Originally named BitMonero after its creation in April 2014 as a hard fork of Bytecoin, the project quickly changed its name to Monero and experienced rapid growth over the next several years due to its emphasis on confidentiality. Monero relies on a proof-of-work consensus mechanism to control XMR issuance, with new blocks being added about every two minutes.
As Monero is fungible, a transaction is unable to link to a particular user since two different Monero coins will look to be exactly the same. This stands in contrast to other cryptos like Bitcoin, from which blockchain analysis could distinguish where different Bitcoins were purchased.
Monero’s privacy emphasis had led many to classify the cryptocurrency with other coins like Zcash (ZEC) which are designed to address perceived Bitcoin privacy weaknesses. Monero has also become one of the most popular coins for gambling in so-called Monero Casinos for that reason. However, Monero’s differences from other coins range far beyond privacy.
Uniquely, Monero became the first major crypto to deploy “bulletproofs” technology in 2018. The novel technology decreased transaction size by more than 80% and replaced the coin’s zero-knowledge range proofs. Bulletproofs will again be upgraded to reduce transaction size as part of Monero’s planned July 2022 update.
Additionally, Monero’s software is automatically programmed to update every six months, allowing the coin to introduce cryptographic advances and modifications without much controversy.
As a result, Monero’s garnered massive attention from researchers and cryptographers, and has become one of the most well-known ‘privacy coins.’
How Does Monero Work?
Despite Monero’s unique features, it relies on a Proof-of-Work (PoW) consensus mechanism similar to many other coins. As the first method to validate transactions, miners in a PoW solve arbitrary and complicated mathematical puzzles to add blocks.
Monero’s PoW algorithm is ASIC-resistant and CPU-friendly, meaning it’s not feasible to mine Monero with specific mining hardware. ASICs, or Application-Specific Integrated Circuit devices, are “rigs” built specifically for mining that often need a lot of electricity and other efficient hardware to run optimally.
However, Monero’s developers believe in decentralization and egalitarianism. They are more interested in providing opportunities to more people and are less interested in mining centralization. ASIC rigs and associated equipment are often too expensive for many prospective miners to buy.
In the past, Monero relied on the CryptoNight mining algorithm which was designed to be ASIC-resistant, highly secure, scalable, and featured high hashing speeds. The RandomX hashing algorithm replaced CryptoNight in 2019. The PoW algorithm was developed by Monero contributors to be optimized for CPUs and discouraged the use of ASIC mining. The Monero team wrote RandomX was created “with the intent of keeping mining decentralized and to create a more egalitarian distribution of the block rewards.”
XMR is also fungible, which makes it all but impossible for transactions to be traced. As two Monero coins are the exact same, coins are not able to be linked to a particular user or account. In contrast, it’s possible for blockchain researchers to look at Bitcoin transactions and find where different coins were purchased or how they were used. This ability has helped financial officials levy sanctions on those they suspect of illicit activity.
What Is Monero Used For?
Unsurprisingly, Monero (XRM) is best used for crypto users interested in swift, private, and secure transactions. Some within the crypto world are suspicious of privacy-focused coins like Monero. They argue these types of coins promote illegal or illicit transactions.
However, privacy does have a legitimate place in the cryptocurrency world and privacy-focused coins like Monero have plenty of legitimate use cases. Some businesses might be interested in keeping transactions private to mitigate the risk of cybercriminals or thieves targeting a high-volume business. It’s been estimated cybercrime has already caused $6 trillion in damage in 2022.
Additionally, numerous companies are interested in spending habits, transaction records, and other financial details to create and display targeted advertisements and profit off of this vital information. Research reports the worldwide big data and business analytics (BDA) market will grow to $274.3 billion in 2022, already up from $215.7 billion in 2021.
Privacy-focused cryptocurrencies help users keep their financial details and information private and out of the hands of those looking to profit or those looking to harness these key details to steal funds.
Types Of Monero Wallets
Smart users keep their XMR in a secure cryptocurrency wallet. Crypto wallets hold public and private keys.
Monero users have plenty of wallet options, which include
Software wallets (MyMonero)
Mobile Wallets (MyMonero Edge)
Full-Node Wallets (Monero GUI)
Hardware Wallets (Trezor, Ledger)
Hot wallets are convenient as they are always connected to the Internet. However, the connectivity means hackers then have a better chance of potentially stealing funds. Hardware, or cold wallets are more secure as they are not connected to the Internet all the time and are ideal for long-term storage. Monero miners will need to make sure they have a secure wallet to send mining rewards to.
Monero holders can also hold their coins on popular exchanges like Coinbase, Binance, and Kraken. It’s not optimal to store cryptocurrency in an exchange account since the platform has ultimate control over funds (as they hold the private key to an account).
What Makes Monero Private?
While crypto users might lump coins with privacy-focused aspects together, not all of these coins work in the same way. For example, Zcash offers multiple transaction types, from fully private to fully public, while Monero always anonymizes details.
A few unique features that make Monero private include
Ring Signatures: Ring Signatures are the bedrock of Monero and are also a concept in general cryptography. This technology mixes the digital signatures of a crypto user making a Monero transaction with others before blockchain recording. As a result, it becomes impossible for an outsider to tell whose key was actually used to sign the transactions. Monero has modified the number of signatures involved in this process, and as of 2019, 10 signatures were added to each transaction (making a total of 11). On July 16th, 2022, the ring size will jump to 16 as part of a new network software upgrade.
Ring Confidential Transactions (RingCT): First introduced in January 2017 and made mandatory in September 2017, RingCT hides the actual amount transacted between users. Before RingCT, transaction amounts were divided into denominations. This offered some privacy but still allowed other people to see transaction amounts. RingCT also ushered in the use of range proofs which allow Monero’s network to validate transaction amounts greater than 0 and less than an arbitrary number. Range proofs help Monero’s network secure the number of coins in circulation as users are not carrying out transactions of a negative value.
Stealth Addresses: A third major pillar in Monero’s privacy foundation, stealth addresses allow a sender to create randomized one-time addresses for each transaction. The recipient can then publish a single address but still have their payments go to unique addresses. As a result, only the sender and receiver know where a payment was sent. Monero users rely on their ‘view key’ to see incoming transactions and a private ‘spend key’ to send funds.
Check below our step-by-step guide on how to buy Monero.
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