Decrypt’s Art, Fashion, and Entertainment Hub.
Many of the world’s biggest cryptocurrencies aren’t anonymous. All transactions on Bitcoin and Ethereum are public and traceable, meaning anyone can eavesdrop on transactions flowing in and out of wallets. That’s lead to the rise of a new type of cryptocurrency called privacy coins. These secret coins use a specific type of cryptography to hide crypto transactions. Monero is arguably one of the world’s biggest privacy coins.
We explore why below.
What is Monero?
Monero is a cryptocurrency with privacy as its major selling point. Wallet addresses and transactions are deliberately hidden from view allowing people to use the currency in secret. It was built after currencies like bitcoin became marred in controversy after it was discovered users were using the currency to buy illegal goods. Monero’s developers wanted to develop a currency where the coins couldn’t be ‘tainted’ by what they had been used for in the past. This quality, known as fungibility is a major selling point for privacy coins.
Did you know?
Monero means ‘coin’ in Esperanto, the international language invented in the 19th century
Who invented Monero
Monero’s creators tend not to reveal their names, choosing pseudonyms instead. The person most responsible for creating Monero was a user called thankful for today, who has since disappeared from the day-to-day running of the network.
A brief history
🚀 July 2012 - Bytecoin, a pre-cursor to Monero was launched.
💀 March 2014 - After an investigation into Bytecoin, it was discovered developers were skimming tokens from the network.
🔱 April 2014 - Bytecoin was hard forked into BitMonero
👨👨👦👦 Summer 2014 - The community was divided over BitMonero, leading to a take over by a community member with the alias Johnny Mnemonic. It was renamed Monero.
🕵️ January 2017 Monero improves privacy to become one of the leaders in the privacy coin movement
What’s so special about it?
In addition to the currency’s big focus on privacy, Monero is built slightly differently to Bitcoin, which gives it a number of unique features.
🕵️ Total privacy - all transactions are hidden and untraceable.
📈 Scalable - While Bitcoin’s ability to process transactions has always been limited, Monero’s developers created a system that allows the network to handle more transactions as and when it needs to.
👑 Fungible - unlike Bitcoin where every coin has an open and traceable history, Monero’s currency has no identifying marks - making it fungible. What makes something fungible? Let’s look at an example. Every $1 bill has a serial number that can be traced and has a history, whereas 1oz of gold doesn’t have any distinguishing features and/or history attached to the gold itself. In this analogy, Bitcoin is the $1 bill and Monero is the 1oz of gold. Monero is more fungible as its currency has no traceable history.
🔑 Multiple keys - while most currencies use public and private keys, Monero has added an extra layer of keys to allow the network to hide how and when currency is used.
✊ ASIC resistant - in currencies like Bitcoin, mining pools have come to dominate how new currency is produced. In Monero’s case it wanted to prevent such consolidation of power by making the network ASIC resistant. The term, a reference to mining machines most commonly used on networks like Bitcoin, means the currency is less likely to become dominated by a few key miners. Although this could change.
How is Monero produced?
Monero uses the same proof-of-work algorithm that bitcoin uses, but with a twist. The hashing algorithm is different, meaning the machines most commonly used to mine Bitcoin, called ASICs cannot be used. The idea is that smaller miners can use their regular PCs on Mac or Windows to mine currency. While the hashing algorithm is different, Monero’s miners are still trying to crack the puzzle at the heart of the currency.
Did you know?
The core team of Monero is managed by seven people, five of which have never revealed their identity.
How does Monero work?
Monero values your privacy, meaning the way it works is slightly different from other, more public currencies. There are two distinct features that make Monero private.
- 💍 Ring signatures - Ring signatures are a type of signature that involves a member of a group secretly signing a document while making it impossible to know where the signature came from - but easy to verify that the signature is genuine. An example of how a ring signature could be used was if a “high-ranking White House official” leaked a story, and signed it with his or her ring signature. It would be impossible to know which official it was, but we can verify that it came from someone senior in the White House.
- 🔑 Multiple keys - Monero uses three types of key: a view key, a private spend key and a public address. View keys are used to see what transactions are destined for your account. Private spend keys are used to send payments and a public address is used for receiving payments. A Monero Wallet creates all of these for you and the experience of sending currency is similar to other coins.
Did you know?
The smallest unit of currency is called a Tacoshi, a portmanteau of user Tacotime, an early product lead on Monero and Satoshi Nakamoto, the creator of Bitcoin.
What can you do with Monero?
Monero, like other currencies can be bought and sold on exchanges. Thanks to its privacy however, it has become a popular funding method on the dark web, where it has been used as a way to pay for illegal goods and services.
As major currencies come under increasing scrutiny from governments and regulators, many crypto-watchers believe this will lead to a boom for privacy-coins. But it’s secrecy carries with it certain risks. Because transactions are impossible to trace, it has caught the attention of enforcement agencies who have seen increases in the network’s use by major crime syndicates, suggesting regulation may be coming for Monero.