Most cryptocurrencies rely on pseudonymous but transparent ledgers, which means the users’ personal data is not protected. Thankfully, cryptography allows to hide this data from any uninvolved observer, and the currency making most use of it is Monero. What is Monero, how does it work and is it even legal? Learn in our Monero Beginner’s guide.
- Monero is a cryptocurrency protocol that by default masks information about the transaction participants and amounts;
- XMR is the ticker that the cryptocurrency uses. The coin is mineable with CPUs, and each new block rewards approximately 0.88 XMR;
- Monero 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 are traceable. In Monero, though, addresses and amounts transferred are by default not disclosed to outsiders.
How does it achieve this? Of course, with the help of cryptography! One of the main techniques used in Monero’s protocol is ring confidential transactions (RingCT).
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 be broken 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 spend, 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 stealth address 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
Monero’s predecessor, the CryptoNote protocol, was envisioned by a pseudonymous developer, Nicolas von Saberhagen in 2012. Its first implementation was Bytecoin (BCN).
It wouldn’t come as a surprise that the creator(s) of Monero are anonymous. The blockchain of Monero was started in 2014 with CryptoNote as the basis.
Monero 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 developers 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 Monero coin, XMR? Just the same as in Bitcoin, it is the native currency with which value transfers are made in the protocol.
XMR are made in the process of mining, exactly like in other Proof-of-Work cryptocurrencies. 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 18,400,000 XMR are mined. The current supply is estimated to be 17,985,216 XMR, and that milestone is supposed to be reached in May 2022.
After that, it will switch to tail emission: a fixed block reward of 0.6 XMR plus fees, which will continue perpetually.
What is Monero Used For?
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?
In this Monero Beginner’s guide, the comparison with Bitcoin came up several times already but not to the full extent. Aside from what was mentioned, it is debated that Monero also has an important distinction from BTC: it is fungible.
Fungibility is a characteristic of ideal money 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, it is fully fungible.
In other privacy coins, features that provide privacy are usually opt-in, with Monero, it is the other way around. To have one’s funds and transaction history 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 Monero, all privacy features are implemented in protocol on-chain.
What is Monero Criticized For?
Due to its strong privacy, Monero is also frequently used in ransom attacks and in the dark web. 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 is involved with illegal use. This has even led governments of Japan and South Korea to outright preemptively ban privacy coins.
In July, a bug was discovered that could have exposed outputs of private transactions, if exploited. While a fix did not even require a hard fork at that time, the patch that eliminated the bug was rolled out 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 atomic swaps that are also mentioned there have actually already been launched!)
Monero block time is 2 minutes, which is definitely faster and more scalable than Bitcoin. Nonetheless, research is still done for more scalability options like sharding or rollups.
Triptych is a ring signature specification which utilizes zero-knowledge proofs and is able to be verified more quickly in batches.
Social Media Posts
— Vik Sharɱa🇺🇸🗽 (@vikrantnyc) September 1, 2021
Cake Wallet developer Vik Sharma shared news about the milestones the Monero wallet reached. While many Cake Wallet users use it to store Bitcoin, they are only a step away from discovering the benefits of XMR.
We’re delighted to share that CLI v0.17.2.3 ‘Oxygen Orion’ has been released! The new release includes privacy, stability, accessibility, and user experience updates as well as optimizations for hardware (Trezor & Ledger) wallets.https://t.co/wWizpEoltG
— Monero || #xmr (@monero) September 2, 2021
The official account of Monero (community) on Twitter is the first place to get updates on the state of the network. This release fixes the critical bug mentioned before as well as improves user experience in many aspects.
$XMR on a good run 📈
Has anyone been brave enough to test out the new Atomic Swap software? https://t.co/tHxrOzohIc
— Coin Bureau (guy.eth)🕵🏻 (@coinbureau) August 25, 2021
An influencer Coin Bureau highlighted the launch of BTC-XMR atomic swaps which links the largest cryptocurrency with the largest private coin. Judging by replies, most people are reluctant to try it now but have high hopes.
How to Store Monero?
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.
Monero is supported by a multi-currency wallet Exodus, in which 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?
Monero is a challenging coin to purchase, since many centralized exchanges choose to avoid it for regulatory concerns. How do you buy Monero coin then?
If you have cryptocurrency, you can easily swap it 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 are on the way to your wallet. We’ll be happy to hear your feedback if you enjoyed using ChangeHero.
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 it’s used by criminals.
What is Monero?
Monero is a cryptocurrency and its protocol that leverages cryptography to hide information about senders, receivers and amounts transferred and kept on balances.
What is Monero used for?
Hundreds of merchants worldwide accept payments in Monero. It can also be safely used for donations to marginalized communities.
How to get Monero?
Monero is supported by centralized, decentralized exchanges and instant exchange platforms like ChangeHero. To do it on ChangeHero, simply choose a pair, amounts and rate on the home page, provide addresses and memos, if applicable, double-check and send a single transaction.
Is Monero illegal?
Except for Japan and South Korea, privacy currencies including Monero are legitimate to own and use.
How is Monero different from Bitcoin?
Monero obfuscates the amounts of currencies, address balances and transaction participants by default. In Bitcoin, third-party off-chain services have to be used to achieve the same level of obfuscation.