Monero ($XMR) Review – It’s All About Privacy

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The beauty of many cryptocurrencies is that they offer a kind of trustless transparency. Everybody can see where all of the tokens are. That’s how people are often able to watch and report on major cryptocurrency hacks in real time, watching as coins are transferred from one known account to another.

It’s a useful feature, but what if you want the trustless part without the transparency? Dissidents living in authoritarian regimes, for example, could use cryptocurrencies to evade government financial controls, but that doesn’t work as well if the government can clearly see how much crypto you have, where you’re getting it from, and who you’re giving it to.

Even if you don’t have anything to hide from a vengeful government, there are plenty of good reasons for wanting privacy. If you’re crypto-rich, for example, keeping all your tokens on a network where anyone can see how much is in your wallet makes you a juicy target for hackers, scammers, and other predators.

What if you could have the trustless, immutable qualities of the blockchain along with default privacy settings to keep your holdings and transactions from being public record? That’s the idea behind Monero, the crypto world’s most established privacy coin.

Monero 101

Monero is a cryptocurrency in the traditional sense; it exists purely as a vehicle for financial transactions. It bills itself as “secure, private, untraceable currency,” and you can think about it kind of like an untraceable Bitcoin. It functions in the same way, except that by default, the Monero network obfuscates transaction details including the sender’s address, the recipient’s address, and the amount transferred.

On the sender side, this privacy effect is achieved with a cryptographic concept called ring signatures. A ring signature is essentially a key shared by a number of users on the network to process a transaction. These rings can be automatically re-organized (so users aren’t always in the same group), and when a ring signature is used, there’s no way for an observer to determine which user in the ring is actually making the transaction.

If you’re not into the technobabble, here’s an analogy: imagine a massively multiplayer online game like World of Warcraft. Now imagine that every player character in that game had an avatar that was constantly switching to look like other players’ avatars (in other words, every player character is constantly disguising themselves as other player characters, even characters who aren’t currently logged in). If you logged into the game and watched two players who look like Jack and Jill make a transaction, you would have no way knowing whether it’s really Jack and Jill, or another player who’s avatar’s disguised as Jack transacting with a player who’s disguised as Jill. In fact, you don’t even know if Jack or Jill are even really online. When every character in the game is constantly switching disguises, there’s no way to track anything.

That’s essentially how Monero works (although of course the reality is more complicated).

And even if you managed to link a user’s identity to a Monero address, you still couldn’t be entirely sure of what you’re seeing, because Monero also uses “stealth addresses” as private, random, single-use wallets that may hold coins for a user you couldn’t see in their address.

Monero does have a degree of optional transparency, in that if you want, you can share a “view key” with individuals that allows them to access details of a particular transaction. This might be useful for transactions you need to make traceable for tax purposes, for example, or as part of a company audit.

The XMR Coin

Monero is traded as XMR. Like Bitcoin, the Monero network achieves consensus through a proof-of-work mining algorithm, but unlike Bitcoin, Monero’s developers have taken steps (including a recent network upgrade) to ensure that it is ASIC-resistant. In other words, while Bitcoin is most efficiently mined with specifically-built mining rigs, Monero can be mined effectively on any sort of CPU. In fact, it’s a popular coin for on-webpage scripts to mine, because even using a small part of an average user’s CPU to mine for a few minutes can (over the course of thousands of page visitors) churn out decent returns.

There are currently 15,925,500 XMR in circulation, making the XMR even rarer than Bitcoin (although of course that number inflates at a regular rate as miners churn out block rewards as the blockchain is built).

The Future of Monero

Because of its community emphasis on privacy, Monero’s development team – most of which is anonymous – can be difficult to assess objectively. However, the project is supported by an active team, receives regular updates, and (unlike many blockchain projects) it’s already fully function and its network has been operational for years. Currently, Monero’s devs are at work on a privacy-enhancing l2P system called Kovri, which will ultimately be integrated into Monero’s system. The dev team has also responded to criticism from academics with enhancements to its ring signature system, closing loopholes that previously made it possible to trace some Monero transactions.

Of course, there’s also the elephant in the room to consider: as an untraceable currency, Monero is ideal for a variety of criminal uses, and indeed it’s a commonly-accepted cryptocurrency on most illicit darkweb markets, where users may be spending it to purchase illegal drugs, weapons, pornography, etc. Monero’s dev team explicitly condemns illegal uses of Monero, but since transactions are untraceable, there’s no way for the devs to police the network for illicit transactions. Some investors may see Monero’s popularity on the darkweb as a liability and a regulatory risk; other investors may see it as proof that the network has at least one strong use case (which is more than many cryptocurrencies can say).

Whether you see it as good, bad, or both may be subjective, but it’s something all investors will need to consider for themselves before choosing to get involved with the coin.