Most people are aware that there are many types of cryptocurrencies in the market. However, what most people do not know is that many of these cryptocurrencies serve different purposes.
Monero is a cryptocurrency that is geared towards granting privacy and transaction secrecy to investors. This article is about Monero and how investors can use it to enhance their cryptocurrency trading experiences.
What is Monero?
Monero is a cryptocurrency that is created with the view of ensuring the best possible security for users. Most cryptocurrencies and blockchains are permissioned and open-sourced networks. It means that anyone can trace the transactions to a particular user based on the on-chain data.
All the information on a typical blockchain is made available for everyone to access in the spirit of transparency. At one end, all the users have equal access and knowledge about every single transaction that happens on a blockchain but they are unable to keep their financial history private.
Monero is a blockchain project that ensures that the users on the network can make discreet transactions that cannot be tracked. This project is also open-sourced and decentralized like most other blockchain networks.
At the same time, this blockchain depends on the Proof-of-work consensus model. However, this blockchain contains several methods to ensure that all the transactions on this network remain anonymous. Monero contains the 3rd largest developer participation in the DeFi sector.
Noteworthy devs on Monero like Riccardo Spagni have continued to add new updates to the network to increase its privacy and incognito features.
How does Monero Work?
In general, most blockchains allow their users to access third-party privacy tools such as crypto washers to maintain their privacy. However, when cryptocurrency investors are working with Monero they can access built-in discretion features.
Monero is considered the top privacy cryptocurrency in the world. This blockchain has continued to onboard the latest security updates to ensure that the users can keep their transaction history hidden from the best trackers. It is worth noting that there are always ways to intercept the initial point of a transaction using developer skills.
Therefore, the users who are depending on ordinary methods of masking their tracks may get traced if experienced trackers are investigating them. However, Monero aims to make cryptocurrencies as independent as fiat currencies.
Just like it is near impossible to trace the transactions that are made in hard cash, in the same way, it is very difficult to track down the transaction path of the Monero currency.
The platform has adopted some features like Ring signature that involve generating private keys discreetly. In addition, the platform also uses the stealth addresses mode.
Origin of Monero
Monero was introduced as a fork of another blockchain project called Bytecoin. The project made its first appearance in the form of Bitmonero in 2014. The new fork was introduced by a developer working under the pseudonym of thankful_for_today who was also connected to the BitcoinForum.
The unknown developer created this fork taking inspiration from another blockchain project called CryptoNote. CryptoNote was created by a computer scientist named Nicolas Van Saberhagen in 2013 alongside a Whitepaper publication. That project also emphasized the privacy and right to remain anonymous for digital transactions and mentioned the traceability of Bitcoin as a fundamental flaw.
The genesis project was facing issues in going forward on account of internal conflicts and disagreements. Eventually, it led to the fork that resulted in the creation of the Monero blockchain as a standalone project.
Top Features of Monero
Almost all blockchains contain some of the key components such as smart contracts, nodes, validator, etc. However, here are some features that make Monero stand out from the crowd. Most of these features also play an important role in making Monero the perfect privacy coin.
Ring Confidential Transactions
Ring Confidential Transactions or Ring CTs are a protocol that has been added to the mainframe of the Monero blockchain to ensure transaction secrecy. This protocol ensures that all the sensitive information about the sender such as user name, amount, transaction time, and others are hidden. This protocol is based on two programs.
The first one is the Multilayered Linkable Spontaneous Anonymous Group or AMLSAG and the second one is the Confidential Transactions. The MLSAG ensures that the data of the sender such as the amount, source, and final address of the transaction are hidden from others.
On the other hand, the Confidential Transactions ensures that the value is encoded using cryptography. CT uses the Pedersen Commitment which is an encryption algorithm that ensures that the transaction details are only visible to the recipient.
At the same time, the Monero protocol also enables the users to reveal enough information for the transaction to get validated. In 2020, Monero upgraded from MLSAG to CLSADG or the Concise Linkable Spontaneous Anonymous Group option. This update is said to make the transactions on Monero up to 15% faster for verification and they also take up smaller space.
Stealth Addresses add another layer of secrecy to the Monero ecosystem. It entails creating a new stealth address for every new transaction. The sender can generate new addresses for the receiver for every new transaction they make.
The private keys of these addresses are under the possession of the sender and they are at liberty to share them with the intended receiver. The senders also get a one-time private key to access each new stealth address.
These stealth addresses are only known to the sender and receiver and only those who have the private key may access the funds available in these destinations.
Furthermore, these stealth addresses cannot be linked to any wallets because they require generating a new stealth address for every new transaction.
As mentioned earlier that RingCTs are used to hide the crucial information available on every transaction such as the real amount. The blockchain manages to make it happen by issuing a ring signature. It means that the network issues decoy coins and addresses to throw off any trackers.
However, it requires a lot of data and can slow down the system. To address this issue, Monero devs introduced Bulletproofs in 2018. This enabled the network to accelerate the secret transaction and improve scalability. At the same time, it also contributes to keeping the transaction size compact.
Bulletproof ensures that all the other privacy features on the network work at better efficiency. On the other hand, it has also played an important role in reducing the gas inflation on Monero.
Dandelion++ is another privacy feature available on Monero. It works to ensure that the IP addresses that are recorded on nodes while generating a new transaction are hidden. In this manner, advanced trackers can’t pinpoint the location and identity of the users who have made these transactions.
Once a tracker has been able to find out the IP address, they can contact the ISP or Internet Service Provider to extract their personal information. Dandelion++ was added as an upgrade on Monero in 2020. It is worth noting that this blockchain feature was first created for the Bitcoin blockchain.
Dandelion++ spreads fake or dummy information about the user through proxy nodes to prevent the threat actors from reaching the real user.
Tor and I2P Support
Everyone that has some intermediate knowledge of computers is familiar with Tor or the Onion Router. Monero has adopted this feature to add layer of privacy for the users. In this manner, the trackers cannot hunt for the end-users using their transaction paths. Monero also uses the I2P addresses that are also known as Invisible Internet Project.
These I2P addresses work as a secure and incognito path for the users to make communication with each other without the dangers of getting intercepted. The first layer of Tor encrypts the existing internet connection of the users while I2P provides an exclusive internet pathway that works as a mask for the internal link.
Is It Possible to Trace Monero?
The next question to ask is that is it possible to trace the transactions that are performed on Monero. There are layers and levels of privacy that the users can enjoy based on the software they are using. Therefore, the users should understand how much protection they can expect from Monero.
It is important to note that just about every new encryption technology is bound to find its match in the future. The encryption in blockchains makes them near impossible to manipulate. However, blockchains are said to remain secure until quantum computers become common.
There is some latest advancement in technology that has raised the question about the perfect privacy claims of Monero.
For example, one protocol has been promoted by cybersecurity firm CypherTree that can break the privacy protection layers of Monero. The security organization has touted that their tool can be used to trace the Monero currencies that are used in illegal activities such as money laundering and smuggling etc.
However, the Monero users and stakeholders have expressed their skepticism towards such claims from CipherTree. Justin Ehrenhofer is a cryptocurrency expert who has come forward to defend the position of Monero claiming that such claims about tools that can trace the users are unrealistic and exaggerated.
What is XMR?
It is important to note that just about every cryptocurrency is geared towards enabling financial services with added features for the users. Therefore, all blockchains issue cryptocurrencies that can be seen as an alternative to fiat currencies.
Blockchains can be seen as Central Banks that are the issuer and verifiers of said cryptocurrency while digital currencies can be seen as the monetary product that the users can utilize as a unit of account, hedge against inflation, store of value, or avail various financial features. XMR is the native token or privacy coin that is issued by the Monero blockchain.
The estimated circulatory supply of XMR is the highest in comparison to some of the largest privacy coins projects such as Dash and Zcash. The first threshold of the total supply of XMR is set at 18.3 million.
However, once this first threshold is crossed, the Monero blockchain is designed to start issuing new XMR tokens at the rate of 0.3 units per minute. This protocol is called tail emission and it is created to incentivize the miners to ensure that they keep verifying the transactions for the Monero blockchain in the long run.
Noteworthy Achievements of Monero
It has been mentioned before that Monero is one of the top blockchain projects in the world with the highest amount of development interest. Since its inception, Monero has kept adding new features and upgrades to make its privacy feature more and more solid. Here are some of the most notable landmarks that have been achieved by Monero since its introduction:
Yearly Trading Volumes
It is important to note that Monero is one of the most popular cryptocurrencies in the world. The claim is backed by the rapid adoption and the trading volume statistics of XMR. Monero has reported a sizeable increase in the number of daily transactions since its debut. During April 2020, the transaction volume of Monero reached 10K per day.
In 2021, the project was processing 23K transactions per day on average. During 2020 and 2021, the total number of transactions on Monero was recorded at 5.8 million. For the next year, Monero reportedly supported around 9.08 million transactions based on the data collected from on-chain resources.
The comparison between the two years’ transaction volumes indicates a 154% increase that confirms its wide acceptance and global adoption.
Another point to corroborate the success of Monero is its acceptance by the enterprise and business community. The general idea about Monero is that it is a currency that is only favored by criminals and threat actors to escape the clutches of law enforcement agencies.
However, inspecting the welcome enterprise adoption trend for Monero can clear up this misconception. Many companies take great measures to secure their financial data.
On the other hand, many retail users have grown averse to websites collecting their personal information without their knowledge. Therefore, the growing demand for private purchase options has enticed digital merchants to list XMR as a payment option for their consumers.
Thus far, Monero is accepted as payment by 278 companies hailing from all parts of the world. Some of these companies are Plyhud Casino, Nord VPN, WikiLeaks Shop, Bitpanda, and ABACO Hosting among others.
Coral Reef is an art-related project that has been adopted by Monero. This project is geared towards enabling users to gain easy access to their favorite music artists. Globally recognized musicians such as Weezer, Dolly Parton, Mariah Carey, and Backstreet Boys can make purchases from their personalized stores available online.
The benefit of using Coral Reef to access these music talents is getting mega discounts for their top or latest albums. This project is another reason that has resulted in increasing the popularity of the Monero project in the mainstream markets.
Is Investing in Monero a Good Idea?
Many cryptocurrency projects emerge but are unable to remain operational for a long duration. The main reason for the closure or failure of these projects is the lack of technical soundness. Monero is also a fork that has taken its base code from an existing blockchain.
However, the developers that are working on the project are qualified and trustworthy. The developers have played an important role in making this project a success by ensuring its privacy feature and strengthening it with regular upgrades.
Furthermore, the theme of protecting their data and online privacy has started to gain traction among people since the release of Facebook Papers. The governments of most countries are working on switching from paper currency to CBDCs. It means that the demand for privacy currencies like Monero is likely to increase.
However, the privacy offered by Monero is also seen as an issue by financial regulators. Therefore, many regulated cryptocurrency exchanges are hesitant to list XMR on their platform to avoid retaliation. At present, it is not possible to predict with accuracy if Monero is going to gain traction or go out of commission on account of government scrutiny and interference.
Monero is one of the best privacy tokens in the world. On one end, the currency is seen as a nuisance on account of its use in illegal financial activities. On the other hand, this currency also protects the individual right to privacy for everyday people. The currency has a technical soundness and it has proved to be a reliable project.
Investors who wish to invest in the currencies can acquire XMR after conducting their due diligence to measure the risks involved. At the same time, there is also appeal for those who wish to use it for increasing their security and protect their personal information.