In the blockchain space, each cryptocurrency was born with a mission. For instance, as stated in its white paper, Bitcoin carries the mission of building an all-new cash system, and Ethereum’s mission is to evolve into a distributed “world computer”. When it comes to mission, Monero, long-standing crypto created in 2014, strives to become a secure, private, and untraceable cryptocurrency.
We know that the blockchain comes with several characteristics, including decentralization, traceability, immutability, openness, and transparency. In particular, openness and transparency also mean that most cryptocurrencies out there, including Bitcoin and Ethereum, are backed by transparent blockchains, with searchable on-chain information. In other words, anyone in the world can view all transactions recorded on a blockchain. Moreover, each wallet address can be tracked and associated with real individuals.
This is bad news for very private users. In addition, some institutions (e.g. Elliptic) would even track and check on-chain transaction data to monitor the flow of funds. Recently, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced sanctions against the mixer protocol Tornado Cash, and 38 Ethereum smart contract addresses related to Tornado Cash were added to its list of Specially Designated Nationals (SDN), making them restricted entities. In other words, it is illegal for an entity to engage in the exchange of assets with Tornado Cash.
The sanction also sparked debate about on-chain privacy, and many crypto users have turned their attention to anonymous coins that promise improved privacy. Of the many anonymous coins out there, Monero $XMR is now the king.
I. How Monero was born
Monero is a forked coin. Initially, someone nicknamed “N1C0las van Saberhagen” launched the CryptoNote protocol, and Bytecoin was the first cryptocurrency that was built on top of this protocol. However, as Bytecoin diminished, a user by the name of “thankful_for_today” managed to split a new chain from Bytecoin via a hard fork. Subsequently, the new chain launched Monero in April 2014. One resolution approved by community voting changed its name from BitMonero to Monero, which is still in use today.
II. How Monero is mined
Like Bitcoin, Monero also adopts the PoW consensus mechanism, but it uses CryptoNight as its algorithm, which was upgraded to RandomX in 2019. CryptoNight is not ASIC-friendly. Furthermore, while many coins have embraced ASICs and are opposed to resistance, the Monero community has taken a contrary view. To help increase ASIC resistance, Monero has previously executed hard forks every 6 months, slightly altering and improving the algorithm. This led to the upgrade to RandomX at the end of 2019. As such, specialized ASICs that were specifically designed to mine cryptos based on certain algorithms were rendered useless, which means that users can mine Monero through CPU and GPU with regular home PCs.
While BTC’s block reward is halved every four years, $XMR doesn’t have a hard cap on its supply, and its issuance is divided into two stages:
1. The first stage started from its launch and ended in early June 2022, with a mining yield of about 18.13 million $XMR. The design of fast early issuance aims to encourage miners to quickly sell their yield, which facilitates the circulation and mass adoption of $XMR.
2. The second stage slows down the issuance speed through the Tail Emission proposal implemented on June 8, 2022. According to the scheme, each block will produce 0.6 $XMR (permanently). In addition, the inflation rate in the first year of the slowdown stage is set to 0.87%, and the figure will go down every year, making $XMR a deflationary asset.
III. The appeal of Monero
If the world only needs one crypto, three years ago, you would have picked Bitcoin. However, along with the boom of cryptocurrencies like Ethereum, users are no longer so sure about their previous answers. However, if only one anonymous crypto is needed, then Monero would be most people’s choice in today’s crypto space.
What makes Monero so popular? To answer that question, we must refer to the three killer features it uses for privacy protection: ring signatures, stealth addresses, and ring confidential transactions, which correspond to the sender, the receiver, and the transaction amount, the primary data involved in the normal transaction process.
Ring signatures target the sender. In simple terms, before signing a transaction, the sender first forms a group with other individuals in the network. The sender then uses his private key and the public keys of everyone in the group to sign the transaction. In this way, even if someone obtains the public key of everyone in this group, he could only determine that the transaction was initiated by someone in this group, and he would not be able to find out the specific individual who initiated the transaction.
Stealth addresses are designed for the receiver. To be more specific, in the Monero network, when a sender initiates a transaction, the funds will not be sent directly to the receiver’s address. Instead, the money will go to a temporary address generated by the system. With stealth addresses, each transaction shows a different receiving address, and we will not be able to determine the identity of the receiver even if it is involved in multiple transactions, which protects his privacy.
Ring confidential transactions keep the transaction amount private. In a Monero transaction, the sender does not publicly broadcast the real transaction amount on the network but provides a digital RCT, which contains a random number and the real transaction amount. The random number, randomly generated by the wallet, functions as a coverup for the real transaction amount. With RCT, it’s impossible for miners and other users to know the real transaction amount, which keeps the transaction amount confidential.
Conclusion
Noted for its privacy protection features, Monero is also controversial because of privacy. At the moment, countries including the United States, the United Kingdom, Japan, and South Korea may all ban or rigorously regulate Monero. As such, exchanges and mining pools have had to delist the crypto. Moreover, MineXMR, the largest pool focusing on Monero, recently announced that it will cease XMR mining operations on August 19, which is thought-provoking. In short, as people place a greater emphasis on privacy, the demand for Monero will go up, and its value will be recognized by more users.
