Most cryptocurrencies rely on pseudonymous but transparent ledgers, which leaves the users’ personal data unprotected. Thankfully, cryptography allows to hide this data from any uninvolved observer, and the currency making most use of it is Monero. What is Monero (XMR), how does it work and is it really legal? Learn in our Monero Beginner’s guide.
- Monero is a decentralized cryptocurrency protocol that by default masks information about the transaction participants and amounts;
- The protocol’s cryptocurrency uses the ticker XMR. You can mine it with a CPU, and each new block rewards approximately 0.88 XMR;
- Monero (XMR) is legal even though there is a misconception that it sees significant criminal use.
What is Monero?
First things first: what is Monero? It is a privacy-preserving cryptocurrency protocol, not very different from Bitcoin**.**
The main difference between Bitcoin and Monero is that in Bitcoin all transactions recorded on its blockchain are traceable. In Monero, though, addresses and transaction amounts are by default not disclosed to outsiders**.**
How does it achieve this? Of course, with the help of cryptography! One of the main techniques Monero uses for this is ring confidential transactions (RingCT).
Ring Confidential Transactions
Ring signatures require all transactions to be broken into smaller amounts (0.2, 2, 5, 10…) and then these inputs are mixed. The protocol still can verify whether the sum of the inputs of one transaction checks out.
To the observers it looks like an array of seemingly unrelated transaction outputs, and their exact breakdown is also unknown to them.
For example, if Alice sends Bob 0.63 XMR, it will break down into a random sum of outputs, like (0.5+0.1+0.03) XMR. The protocol will find other senders who transfer these amounts and link them. Only Bob knows that in the end, Alice sent him 0.5+0.1+0.03 = 0.63 XMR.
To prevent double spending, key images are sent along with outputs**.** Miners check whether a key image has appeared before on the blockchain, which means it is legitimate.
In addition, a sender can create a one-time address, or stealth addresses on behalf of the recipient. This is because in Monero, there are three types of keys associated with an address: public, private spend key and private view key.
If Bob sends Alice any amount of XMR to a stealth address, Alice will be able to receive it because she has her view key. If she wants anyone else but Bob to link her stealth address with a public address, she can share the view key.
Monero’s History and Team
Nicolas von Saberhagen, a pseudonymous developer of Monero’s predecessor, the CryptoNote protocol, envisioned it in 2012. Bytecoin (BCN) was its first implementation.
It wouldn’t come as a surprise that the creator(s) of Monero project remain anonymous. They started the blockchain of Monero in 2014 with CryptoNote as the basis.
The Monero project is essentially a fork of Bytecoin with some changes to the protocol. The core team initially consisted of six members: Riccardo “fluffypony” Spagni, luigi1111, NoodleDoodle, smooth, tacotime, Franciso “ArticMine” Cabañas.
Over the years hundreds of known and unknown developers from the cryptography community have contributed to the codebase. To this day, Monero does not have a foundation or a corporate entity backing it, it is run purely by the community effort.
What is XMR?
Now that we know what Monero the protocol is, what is XMR Monero coin? Just the same as in Bitcoin, it is the native currency to make value transfers in the protocol**.**
Mining produces new coins exactly like in other Proof-of-Work cryptocurrencies. The Monero mining uses RandomX, which is an ASIC-resistant CPU-focused hashing algorithm.
Right now, a block reward for Monero is 0.88 XMR plus fees, and this is set to continue until 18,4 million XMR are mined**.** The current supply is estimated to be 17,985,216 XMR, and it is supposed to be reached in May 2022.
After this, it will switch to tail emission: a fixed block reward of 0.6 XMR until the total supply cap plus fees, which will continue perpetually.
What is Monero Used For?
As a privacy-preserving digital currency, Monero suits all kinds of payments. Online directories such as Cryptwerk and Accepted Here include thousands of merchants who accept XMR.
Since Monero is an anonymous currency, it is much safer to use for donations. WikiLeaks, Fight for the Future fund and Tutanota share the ideals of privacy and all accept XMR donations.
How is Monero Different from Bitcoin and Other Privacy Coins?
Aside from what was mentioned, Monero also has an important distinction from BTC and other cryptocurrencies: it is fungible.
Fungibility is a characteristic of ideal money and fiat currencies which refers to the ability of a unit to be interchangeable with other equivalent units. In Bitcoin, there is a concept of ‘tainted’ or ‘dirty’ coins which have been involved with addresses caught in illegal activity.
While theoretically, each BTC is interchangeable, in practice some service providers refuse to accept ‘dirty’ BTC. Since XMR comes with no such history, every coin in its total supply ever is fully fungible.
In other privacy-focused coins, features that provide it are usually opt-in. With Monero, it is the other way around. To have one’s funds and transaction history be transparent, an address owner will have to share their view key.
When it comes to obfuscation techniques, Dash’s PrivateSend is somewhat similar in principle to Monero’s RingCT. The main difference in DASH vs Monero is PrivateSend requires a degree of trust in masternodes which are responsible for mixing outputs.
Stealth addresses in Monero and z-addresses in Zcash use different techniques to hide the destination. Stealth addresses are created on the recipient’s behalf, while a z-address must exist to receive ZEC privately.
Finally, Verge Currency offers only obfuscation of IP addresses, which is also optional. In contrast, Monero implements all privacy features of the protocol on-chain.
What is Monero Criticized For?
Due to its strong privacy, Monero is also frequently used in ransom attacks, cryptojacking and on the darknet markets. Chainalysis findings in 2020 confirm that while criminal use of Bitcoin is declining, altcoins and especially privacy coins get used more frequently.
Of course, due to the oblique nature of the Monero blockchain, it is impossible to determine what share of transactions involves illegal use. This has even led governments of Japan and South Korea to outright preemptively ban privacy-focused coins.
In July 2021, developers discovered a bug that could have exposed outputs of private transactions, if exploited. While a fix did not even require a hard fork at that time, they rolled out the patch that eliminated the bug only in August.
What is Monero’s Future?
According to Monero Outreach, the developer pipeline for 2021 includes Triptych/Acturus specifications and second layer solutions. (Monero-Bitcoin real-time atomic swaps have actually already been launched!)
Monero block time is 2 minutes, which is definitely faster, more scalable and guarantees lower transaction fees than Bitcoin. Nonetheless, researchers are still working on more scalability options like sharding or rollups.
For eample, Triptych is a ring signature specification that utilizes zero-knowledge proofs and is able to be verified more quickly in batches.
Monero (XMR) on Twitter
While people panic, just remember that #Monero currently has 13.8% of #Bitcoin's transactions, while only just 0.5% of its marketcap. People complained they couldn't buy $XMR at $128. Now they can. Are you buying, anon? Or are you just gonna keep complaining? pic.twitter.com/buFfIonljo— Morpheus (@CryptoMorpheus_) June 14, 2022
User Morpheus puts forward a value statement for Monero: a dip for some is a buying opportunity to others. XMR transactions are peaking while the Monero price is still relatively cheap.
Because of the delisting and exile of $XMR from mainstream markets, it was not exposed to the same levels of leverage that all other cryptos have.— riskhaven (@RiskHavenXMR) June 15, 2022
I expect after the dust settles #Monero will show relative strength given its strong use case and limited exposure to the blow up.
User riskhaven highlights another unexpected strength of the anonymous coin: the Monero price did not take such a hit in a tumbling market.
I don’t even own monero as an investment. I hold it as a hedge against financial tyranny. $XMR— Marcus (@marcusoar) June 12, 2022
A lot of the folks in the Monero community pick it for ideological reasons. If you wanted to experience at least some of the cypherpunk and anarcho-capitalism spirit of the early crypto, look no further.
How to Store Monero (XMR)?
And now that you are familiar with the fundamentals of Monero, it’s high time for some practical advice in this Monero Beginner’s guide.
Many multi-coin wallets support Monero, as it is a fairly popular altcoin. There is Cake Wallet, which is a BTC and XMR wallet, as well as official and unofficial XMR-exclusive apps.
Multi-currency wallet Exodus supports XMR, and in it you can seamlessly exchange it to other altcoins with ChangeHero. For safer storage, pick a Monero hardware wallet, for example, Trezor Model T.
How to Buy and Exchange Monero (XMR)?
Monero is a challenging coin to purchase with fiat currencies, since many centralized cryptocurrency exchanges choose to avoid it for regulatory concerns. How do you buy Monero coin then?
If you have other cryptocurrencies, you can easily swap them for XMR on ChangeHero. It only takes five steps:
- Choose the currencies on the home page, amounts and the type of exchange. Provide your wallet address in the next step and check the amounts;
- Send in a single transaction the sum of cryptocurrency you will be exchanging. Fixed Rate transactions have a 15-minute limit;
- And now, relax! We are doing all the work: checking the incoming transaction and doing the exchange as soon as it arrives;
- As soon as the exchange has been processed, your XMR Monero are on the way to your wallet. We’ll be happy to hear your feedback if you enjoyed using ChangeHero.
Support team will assist you 24 hours, 7 days a week in the chat on our website, official Telegram group or through the email: [email protected].
Monero took every strong point from the Bitcoin protocol and further improved it by introducing privacy-preserving features. Seems like the only reason it struggles to find wider adoption is the misconception that only criminals use it.
This XMR Monero Beginner’s guide is only a part of the series: find the rest in our blog! For daily updates, subscribe to ChangeHero on Twitter, Facebook and Telegram.
This article does not constitute financial or investment advice. Past performance is not indicative of future results.
When dealing with cryptocurrencies, remember that they are extremely volatile and thus, a high-risk investment. Always make sure to stay informed, perform your own research and be aware of those risks. Consider investing in cryptocurrencies only after careful consideration and analysis and at your own risk.