What is Monero? The Comprehensive Guide
Monero (XMR) was launched in 2014 as an open-source, privacy-oriented cryptocurrency built and operated on the concept of blockchain. These blockchains form the underlying technology behind digital currencies and are public ledgers of activities of participants showing on the network.
Monero’s blockchain is configured intentionally to be opaque. It makes transaction details such as the identity of senders as well as recipients, and the amount of every transaction anonymous by disguising the addresses participants used.
Along with its anonymity, Monero’s mining process follows an egalitarian concept — the principle that believes all people are created equal and deserve equal opportunities. In the launch of Monero, its developers kept no stake for themselves and settled on contributions and community support to develop the currency further.
Monero supports a mining process that rewards individuals for their activities by joining mining pools, or to mine Moneros individually. Monero mining can be done on a standard computer, and requires no specific hardware like the application-specific integrated circuits (ASICs).
Monero runs on all leading OS platforms which include Windows, macOS, Linux, Android, and FreeBSD.
How does Monero Work?
Monero uses an obfuscated public ledger, which means transactions can be broadcast or sent by anybody, but an outside observer will not be able to tell the source, the amount or destination. Monero issues new coins through a Proof of Work mechanism which also incentivizes miners to secure the network and validate transactions.
Monero Vs Bitcoin
Since comparisons cannot be avoided, here’s a look at how Monero stacks up against Bitcoin.
Bitcoin is proud of its open transparency capabilities. Its blockchain is basically an open ledger in which anyone, anywhere can access the blockchain and read up on all your past transactions. Bitcoins are quite simple to access and use.
Monero, however, is built for complete and absolute privacy. All transactions are entirely secret. Beginners may find Monero a little complicated to understand.
Unique/Key Features against its Competitors
- Your currency is yours
You can completely control all your transactions. Your money belongs to you. Because of your private identity, no one can see the things you have been spending money on.
- It is Fungible
Another interesting property Monero has as a result of its privacy is that it is truly fungible. Fungibility means a good or asset’s interchangeability with other individual goods or assets of the same type.
So, what is fungible and what is non-fungible?
Suppose a friend lent you $20. If you return the money to him with another $20 bill, then it is totally fine. In fact, the money can be returned in one $10 bill and two $5 bills. It is still fine. The dollar has fungible properties (not always though).
On the contrary, if you borrowed someone’s car for the weekend and gave back another car in return, then that person might probably punch you in the face. In fact, if you went away with a yellow Lamborghini and came back with a different looking yellow Lamborghini then that is not even a done deal. The cars, in this case, are a non-fungible asset.
Fungibility in cryptocurrency
Taking Bitcoin as an example, Bitcoin prides itself on being an open ledger and open book. This means everyone can see the transactions in it and even more importantly the trail of transactions. What this basically means is that suppose you own a Bitcoin that was once used in an illegal transaction such as buying hard drugs, it would be imprinted on the transaction detail forever. This is in essence taints your Bitcoin.
These tainted coins are never going to be worth as much as clean coins on certain providers and exchanges. This kills fungibility and is one of the criticisms often used against Bitcoin. After all, it is unfair for you to suffer for whatever illegal purchases the previous owners of your bitcoin made.
This is where Monero comes in. With Monero, all transactions and data are kept private, so no one is able to know what transactions your Monero has gone through and neither can they know what was bought with your Monero. Since its transaction history will always remain hidden, this also means that the transaction trail doesn’t exist as well. Due to this, “tainted” Monero and “clean” Monero concepts do not exist, and are thus fungible.
- Dynamic Scalability
In the past few months, the Bitcoin scalability issue has been hotly discussed within the crypto circles. So, the gist of the situation is this; Bitcoin was created with a self-imposed 1 Mb block size limit, Bitcoin didn’t have any block size limit in its early development days, however, to prevent spam transactions, the size limit was enforced.
However, Monero, on the other hand, doesn’t have a “pre-set” size limit, but what this also means is that the system can be clogged up by malicious miners with disproportionately huge blocks. To prevent this from happening, a block reward penalty is built into the system. This is how it works:
First of all, the median size of the last 100 blocks is taken and called M100. Now assuming miners mine a new block with a particular size called “NBS” aka New Block Size. If NBS > M100, then the block reward becomes reduced in quadratic dependency of how much NBS exceeds M100.
What this means is that if NBS is greater than M100 than by (10%, 50%, 80%, 100%), the block reward gets reduced by (1%, 25%, 64%, 100%). Generally, blocks greater than 2*M100 are not allowed, and blocks 60kB always have no block reward penalties.
- ASIC (Application Specific Integrated Circuit) Resistant
Monero is not actually “ASIC resistant”, but what it would cost to manufacture ASICs for Monero is so high it just isn’t worth it. Why is this so? Monero is based on the CryptoNote system which makes it very different from Bitcoins. The hashing algorithm used in CryptoNote based systems is called “CryptoNight”.
There are several CryptoNight properties which make it ASIC Resistant which include:
- To work, Cryptonight requires at least 2 MB of fast memory. This means that parallelizing hashes is limited by how much memory a chip can take while keeping cheap enough to be worth it. 2 MB of memory takes more silicon than the SHA256 circuitry.
- CryptoNight is built to be CPU and GPU friendly because its design allows it to take advantage of AES-Ni instruction sets. So basically, some of the work CryptoNight does is already being done in hardware when running on modern consumer machines.
- There have been rumors of Monero moving on from Proof of Work algorithm to “Cuckoo Cycle”. If this type of switch happens, then the amount spent in R&D of Monero friendly ASICs becomes meaningless.
- Multiple keys
One confusing aspect of Monero is its multiple keys. With Bitcoin, Ethereum and so on, there is just one public key and one private key. But in the Monero system, it’s not that simple. Monero has a public and private view key.
View Keys: There are two types of view keys. The public view key can be used to generate one-time stealth public address where funds will be sent to the receiver. The private view key is used to scan the blockchain to find funds sent to them. The public view key makes the first part of the Monero Address.
Spend Keys: If view key is mostly for the transaction recipient, the spend key is all about the sender. There are two types: public spend key and private spend key. With the public spend key, senders can take part in ring transactions and also key image signature. The private spend key is used in creating the key image that allows them to send transactions.
The public spend key makes up the second part of the Monero address.
The Monero is a 95-character string which comprises of the public spend and public view key.
The Pros and Cons of Monero
- Of all cryptocurrencies, Monero has one of the best privacy features.
- The transactions cannot be linked.
- The transactions are not traceable.
- There is no block limit on the blockchain and it is dynamically scalable.
- Even when Monero supply runs out, there will be a continuous 0.3 XMR/min supply to incentivize miners.
- Financially achieved staggering growth.
- Monero is selectively transparent. Transactions can be made visible to anyone of your choice e.g. an auditor when you give them their private view key. This makes Monero auditable.
- Has a very strong and capable developmental team leading the project.
- Although Monero was made to be ASIC resistant so as to prevent centralization, 3 mining pools own~43% of hashrate of Monero.
- Due to the amount of encryption involved, Monero transactions are significantly larger than other cryptos like Bitcoin, Ethereum, etc.
- Wallets compatible with Monero are not much. As a matter of fact, no hardware wallets compatible with Monero exists currently.
- Monero is not beginner friendly which is one major reason why it has not been as widely adopted.
- Since it is not a Bitcoin based coin, Monero has faced difficult issues in the sense that it is hard for things to be added to it.
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Verge Currency is a cryptocurrency designed for everyday use. It is an improvement upon the original Bitcoin blockchain and it aims to provide individuals and businesses a decentralized way of making direct transactions while maintaining personal privacy.
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The Future of Monero
The Monero project not only involves the cryptocurrency itself, but also features other interesting side-projects like Kovri, an I2P Router Project which is an C++ implementation of the I2P anonymous network and Unique Ring Signatures (URS), which allows you to send binaries and text anonymously among a group of users. The external project Crypto-Kingdom is a MMORPG — a massive multiplayer online role playing game based on Monero. These side projects clearly show that the Monero developer community has a set of modular developments, which are not only relevant to Monero-core or to the currency, but also show a developer-driven/design-driven architecture. This points to the fact, that Monero will be there for quite some time, and will not suddenly die like Bytecoin (premine), CryptoNite (dev abandon), etc.
Future projected roadmap
Monero still needs open source mobile wallets, as only closed-source ones are available till date. JAXX Wallet announced a wallet, but soon after reverted their decisions. There will still be a few more efforts like this with new wallets to appear in the next months to come.
Monero GUI Beta 1 was already a very huge step for the Monero project, as it brought a full wallet and GUI to the desktop for the first time. According to the developers, Monero GUI Beta 2 will be released soon.
While a lot of traders and observers are awaiting the crash of the DASH rise, there are also speculations that Monero will benefit from people coming from Zcash or other currently hyped coins.
There is no doubt that with a more open and decentralized future, many people will take Monero because of the privacy it offers. Although there are still questions about Monero with regards to acceptability in the long term and if it’ll face regulatory hurdles, nevertheless, it is one of few non-Bitcoin-based coins with the potential of actually making it big in the future.
Mainstream brands are beginning to accept the coin and its developers have been dedicated wholly to the project with frequent updates and efforts made to keep the network thriving and secured.