All You Need To Know About Monero (XMR)
By Adam Boudjemaa on ALTCOIN MAGAZINE
What Do You Need To Know About Monero?
The emergence of cryptocurrencies has revolutionized the manner in which digital transactions are conducted. Monero is among the leading cryptocurrencies that place significant emphasis on privacy and censorship-resistant transactions. Monero is an open-source cryptocurrency that employs an obfuscated public ledger. It was created in April 2014.
An obfuscated ledger ensures that any user can send and broadcast transactions, but an outside observer cannot discern the amount, source, or destination. Monero utilizes a Proof of Work mechanism similar to that of the Bitcoin to issue new coins (XMR) and offer incentives to miners to validate transactions, and secure the network. However, it employs a variation of the CryptoNote protocol, making it more CPU-friendly.
Most cryptocurrencies (including Bitcoin and Ethereum) function through openly verifiable transactions, which allow anyone to track your funds. Furthermore, the links between users’ financial records and personal identities present a privacy/safety problem. Monero circumvents these problems by employing powerful cryptographic techniques to develop an anonymous network.
The Primary Principles of Monero
There are several principles upon which Monero is based that make it stand out as a cryptocurrency:
• Decentralized Network — Monero’s network and ledger are distributed globally, and therefore, no database or server can be censored or maliciously controlled. If a government tried shutting down the Monero nodes within their country, these efforts would not work. The other users will continue contributing to the network and process any valid transactions.
• Financial Security — Monero cryptocurrency does not have a central weak point that malicious actors can hack to steal user funds. The currency is secured via immutable cryptographic techniques, thus eliminating the need to trust third parties with, responsibility for funds. Every Monero user can independently verify the ledger’s validity themselves. This means that you do not have to trust node operators.
• Financial Privacy — Many blockchain systems usually sacrifice privacy in order to increase security. Monero prioritizes user privacy. Sender identity, recipient identity, and transaction amounts are obfuscated on the blockchain, thus your spending activities and storage cannot be tracked.
• Fungibility — fungibility is the characteristic of a commodity or asset whose individual units are capable of mutual substitution. Monero’s fungibility is a feature of the cryptocurrency’s sophisticate privacy practices.
An obfuscated transaction record makes it impossible to determine the history of any particular XMR. Fungibility is necessary for an asset to be used practically as a currency.
• ASIC Resistance — One perceived issue with mining Bitcoin is that you require specialized mining equipment. The systems utilize Applications Specific Integrated Circuit (ASIC) chips. Setting up these systems is very expensive, making it out of reach to most people.
Monero uses an alternative hash algorithm with advanced features. This makes it unprofitable to produce ASIC chips that are suitable for mining Monero. This means that you can mine Monero using CPUs or GPUs, thus increasing the cryptocurrency’s potential to be more decentralized.
• Multiple Keys — Monero uses a unique system of keys, unlike the ones used by Bitcoin or Ethereum. They include the public view key, private view key, public spend key, and private spend key. You use the public view key to generate a one-time stealth public address.
The private view key is used to check the Monero blockchain and verifying that you have received funds. The public spends key is used to verify a transaction signature while a private spend key is used to generate outgoing transactions.
How Monero (XMR) Are Created?
New Monero coins are created through the “mining” process, which is the method cryptocurrencies use to incentivize participants to record blockchain transactions. It takes approximately two minutes to mine one block. Monero provides the chance to mine coins but with a few notable differences.
You do not require specific hardware to mine Monero. You can mine on all leading operating systems, including Windows, Linux, Android, and MacOS. The Proof of Work algorithm Monero uses is designed to be accessible to a wide range of processors.
Monero miners are afforded a “permanent block reward,” meaning there is always a minimum reward of 0.3 XMR. This constitutes a smaller portion of the total XMR in circulation and thus makes Monero a disinflationary cryptocurrency. It is estimated that the inflammation will be approximately 1% by 2022 and probably keep decreasing from then onwards.
How the Transactions Work
Transactions within Monero’s network involve inputs and outputs. Inputs consume Monero from the sender while the outputs transfer Monero to the recipient. The sender digitally signs the transaction, authorizing the transfer.
This transaction is broadcasted to the Monero network where it is grouped with other transactions as a block. The miners will then validate the signatures on each block to ensure that they have not been forged. Input users pay a fee to miners, thus incentivizing their participation in the network.
Once a block is accepted, the transactions therein are recorded on the blockchain in chronological order. Following this process, the Monero network distributes new Monero to the miners in the form of the aforementioned “block reward.”
How Monero Ensures Transaction Privacy
Unlike Bitcoin and many of its derivative cryptocurrencies, Monero employs the CryptoNight Proof of Work hashing algorithm that is a variant of the CryptoNote protocol. This protocol has major algorithmic differences regarding blockchain obfuscation from those used by other cryptocurrencies.
There are four key pillars of the cryptography used by Monero. These include Ring Signatures, Ring Confidential Transactions, Stealth Addresses, and Kovri (I2P router).
• Ring Signatures — Ring signatures are comprised of a ring of keys as well as a signature from the ring. They ensure the anonymity of the sender. Every signature is generated from the private key of a Monero user and a set of public keys that are not related. A recipient who is verifying a transaction that has been signed cannot be able to determine which member of the ring corresponds to the sender’s key, which created the transaction.
Ring signatures date back to 1991 and were previously referred to as “Group Signatures.” They were considered as a viable method to prove that a signatory belongs to a certain group, without necessarily identifying the signatory. The Ring signatures implemented in Monero’s architecture allow signer-ambiguous transactions that cannot be forged and render currency flows untraceable.
• Ring Confidential Transactions — Ring CT was implemented back in January 2017. This algorithm was created by Gregory Maxwell, a Core developer for Bitcoin. This adoption strengthened the privacy of Monero transactions further by hiding the amounts being transacted. Monero miners confirm transactions and blocks. The miners do not know how much Monero each input and output contains but they have to prove that the sum of input amounts equals that of output amounts.
• Stealth Addresses — Stealth addresses render it impossible to determine the destination address of a Monero transaction by any other parties other than the sender and receiver. It ensures the anonymity of the receiver. The sender creates a stealth address automatically.
A stealth address is a random one-time address for each transaction generated on behalf of the receiver. A receiver can publish a wallet address, yet all incoming transactions will be forwarded to a unique address on the Monero blockchain. The sender employs the receiver’s public key to address the transaction cryptographically such that the receiver can discern it from the blockchain.
• Kovri (I2P Router ) — This is a light security-focused i2p router which is written in C++. It is similar to the Tor network but lacks entry or exit nodes as well as node hierarchy. Kovri utilizes i2p garlic routing and garlic-encryption to produce a protected private overlay network over the Internet. This network obfuscates entire Monero transactions.
In the Garlic routing, a packet of data is well encrypted for every hop, much like Russian dolls, or even the letter inside a letter inside another letter as well. The receiver does not know whom the data packet is destined for until they decode the packet. I2p obfuscates user traffic further through the separation of inbound and outbound traffic.
How to Store Monero
In order to receive, store, and spend XMR, you will need a “wallet.” There are different kinds of Monero wallets, and you can always move funds between wallets. Monero wallets handle the complex cryptographic aspects on your behalf.
You only have to manage seed and your address. Your wallet also handles other vital aspects like the public and private keys. A Monero seed is a secret number used by your wallet to locate and spend XMR. For convenience, it is typically converted into a series of words.
You have to carefully generate and store your seed. Any actor that learns of your seed could potentially gain access to your wallet. The seed will be used to generate your address. You can share your address with others. The various types of Monero wallets include mobile and software wallets, hardware wallets, paper wallets, web wallets, and cold wallets.
The Pros and Cons of Monero
Pros
• It is among the most private cryptocurrencies
• It is more decentralized than other cryptocurrencies(due to ASIC resistance)
• It is impossible to link transactions to an individual
• The transactions are not traceable
• The blockchain does not have a limit due to dynamic scalability
• You can choose the parties that can view your transactions(convenient for tax purposes)
• It has a team of dedicated developers working on the project
Cons
• There are few wallets developed for Monero
• Storing Monero securely can be more difficult compared to other coins
• It is difficult to develop applications that interact with Monero’s blockchain
Overall, more people are opting for digital and virtual currencies over physical fiat currencies as transaction mediums. Privacy-focused cryptocurrencies like Monero allow you to transact across the globe instantly without needing permission from any authority. It also eliminates the need to constantly carry around physical currencies, which are easy to lose, centralized, inconveniencing, and less secure.
I dedicate this article to my good friend and mentor David Latapie, who sadly passed away in early 2017. David Latapie was one of the publicly recognized co-founders and core developers of Monero, and I wish to thank him for introducing me to the cryptocurrency world. He has been a great source of inspiration for my work and to him, I am forever thankful.
For further explorations and interactions, feel free to visit my website and connect with me on LinkedIn, Twitter, HackerNoon, and Medium. Looking forward to connecting!
