which resembles Tor.
- Monero’s focus on privacy wants to change the rules of the game beyond the scope of “virtual” privacy. For the Monero team, fostering the users’ trust with advanced privacy features extends to protecting their interest outside the domain of transaction traceability and linkability. Monero wants to prevent the extraction of hidden information from the public databases in order to become a cryptocurrency capable of protecting its users before the courts and similar judicial institutions, even from the punishments such as death penalty. At the same time, the developers do not want to limit the access to Monero’s privacy benefits by requiring its users to know its inner workings. The team promises to submit all of the developmental decisions to the audience for the public discussion.
- Monero’s Proof-of-Work model is billed as being more democratic compared to the one found in Bitcoin, supporting Monero’s bid for a higher level of decentralization. Monero’s Proof-of-Work model features the implementation of the CryptoNight hashing algorithm which is used for mining XMR tokens. This tech is supposed to offer a more egalitarian approach to mining since it can be calculated by CPUs and GPUs, while being less friendly to those who use application-specific integrated circuits (ASICs).
How Does Monero Work?
To achieve the desired effects on the transaction process, Monero’s workflow follows a specific path based on its implementation of the CryptoNote technology:
- Upon creation of a Monero account, a user will be given a private view key and a private spend keys, alongside a public address. The spend key can be used to spend payments, while the view key gives insight into incoming transactions. Finally, the public address is used to receive funds. These are used to create the user’s Monero address.
- Next, let us imagine that there is an output which a user wants to spend after it was sent to the one-time public key.
- With the help of an Extra, a TxOutNumber and the private account key, the user can recover their one-time private key.
- The Extra value for sending a transaction to another user is generated randomly.
- The Extra, the TxOutNumber and a recipient’s account public key are used to create the recipient’s output public key.
- The sender can hide the link to his/her output among the foreign keys in the input.
- Double-spending is prevented by including the key image, a special marker which is created from the sender’s one-time private key. There is only a single key image for each expenditure on the blockchain.
- The senders signs transactions with his/her one-time private key, all public keys and key image and adds the ring signature (see below) to the end of the transaction in question.
How Do Monero’s Ring Signatures Work?
In addition to the CryptoNote protocol, Monero’s designers added ring signature technology to Monero to enable more secure and untraceable transactions. Ring signatures are digital signatures and involve multiple signers which need to sign a transaction. This happens without the possibility for an outside party to detect a “genuine” sender. In line with the Monero’s transactional workflow, a sender creates a one-time spend key, with only the recipient being able to find and spend funds distributed with the help of such a key.
The “ring” in the signature technology’s name refers to the ring of potential signers which is created with the help of the user’s account and select public keys. This makes it almost impossible to determine which among the members of a particular group (or a ring) created a signature, thus rendering the outputs resistant to being traced.
What Are Ring Confidential Transactions?
At the same time, the Monero network is prevented from “learning” information about the amounts which are being spent. The users that want to send funds can disclose just the minimum of information which the miners need to validate the transaction, without revealing any information on spent amounts in public. This is secured with the use of Ring Confidential Transactions (RCT) technology.
In addition to committing the amounts to be spent, the RCT will encrypt the information on the amount for each expenditure and make it a part of the transaction. This information will be combined with the shared secret which is included in the transaction. Finally, the amount is calculated by combining the recipient’s private key with the transactional public view key.
Monero’s Stealth Addresses
Stealth addresses featured on the Monero platform are part of the privacy protection package with which the platform aims to protect both parties to a transaction. This is done by obligating the sender to create a randomized one-time addresses for each transaction. In this manner, only the users involved in the transaction know the final destination of a payment.
While stealth addresses make it harder to link the receiver’s funds with their wallet, it is still possible to verify that a transaction has reached a particular address if the sender decides to give access to their public view key.
Based on this, the users can enjoy the benefits of selective transparency, meaning that some transactions may be made visible and others untraceable. This is made even easier due to CryptoNote’s increased flexibility with scalability and management of block sizes, meaning that transactions with Monero’s require more data and cryptographic inputs. Finally, all of these features raised some concerns that Monero might become popular among cyber criminals.
XMR Token Availability
The amount of Monero coins in supply is not capped. Initially, 18.4 million XMR will be released, with the fixed production of 0.3 XMR per minute planned to go indefinitely. The coin’s market capitalization in May 2019 stood at USD 1.6 billion, down from the historic peak it reached in early 2018.
Based on the platform’s focus on decentralization, the mining is done mostly with GPUs, with CPUs being a less efficient option. In order to combat ASIC-based mining, Monero has forked into several tokens: Monero 0 (ZMR), Monero Classic (XMC), Monero Original (XMO), MoneroV (XMV) and others. In addition to mining, one can easily purchase XMR directly from the cryptocurrency exchanges such as Kraken , Binance and others. Once acquired, the coins may be spent with the help of the list of Monero merchants or stored in various desktop wallets.
In March 2019, Monero underwent a hard fork which was supposed to improve its privacy, security, and ASIC resistance. No new coins emerged from this change to the protocol, meaning that only the miners were supposed to upgrade their mining software, while the XMR holders had to update their wallets to the latest version to remain functional.
The Monero project has featured more than 500 contributors so far, making up for the bulk of its developer team.