Monero is one of the most popular privacy coins out in the cryptocurrency market now. Originally launched in April 2014 as BitMonero, Monero (symbol XMR), means money in esperanto. Monero, a fork of Bytecoin, is a secure, private and untraceable currency, built on the Cryptonote protocol.
Monero uses ring signatures, ring confidential transactions (RCT) and stealth addresses to hide transactions at the protocol level.
Technology used in Monero
Without diving too deep into the technical details, the way Monero is able to make transactions untraceable is through a technology called ring signatures. It essentially mixes an individual’s set of transactions with others so it is not clear to the public eye who owns which addresses.
It also hides balances through stealth addresses which are random one time addresses that can’t be associated with an individual publicly.
In Monero there is also something called a “spend key” used to spend funds and a “view key” which the user can share with others to allow transaction details to be selectively transparent to certain individuals.
Optional transparency can be beneficial for situations where an entity needs to be audited or submit information for tax purposes.
This separation into two different keys ensures that one may allow a third party to view transaction details without allowing the viewer to spend all of their funds. Drawing an analogy to the existing financial system: the bank login information needed to access your funds is similar to a spend key while a copy of your bank account statement and transaction details is similar to a view key.
Monero Vs Bitcoin
There is a common misconception that Bitcoin is entirely untraceable digital money. The very premise of Bitcoin is that all transactions can be viewed on a public ledger called the blockchain.
This is useful because it allows anyone to verify that a transaction occurred, particularly for ones that need to be completely transparent (e.g. government, non-profit spending).
Monero is different than Bitcoin in that it focuses on the privacy aspect of transacting with a digital currency. Monero uses a different type of technology to make the transactions untraceable and the balances hidden.
If your bitcoin address is ever shared publicly, anyone can view your balance and all other bitcoin addresses you have ever transacted with. Even though names aren’t explicitly stated on the blockchain, if someone decides to share their address publicly, all previous and future activity associated with that address will forever be linked to that person.
You also don’t necessarily need to share your address publicly for someone to figure out that you own it. In fact, just transacting with other tagged addresses may be enough for someone to figure out that an account is owned by you.
Pros, Weaknesses, and Concerns
Although it appears Monero has many accolades, what are some of its weaknesses? As discussed in this subreddit there are a few:
- Privacy – There’s been the ability to track the IP address of the node that originated a transaction. This logging of IP addresses could cause de-anonymization of users.
- Mining Centralization – The majority of Monero mining is by 4 pools who each have no more than 20%. In addition, the advent of ASIC Monero mining further threatens the original ethos of “one-CPU-one-vote” especially as things scale.
- Darkweb PR – Although this is not a direct cause of the Monero team, it is worth noting as the branding and public perception is always something to keep in mind and could slow adoption as people fear its use for illicit purposes.
- Transaction size – Monero transaction are much larger than Bitcoin’s which requires more data and causes a larger blockchain which is continuously growing daily.
- Development Difficulty – The ability to incorporate with multi-coin wallets and other integrations that would make use more widespread have been slow.
- Limited Merchant Tools – The tools for merchants to integrate payments is difficult and hard to integrate at this time. However, there are more and more third party services popping up to help remedy this.
Monero undergoes development updates that are currently planned to occur every 6 months which add new features and security enhancements. These scheduled updates force Monero to evolve and keep everyone on the same page that there will be consistent updates to the system.
Monero has been a really steady and innovative player in this fascinating game of not just Cryptocurrency but privacy. The technology aims to pick up where Bitcoin left off and even doesn’t work (i.e. non-ASIC mining, anonymity).
The dedication of the team to building code and auxiliary functions (like Kovri which was a separate but very relevant project) is very apparent. Competent teams are gold in a world of “flavor of the month” coins and ICOs.
Additionally, the technical details for these projects are not simple by any means and that further makes this project that much more fascinating and a great engineering feat.
Keep this secure, privacy coin on your radar, its team is a leader in the industry and will be one to watch indefinitely.