A Beginner’s Guide to Monero (XMR)
Bits + Money = Monero
Monero, Esperanto for “money”, is based on ideas that tackle the issues of linking and tracing capabilities. Regular crypto transactions, though anonymous, can still be traced. Monero transactions, on the other hand, are made to leave no trace of the source, amount, and destination of funds.
It was the very first to utilize the CryptoNote protocol that attempts to solve many of Bitcoin’s problems and is completely open-source. Mining using specialized hardware and the element of public visibility over transactions and wallets were the main concerns that CryptoNote built upon. Nowadays, it has become somewhat of a standard choice for virtual currencies that want to preserve confidentiality.
Just two years after Bytecoin’s release, developers, spearheaded by thankful_for_today (TFT), who wished for a fairer distribution branched out and created BitMonero. TFT wanted to improve block time, block reward, and the community did not accept tail emission. Later updates by community members, led by Johnny Mnemonic, who took over the project after the disappearance of TFT brought some changes to the table, and one of them was in the naming, which is why we now have only Monero.
Two years later and crypto enthusiasts have adopted Monero for its privacy features, bringing the market cap higher and higher, due to the coin’s usability in the dark web for purchasing guns, drugs, etc. The Confidential Transactions algorithm by Gregory Maxwell leveled up privacy and attracted blockchain influencers like Andrew Auernheimer and Christopher Cantwell who began promoting and using Monero as a payment method. Hackers had their fair share of gains by deploying mining codes into websites and software applications, taking over users’ computer resources and using them for mining, but in 2017, malware and antivirus services were able to find ways to block such malicious code.
Structure and usage of Monero
New terms are introduced with the coming of Monero – ring signature and stealth address, which are the keys to how blockchain transactions are turned into phantoms. On one hand, there are public keys, which make it possible for crypto transactions to be seen publicly. There is also the private key that is visible to only the holder of the wallet and should not be revealed to maintain privacy and security.
On the other hand, there is the ring signature, which is a type of digital signature that is created by an individual in a group. Transactions can be verified from the public keys available in each group. However, with a ring signature, it is unclear who within the ring of users has created the signature and initiated the transaction. The technology behind this is detailed in the 2011 paper titled “How to Leak a Secret”.
Monero users also get access to their own stealth address, which acts as a second layer to ring signatures, obscuring the destination of funds. This way, a blockchain address cannot be revealed, even if one’s identity is tied to it, providing a safe environment for every kind of transaction. Ring signatures hide where funds are coming from and stealth addresses hide where they are going to.
To perform a transaction, a sender will create a stealth address by hiding the public address, which makes it untraceable on Monero block explorers. The XMR sent to this new address is different from any other address and they cannot be linked. The only pieces that can solve the puzzle are the private view key and the private spend key. The former makes it possible to view transactions associated with an address, and can be provided to others. The latter executes the same function as a private key, and is used to authorize transactions. Stealth addresses are mandatory, as per Monero’s privacy by default policy, and the public ledger will be automatically obscured, but transactions can be made transparent to chosen parties, which means that there is a level of flexibility there as well.
At this time, XMR’s market cap stands at almost $3.5 billion, with the price of a coin going for around $191. Monero has seen some spikes over the years and has had times of soaring highs, with its all-time-high being in the first half of 2021, reaching $483.58 for a short period before slowly leveling out between the $300 and $200 mark. Considering that Monero is based on the proof-of-work model with a twist of RamdomX for privacy’s sake, it is currently not one of the most scalable blockchains. However, it doesn’t try to hide that its goal is far from that, as it is more oriented towards providing its users with the peace of mind that they can perform transactions without worrying over who is watching, and in today’s society, this is something that is treasured greatly.