Monero

What is Monero (XMR)?

Monero is a cryptocurrency that begins and ends with privacy, created to incorporate the idea of complete anonymity that Bitcoin never really delivered.

While Bitcoin creator Satoshi Nakamoto’s identity has never been revealed, one of the pseudonymous programmer’s main aims was to bring an element of privacy to electronic transactions.

However, Bitcoin, like most other cryptocurrencies, uses a distributed public ledger. It records transactional details in perpetuity, including the public key addresses of the wallets involved in those transactions.

In a sense, thanks to the information that can be retrieved around transactions, each Bitcoin could well be considered fungible.

As a result, all BTC transactions made can be traced back down the blockchain, and specific wallet addresses can be monitored. This means that a wallet suspected of illegal activity can be blacklisted. Moreover, all other wallets that interact with it can then also be put under surveillance.

These are just wallets that are tracked, of course, and not names and residential addresses. That is, until a transaction is made to an exchange, most of which do not allow much trading activity until various personal details are submitted and verified.

All of this means that Bitcoin is far less private than cold, hard cash that can be exchanged anonymously in countless ways.

This is why Monero came into being.

When Was Monero Launched?

Monero was launched in 2014 with the goal of perfect opacity. As such, it aims for payments to be made not just fast and cheaply, but also without the fear of censorship.

Its origin dates back to CryptoNote, a cryptocurrency protocol described by Nicholas van Saberhagen in 2013. The author of this whitepaper, presumed to be pseudonymous, criticized Bitcoin for its traceability and argued that privacy and anonymity were the most important aspects of electronic cash.

These ideas were coded by a Bitcointalk forum user going by the handle “thankful_for_today” into a coin called BitMonero, a fork of the Bytecoin cryptocurrency.

Critical of some of BitMonero’s attributes, BitMonero was then forked by some members of the community into another coin, Monero.

Who are the Founders of Monero?

Nicholas van Saberhagen and “thankful_for_today” remain anonymous, as do the majority of Monero’s core developers. The protocol’s lead maintainer, however, was Riccardo Spagni, a South African developer.

Most of the core team of Monero are better known by their online handles, with Spagni going by “fluffypony” and the other doxxed member, Fransisco Cabanas, going by “ArticMone.”

Other members of the team have been known purely by their handles, including “smooth”, “othe”, “NoodleDoodle”, “binaryFate”, and “luigi1111.”

How Does Monero Work?

Monero, like many other cryptocurrencies, uses cryptography to verify transactions and record them on a blockchain, which is a public distributed ledger.

A new block of transactions contains a proof of work (PoW) in order to be accepted by the rest of the network. This proof of work can be boiled down to the computers on the network, or miners, solving cryptographic puzzles to arrive at a solution.

This process is assigned a certain level of difficulty and, although time-consuming to generate, it’s easy to verify. Miners solve these puzzles and are allowed to create the next block of the blockchain.

These basics aren’t revolutionary, but Monero takes things a lot further.

What Makes Monero Unique?

Known as a privacy coin, Monero brings a variety of innovations to its protocol to grant users the privacy and anonymity central to its founding.

One of the main techniques Monero uses is called “Ring Signatures.” Here, the unique signature of a transaction’s initiator is combined with other signatures of non-senders to form a ring. Thus, it is impossible to identify exactly which of the ring’s members sent the funds.

Recipients of funds, meanwhile, are protected by stealth addresses. Senders create random, one-time addresses on behalf of the recipient when making a transaction. As a result, while the recipient gives the sender their actual address, network observers only see payments going to other unique addresses.

Besides public and private wallet keys, Monero users have private view keys to permit third-party wallet audits and transaction keys that allow transactions to be audited.

Finally, XMR is considered to be completely fungible given the level of obfuscation of transactions. The sender, recipient, and transaction values (via a technique called ring confidential transactions, or ringCT) are all hidden.

This means that, unlike Bitcoin, individual XMR coins or amounts of tokens can’t be traced back down the chain and blacklisted.

How is the Monero Network Secured?

Monero uses a proof-of-work algorithm called RandomX to validate transactions, introduced in 2019 to replace CryptoNightR. Both of these algorithms were designed to be resistant to ASICs (specialized machines for mining cryptocurrency, normally Bitcoin).

One of the reasons for the choice of these algorithms is the degree of centralization ASIC mining brings. Monero can efficiently be mined on consumer-grade hardware, in line with Satoshi Nakamoto’s original intention for Bitcoin.

Monero hit the headlines in 2017, with news emerging that hackers were using malware to secretly mine Monero from people’s computers without their knowledge.

What is the Use of XMR?

Monero was designed to be a peer-to-peer electronic currency like Bitcoin that offers a far greater degree of privacy and anonymity to its users.

However, Bitcoin’s anonymity is questionable and is difficult to guarantee unless used purely peer-to-peer. Meanwhile, Monero obfuscates sender details, recipient details, transaction values, and even IP addresses using a suite of technologies.

This has resulted in significant enmity from the establishment, from the IRS issuing a (admittedly paltry) $625,000 bounty for anyone who could crack Monero’s security to any negative news or misuse of the currency hitting the headlines fast. Its attributes certainly make Monero attractive for extralegal use, however, with Reuters reporting that it was widely used in darknet markets in 2019.  Monero has also been used in several ransomware attacks, thanks to its reduced traceability and the recovery of Bitcoin ransoms in high-profile incidents. Nonetheless, Monero is an effective currency. Merchants were using it as early as 2017 in partnership with Monero’s initiative Project Coral Reef, which discounted music from artists like Dolly Parton, Weezer, Mariah Carey, and the Backstreet Boys.

As a currency, Monero offers several benefits to merchants, including low processing fees and the elimination of chargebacks and fraud.

Who Controls Monero?

Monero is developed by a core development team, but there is no company behind it or a project head hiring people or deciding project direction.

The entire Monero network is built by volunteers or community-funded contributors and is largely structured into workgroups. Here, contributors are divided into groups that work on specific aspects of Monero’s development.

How Much Monero Is In Circulation?

Monero has over 18 million XMR in circulation as of June 2022, but it doesn’t have a cap on its maximum supply. Instead, XMR has a set emission rate of 0.3 XMR per minute or 0.6 XMR per block.

This emission rate will continue in perpetuity, allowing for permanent incentives to secure it while staying at an inflation rate of 1% for 2022 and approaching 0% thereafter.

How Do You Buy XMR?

As a privacy coin and one that isn’t viewed very favorably by some authorities (US regulators in particular), XMR isn’t likely to be offered on every single exchange.

It does have several major exchange listings, although you might have to complete full KYC (Know Your Customer) and AML (Anti Money Laundering) procedures before you are allowed to withdraw XMR to your private wallet.

In contrast, XMR is relatively easy to purchase on peer-to-peer exchanges and can also be atomic swapped from Bitcoin in a decentralized manner.

Is It Possible to Buy Monero Instantly?

It takes two minutes for blocks to be created on Monero, which is relatively fast when compared to Bitcoin’s 10 minutes. Still, it can’t compare to some new cryptocurrencies that can process transactions in mere seconds.

However, Monero’s benefit lies in privacy and anonymity, which both developers and users of the currency tend to prioritize even over speed and ease of use.

Purchasing XMR from a custodial cryptocurrency exchange (CEX) tends to be instant, but does not involve the actual settlement of the coins. Instead, trades made on a CEX are merely a notional reflection of trades that a user made.

The actual settlement only occurs when withdrawing XMR from the CEX to a private wallet and may take far longer than the block time of 2 minutes if the CEX needs to complete additional KYC and AML procedures.

How Do You Store XMR?

XMR can be stored in a CEX account as well as in private wallets. There are two types of cryptocurrency wallets:

• Cold wallets. These wallets remain offline, keeping funds safe from any sort of hacking or online attacks. They could be as simple as a piece of paper on which your Monero keys are written or devices (including specialized hardware wallets) that don’t connect to the internet.
• Hot wallets. These connect to the internet, sacrificing that extra layer of safety for a little convenience. Monero offers several types of hot wallets, including those that run a node (downloading a copy of the blockchain) and light wallets that don’t.

Monero Energy Consumption

As a proof-of-work blockchain, Monero’s energy consumption is significant, given that it relies on computers dedicating computing power towards the solution of mathematical problems.

However, as an ASIC-resistant algorithm, RandomX dictates that Monero mining only takes place on consumer-grade computers. This means that the computing power of those computers doesn’t have to be 100% dedicated to mining and could be used in parallel for other productive tasks.

In 2018, a report estimated the Monero network to consume around 645GWh of electricity. This was significantly lower than the consumption of Bitcoin in the same year, but remains higher than the consumption of proof-of-stake cryptocurrency networks.

Is Monero a Good Investment?

As with any cryptocurrency, investors need a certain level of risk tolerance. When it comes to Monero, however, a few additional caveats exist.

It is difficult to escape the fact that Monero has in the past been proven to have been used in illicit activity and tends to be the crypto of choice for several known ransomware groups.

While XMR coins cannot currently be blacklisted in the way that BTC can, there remains the danger that regulators crack down on Monero and pressure exchanges to delist it. This could have a catastrophic effect on its market value.

On the other hand, XMR is relatively scarce, and while it doesn’t have a capped supply, its rate of inflation or emission is quite low. Furthermore, it is already used by legitimate merchants as a medium of exchange and offers a viable alternative currency to privacy-focused users.

That said, there remains the danger that, encouraged by the authorities, Monero may one day be cracked. However, the community behind it takes an active role in assessing XMR’s potential flaws and outlining the way forward.