Top 10 Cryptocurrencies – Monero (XMR)

Monero is a so-called “privacy coin”, inspired by the libertarian movement. Privacy and anonymity for users and transactions forms the basis for the design of Monero.

Monero (XMR) is the tenth largest cryptocurrency by total market capitalization and the leading privacy coin.

Monero XMR Market Data
Current Monero Price: $103.71
Current Total Market Cap: $1.7bn

(Data as at 31 October 2018)

Monero or XMR was launched in 2014, initially as a fork from the Bytecoin blockchain. It was originally called Bitmonero, but later rebranded as Monero, which means “coin” in Esperanto. It’s an entirely voluntary and open-source project, currently led by 7 members and with over 40 active developers.

The total supply of Monero at present in circulation is around 16.2 million coins.

How Monero Differs From Other Cryptocurrencies

Most other cryptocurrencies, including Bitcoin and Ethereum, rely on transparent blockchains. This means all transactions are publicly visible and traceable by anyone. Sending and receiving addresses of transaction partners can be used as an information starting point in locating the identities of the partners.

Monero by contrast deploys a complex system of cryptography to hide sending and receiving addresses as well as the transaction amounts.

Monero uses a triple system of ring signatures, ring confidential transactions, and stealth addresses to obfuscate the origins, values, and the receivers of all transactions.

Unlike other “private” cryptocurrencies such as Zcash, DASH and others, Monero deploys full privacy as standard. However, it also gives users the freedom to decide whether to disclose some transactions on an individual basis as they wish.

Monero is also fungible. This means that every unit of the currency can be mutually substituted and is equal to another unit of the same size in terms of validity.

By contrast, while two $10 banknotes can be exchanged and are functionally identical to any other $10 note, they still each have unique ID codes and so are not entirely fungible.

Monero is fully fungible because there is no way in the Monero system for users to link transactions together or trace the history of any particular payment.

Monero employs a different mining consensus algorithm to Bitcoin. Monero uses the CryptoNight Proof of Work algorithm based on the CryptoNote protocol.

Another difference to Bitcoin is that Monero is ASIC-processor resistant which allows it to be mined using consumer-grade computer hardware. This measure is intended to help prevent the emergence of any centralized mining or control.

However, in practice, as is the case with many other PoW-based cryptocurrencies, Monero is also susceptible to the centralizing power of co-operative mining groups.

Unlike Bitcoin and many other cryptocurrencies, Monoero uses a system of variable blockchain blocksizes based on dynamic scaleability. This means the Monero blockchain does not have any “pre-set” size limitation. The blocksize can adjust itself according to the level of transaction traffic and the needs of the network.

An additional project called Kovri will provide the functionality for Monero to route and encrypt transactions via the I2P Invisible Internet Project network. This will also make it possible to hide the transaction partners IP addresses and provide additional protection against network monitoring.

How The Monero Address System Works

Each Monero account uses two sets of keys: a spend key and a view key.

The spend key key-pair consists of a public spend key and a private spend key. The private spend key is used to sign the key image when the account holder wants to authorize a transaction.

The public spend key is used by the Monero network to verify the signature of the key image and then validate the transaction.

The view key key-pair consists of a public and a private view key. The public view key is used by the sender to create a one-time stealth address to which the transaction funds will be sent.

The private view key is used by the Monero funds receiver to identify the funds sent to his address on the Monero blockchain.

Monero addresses are not exactly user-friendly and are not human readable. A Monero address consists of a long string of 95 characters which begin with a ‘4’.

As an example, the Monero Donation address looks like this:

44AFFq5kSiGBoZ4NMDwYtN18obc8AemS33DBLWs3H7otXft3XjrpDtQGv7SqSsaBYBb98uNbr2VBBEt7f2wfn3RVGQBEP3A

The address is comprised of the public spend key which forms the first part of the Monero address, together with the public view key of the string.

Monero Hides All Transaction Details

Monero transactions are able to keep four details of the transaction private and anonymous. The sender address is hidden, as is that of the recipient, the amount of funds being transferred is also hidden, as is the information that a transaction is even taking place.

How The Sender’s Details Are Hidden

The sender’s privacy is guaranteed by means of Monero’s Ring Signature system.

This protects the sender’s identity by concealing the “spent inputs” – the funds in the sender’s account that are being used for the transaction.

The Ring Signature uses a defined “ring size”. The ring size deternines how many many “decoys” will be used for the transaction. The higher the ring size, the greater the degree of anonymity which can be assured. However note that the transaction fee charged by Monero depends on the size of the ring. A larger ring means a higher transaction fee is incurred.

The “decoys” are past transaction outputs (effectively public keys) derived from the Monero blockchain.

How The Recipient’s Details Are Hidden

One-time spend keys are public keys which correspond to an output sent from a sender. These are random addresses created by the sender which are unique to the transaction.

Each Monero account has a private spend key, a private view key, and a public Monero address. The public address is made up of the public spend key and a public view key, and this is the address used for receiving payments. Each account has just one such public address.

However, incoming transactions are always sent to unique one-time addresses randomly created by the sender on the blockchain and which cannot be traced back to the recipient’s public address.

These one-time addresses are known as stealth addresses. Their purpose is to ensure the sender and receiver are the only two individuals able to determine the source and destination for the transaction.

How The Transaction Is Hidden

Monero employs a protocol called RingCT to keep transaction values private on the blockchain.

As the Monero team put it themselves “Today with RingCT, newly created Monero firstly resides in outputs that have visible amounts. When new Monero is transferred for the first time, RingCT outputs with masked amounts are generated. As a result, transactions no longer need to be broken down into different denominations.

This means that a wallet is free to pick ring members from any RingCT outputs, which significantly improves privacy. It should be noted that Monero ring signatures can’t include both pre-RingCT outputs and masked RingCT outputs in a single ring, so – like newly created Monero – a pre-RingCT output must first be converted to a RingCT output before it can be included in a ring signature with other RingCT outputs.”

Kovri Will Hide IP Addresses And Provide Location Anonymity

Kovri is a free, decentralized anonymity protocol which will hide the connections between Monero users as well as their geographical locations. It will be based on the Invisible Internet Project (I2P) specification.

Kovri is currently under development, and not yet integrated into the Monero network.

Advantages of Monero

The high level of privacy afforded by Monero is a strong plus point for those who want to keep their transactions and account details strictly private.

Monero’s dynamically flexible blockchain blocksize allows for more efficient transaction processing.

Monero’s mining system is more consumer-device friendly than some other currencies for those who are interested in mining the currency.

Transactions typically take around two minutes to process which is faster than for example Bitcoin.

Disadvantages of Monero

While the privacy features offered by Monero make it attractive for those concerned with defending and protecting citizens rights and freedoms – often known as the libertarian movement, the same features mean Monero is attractive to those conducting transactions involving illicit or illegal activities.

The Monero mining system is still based on “Proof of Work” which is inefficient and wasteful of energy resources.

Also while Monero’s flexible blockchain system allows for more speedy transaction processing, the capacity of the system in its present structure could still fall short of that required in the event of a massive increase in usage of Monero.

My Assessment of Monero

Monero is the leading privacy cryptocurrency and the tenth largest by market cap size and this makes it one of the heavyweights in the sector.

The strong anonymity and privacy features of Monero give it a unique selling point among cryptocurrencies for some users. However there are now other privacy coins, such as Zcash and ZEN, and more are planned. Monero however does have a strong existing market position in this sector.

At the same time, what makes Monero strong can also make it weak. Monero can be seen as a natural enemy of government regulation, including the AML-KYC system.

This could place Monero in a vulnerable position as a target for regulators co-ordinated action against the currency were to be taken by government authorities.

Disclosures: The above article may include affiliate links for products and services for which this site may receive remuneration. The author or authors may hold investments in the assets mentioned in this article.

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