Blockchain project: Monero (XMR)

Monero was one of the first cryptocurrencies ever. Monero was founded in 2014, as a fork of Bitcoin (BTC). Monero is considered the most privacy-friendly crypto out there.

What is Monero?

Monero is open-source project and focuses on privacy. Truly everything at Monero is focused on user privacy. In practice, this means that everything you do on the Monero blockchain is completely anonymous. On the Monero blockchain you cannot find the full transaction history that you can see on the Bitcoin or Ethereum blockchain.

Monero was launched on April 18, 2014. But the development started earlier. Nicholas van Saberhagen published a white paper for a protocol named CryptoNote. In this white paper, he described anonymity and privacy as the most important aspect of digital money. He believed that privacy and anonymity is the biggest pitfall for Bitcoin. Anyone who thinks Nicholas van Saberhagen is a real person is wrong. This a pseudonym. He and a few other people worked together on this project.

A user on Bitcointalk, a well-known Bitcoin forum, created a cryptocurrency called BitMonero based on this white paper by Nicholas van Saberhagen. Not everyone agreed with BitMonero and many did not support this crypto either. But there was a group that did believe in BitMonero. For this reason, a hard fork of the bitcoin blockchain took place. In short, a fork is a split off of the existing blockchain that can operate independently after the fork. This fork took place in 2014. Thus, after this fork, Monero was created. Both Nicolas of Saberhagen and the forum users are anonymous to this day.

Since the fork, Monero has only grown in user numbers and money flowing through the blockchain. But Monero's team is also getting bigger. Most developers on the Monero team choose to remain anonymous. As a result, we know very little about the team behind Monero.

How does Monero work?
Transparency is one of the core characteristics of blockchain. But Monero goes totally against this. In other words, Monero is not transparent. Or at least, much less transparent than Bitcoin, for example. Most of the transaction data, such as the address of the sender and the receiver, as well as the amount sent in a transaction, is hidden. This data cannot be retrieved.

This complete anonymity has two sides. On the one hand, there is no data available so this can provide an opportunity for funding criminal activities because the transaction data is not stored anywhere. In addition to criminal activities, authoritarian regimes can use Monero to anonymously fund foreign projects. Monero is also a complicated creature to capture for law enforcement.

Monero is increasingly used in illicit activities such as money laundering, darknet markets, ransomware, and cryptojacking. The United States Internal Revenue Service (IRS) has posted bounties for contractors that can develop Monero tracing technologies.

The core of Monero is the "Nitrogen Nebula''. This is a software in the network where transactions can be made that cannot be traced (the data underneath a transaction). If you want to use Monero as a user, you need a software wallet from Monero. This does not allow the use of the Metamask wallet. Wallets that are compatible with the Monero network are: MyMonero, Exodus Wallet and Guarda Wallet. As a user, you are the only one who can see which tokens are in your wallet, unlike most other networks. With the other blockchains - such as the Bitcoin or Ethereum blockchain - you can see on the blockchain explorer itself how much crypto is stored in your wallet (if you know the wallet address). So that is not possible with Monero.

Monero, like Bitcoin, uses the Proof of Work (PoW) consensus algorithm. So this means that miners compete with each other to verify the transaction on the blockchain. The miner who can solve a hashing puzzle the fastest gets to verify the transaction on the blockchain and receives a reward for doing so. In the case with Monero, this is Monero's own crypto, the XMR coin. Monero can process about 1700 transactions per second, more than, say, Bitcoin or Ethereum.

Transaction fees on the Monero blockchain are relatively cheap. An average transaction costs about $0.0022 on Monero. This is much cheaper than the other networks like the Ethereum blockchain. Then again, Monero is not the cheapest. Solana, for example, is slightly cheaper than Monero.

Ring signatures

Monero alleviates privacy concerns using the concepts of ring signatures and stealth addresses. Ring signatures enable a sender to conceal their identity from other participants in a group. Ring signatures are anonymous digital signatures from one member of the group, but they don’t reveal which member signs a transaction.

To generate a ring signature, the Monero platform uses a combination of a sender’s account keys and clubs it with public keys on the blockchain. This makes it unique as well as private. It hides the sender's identity, as it is computationally impossible to ascertain which of the group members' keys was used to produce the complex signature.

The pros and cons of Monero

Pros

• It is practically impossible to retrieve transaction data on the blockchain and therefore money is impossible to track. Transactions and addresses are not traceable and it is also impossible to see where money is and where it came from. This can be seen as an advantage, but also as a major disadvantage. Criminal money can be used to facilitate criminal activities or money laundering, for example.
• The user can choose to reveal the transactions to others, including the underlying data. This is also called selective transparency. The individual user can decide what others can see and what transactions you carry out.