What is Monero (XMR)?
Comprehensive guide to Monero - the leading privacy-focused cryptocurrency with advanced anonymity features.
Introduction
Monero (XMR) is a cryptocurrency designed to provide users with the strongest possible privacy protection. Unlike Bitcoin's blockchain, which is public and visible to everyone, Monero's blockchain hides the sender, recipient, and amount of transactions.
Monero can be considered a kind of digital cash: it enables money transfers on the internet without outsiders being able to track or link them to individuals. This makes Monero a popular currency among privacy-conscious users, though unfortunately also in criminal activities, which has occasionally brought negative publicity to the project.
Nevertheless, Monero has established its position as one of the most well-known privacy cryptocurrencies, with a strong community and continuous development work behind it.
Monero Basics – What Makes It Special?
Monero was released in 2014 as an open-source project, and its underlying technology is based on the CryptoNote protocol. Monero's founder is not known by their real name (similar to Bitcoin's creator), and the project has been developed by the community.
Proof of Work and RandomX
Monero is a Proof of Work cryptocurrency, meaning new coins are created through mining like Bitcoin. For mining, Monero uses the RandomX algorithm, which is designed to be efficient particularly on regular computer processors.
This makes mining more decentralized, as specialized ASIC devices have been made difficult to use for mining.
Tail Emission
Monero's monetary policy includes a so-called tail emission feature: unlike Bitcoin, which has a fixed maximum number of coins, Monero continues to issue a small amount of new XMR coins forever (approximately 0.6 XMR per two-minute block). The purpose of this very small continuous inflation is to ensure that miners remain motivated to maintain network security in the long term.
Use Case
Monero was created primarily as digital money that can be used to transfer value anonymously. It is used for private payments, protecting wealth from prying eyes, and in situations where one wants to avoid exposing business information to competitors or outsiders.
Monero's strong privacy and fungibility mean that each coin is always equal in value and cannot be "tainted" by the history of its previous owners – in other words, Monero coins cannot be blacklisted or traced based on their previous uses. This distinguishes it from Bitcoin, where certain addresses or coins can be marked as stolen or obtained from dark markets.
Technical Perspective: How Does Monero Protect Privacy?
Monero's innovative techniques enable blockchain data to remain hidden from outsiders. Privacy protection is not based on trust in any single intermediary, but on cryptographic methods that are built directly into the protocol.
Stealth Addresses
In Monero, the recipient's address is kept hidden using stealth address technology. In practice, the sender automatically creates a unique, random one-time address for the recipient for each transfer.
Although the recipient's public address is known to the sender, the corresponding address is never stored directly on the blockchain. Outsiders see only this one-time stealth address, which cannot be linked to the recipient's actual address.
Only the sender and recipient (who have special keys) can identify which address the transfer actually belongs to.
Ring Signatures and RingCT
Monero uses ring signatures to hide the sender's identity in transactions. When you make a Monero transfer, you sign the transaction together with a set of other randomly selected transactions.
An outside observer sees only a group of possible senders (for example, 16 different addresses), but cannot determine which of them was the real sender – as if the signature was made as a member of a "ring" so that one ring member signed authentically, but the real signer remains anonymous.
RingCT (Ring Confidential Transactions) further extends this by bringing confidential transactions to Monero. The Confidential Transactions technique cryptographically hides the transferred amount: only encrypted amounts are stored on the blockchain. Only the sender and recipient know the value of the transfer.
Bulletproofs
Since Monero hides transaction amounts, it must use special zero-knowledge proofs to verify that the encrypted amounts are reasonable.
In 2018, Monero adopted a technique called Bulletproofs, which is a type of advanced zero-knowledge proof method. Bulletproofs dramatically reduced the data size of these confidential transactions and improved network efficiency.
In practice, this means Monero transfers became lighter and cheaper to make while maintaining the same high level of privacy.
Technical Summary
- Stealth Addresses: Ensure outsiders cannot see who the payment is going to
- Ring Signatures: Ensure it's unknown who paid whom
- RingCT: Encrypts the amount so it's unknown how much was paid
- Bulletproofs: Ensures all this happens efficiently
View Key
A special feature of Monero is the so-called view key, which the wallet owner can optionally give to, for example, an auditor or friend: the view key reveals all transactions of that wallet to the viewer, without giving the right to transfer funds. This is a useful feature if you want to demonstrate your fund usage to selected parties, for example for auditing or taxation purposes.
Monero vs. Other Privacy-Focused Cryptocurrencies
Among cryptocurrencies, there are other projects that aim for users' financial privacy. The most well-known privacy coins alongside Monero include Zcash, Dash, and Beam.
Zcash (ZEC)
Zcash uses advanced zk-SNARKs technology. Zcash has two different address types: shielded (protected) and transparent (public). Only transactions between shielded addresses are private.
Difference from Monero: In Monero, all transactions are always private, but in Zcash, users must choose protected transfers separately. Monero's strength is privacy by default.
Dash (DASH)
Dash uses an optional PrivateSend feature based on CoinJoin technology. Users' coins are mixed with other users' coins through masternode servers.
Difference from Monero: Dash's privacy is not enabled by default and requires trust in the masternode network. In Monero, anonymization happens in a decentralized manner and automatically in every transaction.
Where to Buy Monero
Monero (XMR) can be purchased on various cryptocurrency exchanges. Due to privacy concerns, not all major exchanges list Monero, but it remains available on many reputable platforms.
Investment Considerations
As an investment, Monero has unique characteristics. Privacy coins have faced regulatory pressure in various jurisdictions, which has affected exchange listings and market accessibility. However, Monero's strong technology and dedicated community continue to support its development and use.
For investors interested in privacy-focused assets, it's important to understand both the technological advantages and the regulatory landscape. Always consider diversifying your portfolio and understanding the risks involved with any cryptocurrency investment.
Learn more about crypto investing in our crypto investing basics guide.
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