Cryptocurrencies are increasing in popularity. These are decentralized virtual or digital currencies and can be used to trade or spend using blockchain technology. Many of them aim to enhance privacy and anonymity, and whether they succeed is unpredictable. A few of these currencies allow public viewing of all transactions, while others make privacy optional. And still, others keep the privacy feature strictly implicit.
When most of us think of cryptocurrencies, Bitcoin is usually the first to come to mind. It was one of the first of its kind, using peer-to-peer technology to allow users to make payments with their coins. But another currency has achieved high popularity and acceptance, mainly for its privacy-oriented features. This one is called Monero. This article explains the key concepts, features, and challenges of Monero.
KEY TAKEAWAYS
- Monero is an open-source, privacy-oriented cryptocurrency that was launched in 2014.
- Its blockchain is opaque, which makes transaction details and the amount of every transaction anonymous by disguising the addresses used by participants.
- Investors can mine Monero using their CPUs, which means they don’t need to pay for special hardware.
- Its privacy features make Monero easy to use for illicit activities and use on the dark web.
Understanding Monero (XMR) Cryptocurrency
Monero (XMR) is an open-source, privacy-oriented cryptocurrency launched in 2014. It is built and operates on the concept. These blockchains, which form the underlying technology behind digital currencies, are public ledgers of participants’ activities showing all the network transactions.
Monero’s blockchain is intentionally configured to be opaque. It makes transaction details, like the identity of senders and recipients and the amount of every transaction, anonymous by disguising the addresses used by participants.
Along with anonymity, the mining process for Monero is based on an egalitarian concept. This is the principle that all people are equal and deserve equal opportunities. Its developers did not keep any stake for themselves when they launched Monero, but they depended on contributions and community support to further develop the virtual currency.
As of Aug. 26, 2021, Monero was trading at $295.05 and had a market capitalization of $5.3 billion. That’s a stark difference from the closing price of $89.12 on Aug. 26, 2020. The market cap on that date was $1.58 billion.
How Is Monero Different from Bitcoin?
As mentioned above, Bitcoin is the most popular cryptocurrency on the market. It works on a protocol that shields the participant’s identity using pseudo-name addresses. These pseudo names are randomly generated combinations of alphabets and numbers.
But this approach offers limited privacy as both Bitcoin addresses and transactions are registered on the blockchain, opening them to public access. Even pseudonymous lessons are not entirely private. A few transactions carried on by a participant over time can be linked to the same address, allowing others to become aware of an address owner’s trends and identity.
Another advantage of Monero over bitcoin is fungibility. This means that two currency units can be mutually substituted with no difference. While two $1 bills are equal in value, they are not fungible, as each carries a unique serial number. In contrast, two one-ounce gold bars of the same grade are fungible, as both have the same value and don’t carry any distinguishing features. Using this analogy, a bitcoin is the $1 bill, while a Monero is that piece of gold.
The transaction history of each bitcoin is recorded on the blockchain. It allows identifying bitcoin units that may be linked to specific events, like fraud, gambling, or theft, which paves the way for blocking, suspending, or closing accounts that hold such units. Imagine receiving a few bitcoins today that were previously used for gambling, which is banned in the future, leading to a loss.
Monero has a non-traceable transaction history, which offers participants a much safer network where they don’t risk having their held units refused or blacklisted by others.
Monero is among the top 30 most popular cryptocurrencies in the industry.
How Does Monero Improve Privacy?
Monero alleviates privacy concerns using the concepts of ring signatures and stealth addresses. Ring signatures enable a sender to conceal their identity from other participants in a group. Ring signatures are anonymous digital signatures from one group member but don’t reveal which member signs a transaction.
The Monero platform uses a combination of a sender’s account keys to generate a ring signature and clubs it with public keys on the blockchain. This makes it unique as well as private. It hides the sender’s identity, as it is computationally impossible to ascertain which of the group members’ keys was used to produce the complex signature.
Stealth addresses add additional privacy, as these randomly generated addresses for one-time use are created for each transaction on behalf of the recipient. Using these stealth addresses enables concealing the actual destination address of a transaction and hides the identity of the receiving participant.
Ring Confidential Transactions, or RingCT, also enable hiding the transaction amount. After successfully hiding the identities of senders and receivers, the RingCT functionality was introduced in January 2017 and is mandatory for all transactions executed on the Monero network.
Monero’s Challenges
While privacy fuels the rapid adoption of Monero, it also brings several challenges. For instance, the non-traceability and privacy features allow them to be used for nefarious purposes and at questionable marketplaces, including those drugs and gambling. This is one of the reasons why markets that were popular on the dark web, like AlphaBay and Oasis, showed increased use of Monero before they were shut down.
Reports by CNBC cite the case of hackers creating malicious software that infected computers to mine Monero and send it to North Korea. Monero is essentially open to being used for illicit activities and evading law enforcement, as it remains under external capital controls with no traceability.
How to Mine Monero
Monero runs on all leading OS platforms, including Windows, macOS, Linux, Android, and FreeBSD. The currency supports a mining process where individuals are rewarded for their activities by joining mining pools or can mine coins individually.
Monero mining can be performed on a standard computer without specific hardware, such as application-specific integrated circuits (ASICs). An ASIC is a costly hardware commonly used to mine cryptocurrencies like Bitcoin. Instead, you can use the CPU or GPU of your computer to mine the currency. A complete list of hardware that can be used is available on the Monero website. Users can also install specific software, which may cost a developer fee.
According to the company’s website, Monero relies on proof-of-work mining. This is an algorithm that provides security to specific cryptocurrencies like Monero. This system prevents problems surrounding double-spending, which can skew the supply, showing there’s much more than actually available.
Purchasing the currency is as easy as going on an exchange or looking for a seller willing to unload their supply. You can also buy Monero through an automated teller machine (ATM) enabled for cryptocurrencies.
You don’t need any special hardware to mine Monero. The currency runs on all major operating systems, including Windows, macOS, Linux, Android, and FreeBSD.
Is Monero Illegal?
Monero is not an illegal cryptocurrency. Unlike others, it is a privacy-oriented cryptocurrency that provides users with anonymity. This means it is not traceable. However, this characteristic makes it very popular on the darknet and for use in certain activities such as gambling and the sale of drugs.
Is Monero a Good Investment?
If you’re interested in cryptocurrencies, Monero may be a good investment. The currency’s price jumped more than 231% between Aug. 26, 2020, and Aug. 26, 2021. It doesn’t cost much to start, as you don’t need any special hardware. You can use your computer’s CPU to mine it, and Monero works with all major operating systems. This will save you a lot of money in charges.
Where Can I Buy Monero?
You can purchase Monero through a digital or virtual currency exchange. Or you can search for an individual seller or an ATM enabled for cryptocurrencies.
How Long Does It Take to Mine One Monero?
Mine one coin can take about two minutes, although there is no maximum block size.
Can XMR Be Traced?
Monero, or XMR, is untraceable. Unlike other coins, such as Bitcoin, Monero has a non-traceable transaction history. This characteristic offers participants a much safer network where they don’t risk having their held units refused or blacklisted by others.
The Bottom Line
Cryptocurrencies are a prevalent investment for many people. But the popularity—and price—of Bitcoin may be a turn off. But there are plenty of other virtual currencies you can purchase and trade that may be easier to invest in, notably Monero.
The privacy-rich attributes have helped Monero become a recognizable cryptocurrency and one to keep an eye on. Investors can trade in Monero on leading cryptocurrency exchanges like Kraken, Poloniex, and Bitfinex. However, it’s important to remember that what makes Monero so popular—namely, its privacy features—can also lead to significant challenges, such as its use in illegal activities.
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