What is Monero?
Is Monero the cryptocurrency of the Darknet?
What is Monero?
A new cryptocurrency is created every day, or at least that’s what we feel. However, not all crypto currencies besides Bitcoin have their origin in 2018 and beyond…
Take Monero (XMR), for example, a cryptocurrency that, in fact, started in 2014 and has provided key benefits in the area of confidentiality.
This article explains the main ideas, features, benefits and challenges of Monero in a highly competitive world of crypto currencies.
What is the cryptocurrency Monero?
Monero is a cryptocurrency that was launched in 2014. It is privacy-oriented and works in open-source on the blockchain concept.
The birth of the monero was not very serene. From its launch in April 2014, its creator, remained anonymous, is joined by half a dozen enthusiastic developers enthusiasts. But very quickly, it is discord: the creator, considered too authoritarian, is evicted by the rest of the team, which takes the power collectively. This time, the developers succeed in aggregating around them a community of dozens of contributors, who help them to maintain and improve the network, and to create new functionalities. They can also rely on private donors and sponsors, including IT companies.
Monero has bet on a protocol called CryptoNote. In 2012, a certain Nicolas van Saberhagen (a nickname, like Satoshi Nakamoto, the creator of Bitcoin) described it as a system allowing users to open a new portfolio for each transaction. The addresses associated with each of them being visible only by the issuer and the recipient of the transactions, the system guarantees anonymity. Crypto-currency stands out at this point of the Bitcoin leader, with whom “all transactions are traceable”.
The hard core developers have decided to remain anonymous, except two of them, the Frenchman David Latapie, who has taken a little distance with the project, and especially the South African Fluffy Pony (his real name) Riccardo Spagni), who has become the spokesperson for the monero community and regularly speaks on Youtube and social networks. Despite the success, Fluffy Pony wants to relativize his role: “The developers are only stewards, without real power… Since we took the monero to someone, another can take it to us. “
Open source means that technology and software are built, tested and improved through user collaboration. According to Monero himself, more than 240 developers contributed to the project, of which 30 are considered the “main” group.
The Blockchain has the same technology logic used for most digital currencies: it is the logic behind crypto currencies and provides a public registry for all transactions in the network.
Last but not least, Monero is known for its privacy because it was built with a lack of transparency – on purpose. It has been configured to hide the identity of senders and recipients and the amount of each transaction.
Here is a video explaining what is Monero:
You might now ask yourself: was not Bitcoin meant to be anonymous? Yes, but the reality is apparently different…
How is Monero (XMR) different from Bitcoin?
Bitcoin is known for its anonymity, but there are limits to the privacy it offers. Bitcoin records both Bitcoin addresses and blockchain transactions, which opens the data to the public.
The key point is that addresses are not entirely private, even if Bitcoin uses fake names and addresses. Why?
Just because Bitcoin addresses and transactions are recorded in the blockchain, making them publicly accessible and traceable. Basically, this means that there is a risk that the transactions are potentially related to the identity of a real person.
Monero offers more privacy than Bitcoin because its transactions are hidden behind cryptography, which protects addresses and transferred amounts. Basically, all Monero transactions are obscured, which improves the privacy of all its users.
How does the crypro-coin Monero defend its confidentiality?
The problem of fungibility:
The notion of fungibility qualifies the interchangeable nature of an asset. In the case of money, this means that all units of account must be equal: a one hundred euro note will always be worth the same value as another hundred euro note or two fifty dollar bills.
On the Bitcoin network, fungibility means that all bitcoins must have the same value regardless of their history, or the entity that owns them.
This property is not automatic in the case of decentralized cryptographic currencies: in the case of Bitcoin, the traceability of the transactions entered in the blockchain poses fungibility problems. Some coins are considered “dirty” when the associated transaction history includes illegal transactions (stolen bitcoins, or used to buy illicit products). For example, Coinbase automatically denies coins that have gone through some dark markets, or used to play online.
This poses a big problem for the good functioning of the decentralized network, because not all coins are equal. Some users are even willing to pay extra fees to “whiten” their coins using mixing services.
Confidentiality of transactions:
The confidentiality of transactions is therefore necessary to ensure the fungibility of a decentralized currency; but also to allow companies or banks to use this new type of currency without disclosing sensitive data. No company wants to communicate the details of its financial transactions to its competitors, just as the individual does not necessarily feel the need to communicate to the world the nature and amount of purchases he makes.
While many solutions are offered on the Bitcoin network, Monero was created from the outset in order to ensure a high level of confidentiality of transactions via different processes. The success of this cryptocurrency is due to this essential property.
The CryptoNote protocol:
This is the cryptographic precursor to the genesis of Monero.
CryptoNote is an open-source protocol to ensure the anonymity of counterparties and the confidentiality of transactions, serving as a basis for several crypto-currencies. Unlike the Bitcoin network, a blockchain administered via CryptoNote does not reveal the origin or destination of the units of account.
Anonymity of the issuer: it is insured by using several public keys to sign a transaction (ring signatures). The nodes of the network can prove that the transaction has been signed by the issuer; but without being able to identify the key that was used.
Anonymity of the receiver: the protocol makes it possible to generate a pair of one-time keys for each transaction (stealth addresses). It is then impossible for a third party to determine if certain transactions are sent to the same receiver.
Protection against double-spending: The ancestor of ring signatures (group signatures) relied on a third party to protect the system against double-spending. From now on, each stealth address leaves an imprint in the blockchain and the protocol rejects any transaction involving a stealth address that has already been used.
Evidence of “egalitarian” work: the system wants to ensure the linearity between the financial investment and the corresponding hash power, regardless of the hardware used to mine, whether GPUs / FPGA / ASICs or CPUs.
CryptoNote was the first protocol to implement ring signatures and stealth addresses. The last hard fork of Monero has made it possible to implement improvements, inspired in particular by Bitcoin Core developer Gregory Maxwell.
Monero is based on so-called ring signatures and stealth addresses, which helps to conceal the identity of the sender and the recipient. The ringf signatures mix the user’s account key with the Monero blockchain public keys. Third parties are not able to identify which key is from the public and which is from the user, removing the ability to bind a user and a signature together.
Monero mixes all its parts with each transaction, which is not the case for other confidentiality crypto currencies, for example, Zcoin, Dash (DSH) and Zcash (ZEC). Dash combines transactions to reduce the risks of identifying a user’s identity. Zcash also offers users a choice to remember their identities and does not mention the value of the transaction.
The main difference is that Zcash privacy settings are optional, while Monero is private by default. Other crypto-currencies do not mix by default, which creates a suspicion when coins are mixed because of a perception that something is hidden.
Monero removes suspicion because all the pieces are shuffled and the information is automatically hidden. Users looking to stay anonymous seem to be better off with Monero.
There are several versions of this cryptographic trick, but the goal is always the same: hide the public key associated with the private key used to sign a transaction while being able to prove that the signature is genuine. In the case of Monero, the protocol builds on the work of Eiichiro Fujisaki and Koutarou Suzuki.
A circle signature makes it possible to sign a message on behalf of a set of public keys: it is impossible to identify the author of the signature among all the signatories (there is equiprobability of the issuers of the transaction among the signatories ). The nodes of the network can just make sure that the signature is correct: it is necessary to have a private key associated with one of the public keys used for the signature to be correct, but it is impossible to bind a signature to the address public of the issuer of the transaction.
Each issuer of a payment must prove that it spends unspent outlets (UTXOs) as in the case of Bitcoin, but these UTXOs do not have to be known to perform the verification. In practice, this means that when a user wants to make a 50 XMR transaction, he will use, for example, (22 XMR + 10 XMR + 3.8 XMR + 6.7 XMR + 6.5 XMR) from different unknown addresses.
Here is a video about the Monero Ring Signatures:
Each Monero account has:
A public address,
A spending key: this private key makes it possible to send the payment,
A view key that allows you to view incoming transactions to the account. Private by default, it can be shared to disclose the balance of a Monero account. So Monero is also auditable.
The stealth address system allows the sender of a transaction to create random one-time addresses on behalf of the receiver. The private key of these addresses is also linked to the receiver’s account, but it is impossible to identify its associated public address for a third party without knowing its observation key. By this cryptographic method, only the counterparties involved can be aware of the transaction.
Monero also hides the ip adresses of the Monero accounts to assure total privacy, that’s the Monero Kovri function.
Here is a video explaining Monero Kovri:
What are the Advantages and Disadvantages of Privacy?
High levels of confidentiality offer multiple benefits.
Each Monero coin or unit is interchangeable, like the currency used in your local store. You do not care if you receive an X part or a Y part, they are identical.
You might ask yourself: Is not this valid for ALL crypto-currencies? You may be surprised to discover that the answer is no.
Bitcoins are stored on a blockchain that shows transaction history. This means that coins can be associated with certain events, also negative, such as theft. These pieces could become less desirable.
This is where Monero makes a key difference because of his emphasis on confidentiality. This means that two XMR parts can not be distinguished from each other based on their transaction history.
It is also a challenge for Monero, as its strength in the area of privacy has made it a popular piece for dubious markets potentially related to drugs and gambling.
How are the New Monero tokens created ?
The creation of new Monero coins is complemented by the “mining” process, which is a common way for crypto-currencies to reward participants in recording blockchain transactions. The time required for Monero to extract (complete) a block is about two minutes.
Monero also offers the ability to extract coins, but with a few key differences. Monero’s operation does not require specific hardware and can be applied to all major platforms, including Windows, Android, Linux and macOS.
It uses a proof of work algorithm (PoW) that was designed to ensure that it was accessible to a larger number of processors. This means that mining is open to different parts, not just large mining basins that focus solely on mining parts.
This is one of the main advantages of the Monero mining compared to other altcoins: the process can be completed on a standard computer rather than on a computer that requires dazzling speeds.
You might wonder what the reward is for mining. Minors are offered a “permanent block reward”, which means there will always be a minimum reward of 0.3 XMR.
The main advantage of mining new parts is simple: it offers miners an incentive that ensures that enough participants participate in the blockchain process.
Relatively speaking, 0.3 XMR will make up a smaller portion of the total XMR in circulation, which means it is a disinflationary cryptocurrency. By 2022, inflation will be around 1% and will continue to decline from that point onwards.
Advantages and disadvantages of Monero
As a decentralized cryptographic currency, it has many advantages:
Ring signatures that allow to remain in anonymity in terms of transaction.
Stealth address usage to hide the amount of your transactions.
Fast transfer (barely 2 minutes).
Possibility of mining with a domestic PC.
Speaking of its disadvantages
Monero is a virtual currency that offers a less fun and enjoyable interface than its competitors.
Aside from this, being anonymous can encourage some people to buy or sell illegally.
The darknet controversy.
However, Monero should not become the currency of illegal trafficking in weapons, drugs and human beings. Such a reputation has already hurt Bitcoin a lot and if Monero were to adopt this status, exchanges could then decide to ban that currency; automatically its value would come down. This is a risk to consider before buying XMR.
Monero is used a lot on the darknet so the future will tell how people choose to use this cryptocurrency.
Monero was designed by a small group of Bitcoin enthusiasts, who wanted to pursue their libertarian ideal by creating a currency that was totally outside the control of states and banks. Their argument is now classic: for millennia, free trade is based on the ability of everyone to conduct quick transactions, easy and anonymous, in cash. However, states want to reduce the use of cash, to establish a system of generalized control.
As a privacy coin is also important to protect people’s private life and data.
History is full of examples showing that governments have an unfortunate tendency to use the financial data of their citizens to justify, at their discretion, restrictions of basic individual freedoms.
Companies can use the financial data of their users to manipulate markets, sell the data to third parties or have it stolen.
So, Monero has very positive aspects but its general use on the darknet could change the original goal its creators had in mind when they launched it in 2014.
Besides, a new coin appeared in 2018, Safex Cash, a fork of Monero by the way, Safex Cash could get some attention if it is even more private than its father Monero.
You can buy Monero XMR on Binance.
You can securely store Monero XMR on the Nano Ledger.
This article is of course not financial advice, do your own research before investing money, you are responsible for your own decisions.
Monero official website: https://ww.getmonero.org
Monero Telegram: https://telegram.me/bitmonero
Monero Youtube Channel: https://www.youtube.com/channel/UCnjUpT9gGxyQ_lud7uKoTCg
Monero Reddit: https://reddit.com/r/monero
Monero Gihub: https://github.com/monero-project
The Monero White Paper: https://bitcoincryptoadvice.com/the-monero-white-paper
Bitcoin and cryptocurrency maximalist. Alexander follows Bitcoin and crypto since 2015.