What is Monero?
Monero, XMR, has the level of security that people assume Bitcoin has. What does this mean, exactly? When someone is first introduced to Bitcoin, they are often led to believe that it has total privacy and security. That isn’t to say that Bitcoin or other blockchains aren’t secure. Due to their decentralized nature, they’re much more secure than most things on the internet.
The risks in Bitcoin aren’t inherently found in the way the network functions. Both sending and receiving addresses are public, as are transactions. From first glance, you would have a difficult time tracing these addresses to real world identities. But it isn’t impossible. This is what Monero looks to fix.
Monero In A Nutshell:
Monero launched in 2014 and is based off the CryptoNote protocol.
It utilizes Ring Signatures to obfuscate sender and transaction amount data on the public ledger.
RandomX, the proof-of-work algorithm, is very ASIC resistant and supports both CPU and GPU mining.
Due to its extreme privacy measures, the project has seen some controversy over potential illicit use of the coin.
History of Monero
Bytecoin was founded in 2012 to try to fix these security concerns. And it achieved this purpose pretty well. The team created the CryptoNote technology. Using ring signatures and stealth addresses, CryptoNote is able to create absolute anonymity. It was also, for a while, one of the few coins that was easily mineable on a consumer PC rather than an ASIC.
With these innovations, Bytecoin was set to become a pioneer of blockchain security. However, this came to a halt when it was found out that 82% of the supply had been pre-mined. This raised a few red flags. The transparency that was expected from a crypto project was simply not there.
As a result, there was a large divide on how the project would continue and a hard fork occured. Bytecoin is very relevant in the history of Monero because this hardfork is what created the project. it is directly based off the CryptoNote protocol. This fork took place in April 2014 and marked the fair launch of Monero to the public.
How Monero Works
When using Monero, transactions performed differently than on most other blockchains. Transparent blockchains, like Bitcoin, makes all the information readily available on the public ledger. This includes sending and receiving addresses and transaction amounts. While this does make it easy for the network to track what has been spent and what hasn’t, it doesn’t help user privacy.
Monero uses a group signing method known as ring signatures. When a user wants to send some of their coins, their wallets will pick semi-random past transactions to obfuscate the data. What it does with these previous transactions is it will mix their public keys in with the true transaction as a sort of decoy. It is possible for the network to determine which is the true transaction, but otherwise they are indistinguishable from one another. As of 2018, all transactions use eleven decoys in their signatures.
To prevent malicious activity, such as trying to spend the same output twice, the network employs key images. They are derived from the actual output that is being spent and therefore unique to the true transaction. There is no way to determine which output the key belongs to, but it simply needs to check whether the key has been used before or not. Through this, no actual transaction data is given up in the process of verifying the validity.
Mining Monero
Since Monero is Proof-of-Work, the security and decentralization of the chain are provided by miners. Previously it has used the CryptoNight algorithm. Since November 2019, though, it uses the RandomX PoW algorithm. This algorithm was developed by community members specifically for Monero.
A unique feature of it is that it relies more on the CPU rather than GPU, like many other PoW coins. It was also developed with ASIC resistance in mind, and as a result mining specific hardware isn’t as useful here. Consumer grade hardware is typically capable of mining Monero, although results will vary based on CPU and overclocking. Even though it is very CPU focused, GPU mining is also possible with the right tools.
Block times on Monero are about two minutes and there is currently no maximum block size. As a way to ensure that there is always incentive in mining Monero, block rewards will never reach zero. The main emission curve will last until around May 2022, when 18.132 million coins are mined. After that it will go into the tail curve, which allows for 0.6 XMR to be rewarded per block which translates to less than 1% inflation decreasing over time.
Getting started with Monero mining is outlined here.
Monero In The News
In 2018, CNBC estimated that Monero was involved in 44% of crypto related ransomware attacks. Most of the major markets on the darknet allow Monero to be used in transactions, although Bitcoin is still the most used.
It has been speculated that much of the Bitcoin that attackers get from their ransoms has been traded for Monero to further cover their tracks. Although exchanges are not explicitly responsible for illicit Monero use, the fear of a tarnished reputation by association has been enough to prevent some listings. It has even caused some exchanges to delist the coin after it was previously available.
Having said that, many exchanges do allow for Monero transactions. Binance, Huobi Global, and Kraken are the top three exchanges for the coin at the time of writing.
Wrapping It All Up
Although a need for anonymity and privacy is often associated with illegal activity, it shouldn’t be. Everyone is entitled to privacy, especially when it comes to monetary transactions. And for these purposes, Monero is the most popular privacy coin at the moment.
There is a long list of merchants that accept Monero for a variety of different services and goods. And, contrary to Bitcoin, it appears that the project is actually used as currency more often than most.
Try as regulators might, Monero isn’t going away any time soon and neither is the need for privacy on the internet.
