What is Monero (XMR)? — 'The Hidden One' — Beginner's Guide

What is Monero (XMR)? — 'The Hidden One' — Beginner's Guide


Monero is a cryptocurrency that is very similar in functionality to Bitcoin. It has grown in popularity primarily due to its focus on privacy & anonymity.

Unlike other Bitcoin spin-offs, the work that has gone on with its backend infrastructure, and the fact it’s built on top of the "CryptoNote" library have led most traders to consider it sufficiently different to Bitcoin to allocate its own set of capital.

Created in 2014, it was released as a way to completely hide the information of the buyer and recipient in the various transactions with the coins.

Due to this focus on privacy, a number of innovations have been built off the back of the Monero system including stealth addresses, ring confidential transactions and ring signatures (which isn’t unique to Monero but is in the context of crypto as a whole).

Perhaps one of the main reasons people have been looking at Monero is the way it was built on top of the CryptoNote library. This uses different algorithms and hashes to Bitcoin, which means that whilst the ends results are similar, the processes of how to get there are distinguishably different.

Also Read: What is Nem (XEM)? — 'Ripple in Disguise' — Beginner's Guide

Due to its focus on privacy and data security, Monero has attracted illicit users ranging from many on the dark web to the likes of AlphaBay – an illegal marketplace for drugs and other illegal material (several large data breaches ended up on there for sale).

Whilst the use of the Monero coin in those circumstances has showcased its privacy and anonymity credentials well, it, unfortunately, has a lot of work to do to convince the wider population of its merits.

As ever, this article is not an endorsement or recommendation. I am not providing financial or legal advice – everything contained herein is an opinion and for education purposes only.

What is Monero?

what is monero xmr

Monero is an independent cryptocurrency built on top of the "CryptoNote" protocol, which means that whilst it works similarly to Bitcoin, it has several core differences – notably with:

  • Stealth Addresses
    • To initiate a transaction, the 'sender' generates a one-time random address for each recipient (as opposed to Bitcoin’s static address system).
    • Whilst these addresses are publicly accessible, there is no way to make a link between them. The key is that the 'public key' is generated randomly, and the 'private key' remains the user’s own address (thus providing complete anonymity).
  • Ring Signatures
    • Each time you create a transaction on a blockchain database, you need to sign the contents of the package. With traditional transactions, this is done by the sender applying a signature they create (typically a public/private key).
    • With Monero, the signatures are put into a large number of identical transactions.
  • Ring CT
    • One of the main ways that Monero has sought to maintain integrity in its system is to provide users with the ability to validate transactions by checking no new coins were created during it.
    • To do this, users have to deposit the entire value of their Monero wallet into the transaction and then set two outputs – the amount they wish to forward to the recipient (the 'net' amount) and how much change they’ll be sending back to themselves.
    • If all these values add up correctly, it verifies that no extra coins have been created during the transaction (thus maintaining the veracity of the system).

Who created it?

who created monero xmr

The creator of Monero seems to be someone who used the Internet forum handle "thankful_for_today" under the name BitMonero – he disappeared from the project after the community didn’t agree with a number of proposals he made to the core source code.

The most important thing about "thankful_for_today" is that it’s rumored that he was part of another cryptocurrency called ByteCoin. This coin had fake 2-year blockchain which essentially tricked people into thinking it was a legitimate investment.

Quick Guide: What is Ethereum Classic (ETC)? — 'The Coin that Got Away' — Beginner's Guide

Whilst Monero is handled by the community today, it was actually developed and proposed by what appears to be a single individual. No one knows who this person is/was, but their work has been left and is used by the Monero network today.

Why does it exist?

why monero xmr exist

The primary reason for Monero is privacy.

To quote the Monero website:

Most existing cryptocurrencies, including Bitcoin and Ethereum, have transparent blockchains, meaning that transactions are openly verifiable and traceable by anyone in the world. Furthermore, sending and receiving addresses for these transactions may potentially be linkable to a person’s real-world identity.

Monero uses cryptography to shield sending and receiving addresses, as well as transacted amounts.

Despite Bitcoin’s infrastructure being decentralized, all the addresses and amounts within its ledger are entirely accessible. Not only does this mean that if you know someone’s Bitcoin address, you’ll be able to trace their money, but it also leaves the system open to attack.

You might also be interested: Bitcoin and Quantum Computing — Is Bitcoin Vulnerable to Quantum Computing?

The Monero system has been built off the back of the need for complete anonymity, which is achieved through the CryptoNote protocol and several features introduced as part of its underlying infrastructure.

The most important note to make about Monero is that it’s not seen as a competitor to Bitcoin at all. As such, it will either fall into obscurity when the crypto bubble pops, or it will likely serve a very specific market in an equalized manor. In other words, if you’re hoping for this to be the "next Bitcoin", you’ll likely be disappointed.

Trajectory

monero xmr future

Like other Bitcoin derivatives, Monero’s growth almost entirely mirrors that of the main Bitcoin’s. For example, when Bitcoin’s usage started to grow massively in mid-2017, Monero’s followed suit – if only at a fraction of the main one.

The point is that the majority of the coins in the crypto market today are basically spin-offs of Bitcoin, and are thus extremely difficult to monitor in their own right.

Their adoption is based on Bitcoin’s, their codebase is based on Bitcoin’s and their processing network is based on Bitcoin’s. As such, when you’re looking at Monero, there is not a lot of independent information available.

The biggest thing to say is that this coin, as well as the likes of Dash and Litecoin, is that it has certain applications for the Bitcoin infrastructure which give it a precedent in certain situations.

Quick Guide: What is IOTA? — 'Kingpin of IoT' — Beginner's Guide

For example, Monero’s adherence to complete privacy and anonymity has led it to be adopted by a number of marketplaces (some illicit such as AlphaBay)… however, many people have cited the likes of medical or even military applications (where data privacy is absolutely paramount).

The truth about this coin is that it’s not going to eclipse Bitcoin. The lack of a central committee that’s able to oversee the development and progress of the system leaves it wide open to either manipulation or laxity (as is one of the major problems with Bitcoin).

Ultimately, not offering huge benefits to its users (over the use of Bitcoin), the fate of Monero looks to be following the same path as the likes of Dash and Litecoin.

Many institutional investors have been very vocal about their lack of faith in the Bitcoin – and this extends to the variety of "altcoins" (of which Monero is very much a part).


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