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What Is Monero? Introduction To XMR

Monero is the best-known of the "privacy coins" that guarantee complete anonymity.

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Monero (XMR) is a cryptocurrency which focuses on being untraceable and private. Its design differs from Bitcoin’s in a few key ways, but it should be understood as a cryptocurrency similar to Bitcoin – it can be used to buy and sell things, and can be exchanged for other  coins or tokens.

Monero manages to privilege the details of transactions in such a way that only the actors in the transactions can accurately verify their sending and receipt, while publicly this information is difficult to trace. This is not the case with Bitcoin and other cryptocurrencies, and therefore the difference in the privacy of transacting on the two chains should be understood as the primary value offering of Monero.

Monero uses ring signature cryptography to hide a great deal of information about transactions from the public while still ensuring that coins on the network are not counterfeit. This fact makes it perceived as a more privacy-centric cryptocurrency than Bitcoin or others with blockchains that are easier to scan.

Monero does not have a maximum supply (whereas, for instance, Bitcoin has a maximum supply of 21 million and Litecoin has one of 84 million). Instead it has a dis-inflationary emission rate, where after roughly 18.4 million XMR have been generated through mining, a stable inflation rate of .3 XMR per minute will go into effect. This will take place near the end of May, 2022. The reason for the continued emission and lack of maximum supply is to incentivize, in an ongoing way, the proof-of-work security of the Monero blockchain.

Thus, the design differences of Monero can be summarized as following:

  • It continues rewarding miners securing the blockchain long after the regular supply target is achieved, meaning a continued increase in supply into the future.
  • It is very difficult to trace and therefore more private.
  • Its increased privacy has given it utility on darknet markets.
  • As a cryptocurrency, Monero’s main application lies is in its privacy features.

Monero Offers Increased Privacy

With Bitcoin, it’s possible to look up an address and determine the source of all funds received there. With Monero, the same process requires a great deal more information about every transaction. Monero’s obvious advantages in privacy create a valuable use case in transactions which have an inherent need to be untraceable, be they legitimate or illegal.

Bitcoin has occasionally been wrongly called “anonymous.” At best, Bitcoin is pseudononymous. If there is a successful cryptocurrency which is aiming at anonymity, it would be Monero. While some cryptocurrencies like Ripple and various Ethereum tokens aim to be “regulator friendly,” Monero specifically works to make tracking and other forms of privacy invasion difficult or impossible.

Darknet Markets

One of the first arguable use cases of Bitcoin, which gave it utility and therefore value, was the Silk Road and later darknet markets. Monero has seen demand on modern darknet markets. While many factors go into the value of a cryptocurrency, having demand and utility for darknet markets generates value beyond that brought on by mere speculators. It is commonly understood that its first major jump in market capitalization and speculative trading value was a result of its being added to then-major darknet market AlphaBay.

Darknet Markets are frequently taken offline, but the market they serve is resilient, and new ones continue to rise, often adding Monero as well as other alternatives to Bitcoin. The need for convenient and private ways to transmit value online will continue to drive demand. While firms have been able to make a business of tracing transactions on the Bitcoin blockchain, the difficulty to consolidate the same level of data on Bitcoin transactions is much higher.

CryptoNote

The hashing algorithm chosen by a cryptocurrency’s designers plays an important role in its functionality. Monero uses the CryptoNote algorithm and is the first cryptocurrency of any consequence to do so. CryptoNote is seen as a CPU-friendly algorithm in that it requires a good deal of memory, a fact which makes it more expensive to produce ASIC hardware to mine the blockchain.

ASIC Resistance

An important episode took place at the end of 2017 in which Bitmain, the main producer of ASIC hardware for Bitcoin, announced that it would be producing similar hardware to mine the CryptoNight algorithm. The only coin using CryptoNight with any real market value is Monero, the rest being far down the list on both market capitalization and price. In response, the Monero team decided to make minor changes to the algorithm used by Monero, therefore making any such hardware essentially useless; and committed to doing so at regular intervals moving forward.

ASIC resistance is at the heart of decentralization. As Monero noted in their blog post on the subject, centralization is created when ASICs are introduced because only a few companies actually produce the hardware. These companies can be compelled to make changes to the hardware and they create a single point of weakness if they are relied on. Monero’s developers and community have decided to make it difficult for such a pain point to ever be created, by actively modifying code so as to maintain the ASIC-resistant nature of Monero.

Monero XMR Summary

  • Where Bitcoin is pseudonoymous, Monero provides the possibility of full anonymity in digital transactions. For this reason, it gets a lot of use on darknet markets, or marketplaces where the online sale of illicit substances is possible.
  • Monero makes it possible to hold coins of any number in relative privacy.
  • It does not have a limited supply, but will continue to have a very small rate of coin emission long-term.
  • It uses a different hashing algorithm than Bitcoin. The developers have committed to keeping the CryptoNote used by Monero ASIC-resistant, meaning it will always have a more decentralized network than other cryptocurrencies where this is not true.

 

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