What is Monero? XMR Explained

What is Monero i’ll start to answer this question with another question

When you’re watching a tv show or a movie and a character is forced to become a fugitive for whatever reason what do they do.

They probably first try to conceal their identity as much as possible they get a baseball cap and sunglasses and they get a beat up car to get as far away from their troubles as possible they’ll need money to at least get food or gas but do they take a credit card do they have a debit card or checks of course not to truly avoid detection they need to avoid being tracked by banks.

What is Monero?

which the police will check in order to catch them they take only cash which can’t be tracked this is exactly what monero does.

We are going to explain what monero is how it works and if you should consider using it now the promise of cryptocurrency is not just simplicity, hard money and decentralization many people turn to cryptocurrency for privacy and monero is the king of privacy in the crypto world.

The word monero sounds like money which makes sense because it’s actually the esperanto word for coin in many ways it’s similar to other cryptocurrencies like bitcoin it’s a proof of work blockchain with something called adaptive block size which we’ll explain later.

What Makes Monero Private?

The simple answer here is that monero is based on some open source code called crypto note now this can be used as the basis for any other private cryptocurrency but is best known for its use in monero without getting too technical because it definitely gets technical this software lets monero stay completely private by using a lot of different keys and something called ring signatures.

So here’s a simple way to think about it imagine if every time that you used venmo or cash app or paypal the account produced an entirely different username to send and receive money this is basically how keys work in monero you have stealth addresses which

Let you randomly generate keys every time you want to make a transaction.This way people can have a target where they are sending money to so that you both know it’s going in the right place but it also never reveals anything else about the user. monero also uses something called ring signatures.

Now these are intentionally designed to obscure who is sending or receiving payments to the general public the transaction happens and to the outside you’re only able to see a total pool of people from whom the money could have been sent there’s no way to tell who from this group actually engaged in the transaction so it’s totally private this means you can’t track where monero is going but it also means you can’t see how much money the person that you’re paying has unlike almost every other blockchain you can see account balances also unlike monero you can publicly leave a like on this article it greatly helps us out and rewards our hard work so go ahead click that like button and keep supporting our work.

How is Monero actually different from bitcoin?

Well Bitcoin is more private than like a bank transfer or venmo or paypal or even a debit card purchase but it’s not quite all the way there in fact bitcoins are not actually 100 fungible every bitcoin has a history of where it came from so it’s not completely fungible you can actually track where it was mined and whose hand it has been traded to that might include a senator a drug dealer or even a big corporation at least if you can identify them.

In economics fungibility is the way economists determine whether something is actually good money all units of a currency should ideally be identical to each other for example one pound of gold is atomically exactly similar to another pound of gold. Now dollar bills may have different designs or serial numbers but they are all worth the same amount one united states dollar.

Bitcoins and other cryptocurrencies can be traced to a certain extent so that old coins that were used in a hack or maybe even a drug deal may be unwanted because of these past issues. Monero however is completely untraceable so it is actually completely fungible not just in terms of value but in terms of traceability.

Monero also differs from bitcoin in a seemingly trivial but historically important way block size basically monero does not have a block size limit blocks can actually increase in size if there’s more transactions that need verified. This is the same idea as basically adding more lanes to a highway during peak traffic hours however when you increase the block size fees are lower which means people can spam the network with less important transactions that they normally would not make.

Now monero gets around this problem by measuring the block size and introducing penalties if the block is too big this penalty basically decreases the reward that miners get for confirming a block so they will be less incentivized to mine it and if they’re not incentivized transactions don’t get confirmed all of these incentives keep monero running smoothly according to how much traffic there is on the network but economics aside the one advantage fans of monero would stress over all else is its censorship resistance through decentralization.

Now there’s a few things to consider here

Mining – both bitcoin and monero are proof-of-work blockchains but monero is designed to be more decentralized through its mining mechanism bitcoin is mostly mined using specific expensive machines called asics we actually have a whole article about them these make mining easier they’re better at it they use less electricity but they are a specialized specific business that is not available to most people without a big financial investment. Monero on the other hand is mined mostly by cpus which are already present in almost every computer that people have even your laptop has one when the mining power is decentralized instead of being a business the system is less susceptible to failure number.

A lack of transparency so to remain private monero needs to be less transparent now this lack of transparency compared to something like bitcoin is interesting in bitcoin this transparency is actually a value add it allows everybody to check the ledger and make sure that each node can actually verify the blockchain to make sure that nobody double spends their money but it also means that you can see where funds are moving to and from and you can analyze those patterns and even determine the identity of a certain wallet.

Knowing which wallets are doing what can help you determine who is who and then determine who else they’re doing business with and maybe even how much money they have this kind of transparency fundamentally changes how people interact and negotiate. If i know that you have less money maybe you’re in a desperate need of liquidity and will take less than what i would normally offer for something for example if i’m buying a car from you and you have three dollars in your account i could probably haggle a lower price but if you have a million dollars i know you might not bargain. Monero eliminates this problem by being private and keeps things at a level of transparency that we’re already used to with concealed bank accounts.

Decentralization transfers responsibility to the individual it basically means it transfers a responsibility to us because monero is so private the on us is on individuals to be very responsible it also means many different keys now these keys keep monero private but it also makes it harder to store and use you can buy and sell monero on centralized exchanges but this makes the privacy use case just a little more complicated some people say that buying monero from kyc. which is an acronym for know your customer or companies that require information about you they say that it defeats the purpose of this privacy now this is not quite true because individual transactions still cannot be traced on monero alone.

It’s like going into the bank and taking out some cash the bank knows that you took out some cash and how much and when but if you go down to the 711 and buy a slurpee the bank has no idea how you use that money and if the exchange was ever hacked all anybody could ever figure out is when you moved your monero from there to your wallet not how much and not which wallet so monero is clearly set up from the start to be an ultra private cryptocurrency. But why i mean is it really important to have private transactions.

Why privacy is important?

To the average person who doesn’t really know much about crypto it’s synonymous with crime and this is actually a fair point bitcoin and other cryptocurrencies have been used for crime just as many other new technologies are first adopted by criminals. but this brings us to a big question what’s the definition of a criminal there are many places in which people are deemed criminals for simply disagreeing with the government or forfollowing even a certain religion and to some extent maybe even having a different sexual orientation.

Now i promise not to get political on this article but shouldn’t these people be allowed to also have financial freedoms even if the banks and the governments prevent them from using traditional channels in many places cryptocurrency is used to store value and be able to avoid inflation proponents of monero would likely say that without privacy many of the advantages of cryptocurrency are actually moot points because many people may be intimidated away from using it to many people this desire for a truly private cryptocurrency is of the utmost importance which is really why it started in the first place.

Monero’s past and its future

In 2012 shortly after the creation of bitcoin a new project called bytecoin launched the goal of this was to create a private cryptocurrency but due to other issues in mining it was actually forked meaning the code was copy and pasted and then edited and that project became what we now know as monero unlike bitcoin the main spokesman and original developer is known but many of the developers are unknown and use pseudonyms this differs from both ethereum and bitcoin in separate ways in bitcoin some are afraid that satoshi nakamoto will reveal themselves and or sell all of their coins resulting in huge price fluctuations in this case anonymity is a risk factor in ethereum’s case some are afraid of the centralization of vitalik buterin’s hands even though people would not have to listen to what he says he not only has some direct power over the network but he’s also very influential he’s actually responsible for the hard fork that caused ethereum classic to be created in this case centralization is a risk.

Monero is governed by a group of developers some known and some unknown and this gives them a good balance of developers and is not subject to just the whims of one person we don’t make price predictions on this channel but right now it’s unclear what may happen to the price of monero and its potential for mainstream adoption it certainly has use cases but even for cryptocurrency it may seem too shady and unknown especially for institutional investors.

It may also carry more political risk because although governments may embrace cryptocurrency in some form they know that anybody opposing the state can use monero to get around restrictions and even sanctions this resistance is good for users of monero but it may mean that it’s more of a threat to governments monero may be something that never catches on and remains lurking in the shadow of the crypto world waiting for a killer application but a killer application.

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