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Monero (XMR) 101: Should You Use It?

By Michael @ CryptoEQ | CryptoEQ | 1 Aug 2023


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Use Case

The initial privacy-oriented functionality of Monero was first described in a whitepaper published by the (presumably) pseudonymous Nicolas van Saberhagen in October 2013, featuring “CryptoNote,” or a cryptocurrency protocol introducing several privacy and anonymity enhancements. Upon discovering the whitepaper, a Bitcointalk forum user produced an implementation of such ideas into a cryptocurrency termed “BitMonero,” later forked to be the official Monero in 2014 following user disagreements over the future of BitMonero. Monero is open-source, so its code is available on its GitHub repo, where a large community of followers helps contribute to its development. It is a Proof of Work (PoW) coin that has previously implemented the CryptoNight hashing algorithm as an attempt to make the mining process as egalitarian as possible. However, in 2019 the hashing algorithm was changed to RandomX with the same goal in mind, to prevent specialized Application-Specific Integrated Circuit (ASIC) and Field-Programmable Gate Array (FPGA) miners from dominating its mining community.

Primary Use Case

Monero’s primary use case is for private, peer-to-peer transactions via the utilization of its obfuscated blockchain ledger. Its privacy-focused approach has led to Monero’s developing and integrating numerous cutting-edge advances in cryptography, including Ring Confidential Transactions (Ring CTs) and Bulletproofs. Monero is particularly popular with a strong base of users who believe in the fundamental principle of privacy in the domain of financial transactions, initially conceptualized with the inception of Bitcoin. Notably, Bitcoin is pseudonymous, sacrificing complete privacy for scalability. Conversely, Monero placed a higher emphasis on privacy over scalability, focusing on implementing the leading privacy features before attempting to scale the network with layer two solutions. As a result, Monero emerged as one of the leading privacy cryptocurrencies.

Outside observers, especially government officials and law enforcement, view Monero's advanced cryptographic features as a problem when it comes to tracking criminals. Conversely, its followers see it as a right to transact with each other privately that cannot be infringed on by centralized authorities. Monero's utility when it comes to private transactions is prominently evidenced by both the WannaCry Ransomware Attack and Monero’s status as the currency of choice on dark-web sites such as former drug marketplace AlphaBay. Both of these instances show its use in illicit dealings; however, many who support Monero are proponents of its development for ideological reasons. Monero also provides a legitimate financial avenue for subverting oppressive regimes and corrupt companies. Its privacy features empower users who would otherwise be at the whim of the institutions. 

Whether or not their reasons for preferring an anonymous means of transacting is for illicit, idealistic, general business or other purposes is up to the users. The Monero community repeatedly attempts to emphasize this distinction: its use is driven by the users themselves, not designed by the technology. 

Secondary Use Case

The use of Monero for business dealings is also an important secondary use case. Monero is selectively transparent, meaning users can choose to reveal their identities and transaction amounts. For instance, if a company were to use a pseudonymous public blockchain ledger like Bitcoin, connections between the company's identity and assets could be established. The company would undoubtedly prefer to keep some of these assets and transactions private. This could present potential problems for companies: revealing business dealings and other corporate information (such as cash flow details) that typically remain private. The benefit of the companies utilizing a public blockchain would be the obvious advantages of immutability, seamless transacting, and operating outside of the control of intermediaries; however, a public ledger that does not obfuscate some of their transactions presents the aforementioned problems.

Future Use Cases

With Monero’s ASIC-resistant mining scheme, users concerned with the mining centralization of established cryptocurrencies such as Bitcoin could eventually turn to Monero. Further, Monero places a major emphasis on fungibility: the property of an asset or commodity whose individual units are interchangeable. Fungibility is achieved through private transactions since the amount of XMR (the Monero token) cannot be blacklisted due to the origin.

Competitive Advantage

Monero's competitive advantage stems from its advanced privacy features and first-mover advantage in being one of the largest privacy-oriented digital assets. Compared to other privacy-focused cryptocurrencies, Monero’s privacy features are enabled by default and not left to the user to check whether or not they are sending anonymous transactions. Monero is also crowdfunded and developed by a dedicated team and community. 

Challenges to Adoption

Monero will likely face the most scrutiny from law enforcement and government officials down the line due to its default privacy. Many casual observers of cryptocurrencies are only aware of Monero through its mention in mainstream news pieces regarding the FBI shutting down dark-web sites where it is used and for Monero’s association with ransomware attacks. Issues surrounding Monero's JavaScript-based mining software that embeds into browsers, known as CoinHive, have also made waves and have been termed "Cryptojacking." Such exposure will inevitably lead to misconceptions about its purpose, which may have significant effects on its mainstream adoption compared to that of other cryptocurrencies. Combined with recent attempts from the IRS to attempt deanonymizing transactions, the regulatory outlook for Monero remains increasingly grim.

 

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Michael @ CryptoEQ
Michael @ CryptoEQ

I am a Co-Founder and Lead Analyst at CryptoEQ. Gain the market insights you need to grow your cryptocurrency portfolio. Our team's supportive and interactive approach helps you refine your crypto investing and trading strategies.


CryptoEQ
CryptoEQ

Gain the market insights you need to grow your cryptocurrency portfolio. Our team's supportive and interactive approach helps you refine your crypto investing and trading strategies.

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