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What is Monero?
While most cryptocurrencies are fairly anonymous, Monero’s (XMR) goal is to make every transaction completely untraceable. It is arguably the most private cryptocurrency available at this time, which has made it, for better or worse, the cryptocurrency of choice for users with an interest in avoiding the law. It is hardly surprising that darknet markets have adopted it, but even North Korea was recently found distributing malware that hijacked computers to mine the cryptocurrency and send it to Pyeongyang.
In a nutshell, it hides where transactions come from, where they go, and how much they are for. This makes the coin completely fungible—meaning that one unit of XMR is indistinguishable from the next since it has no readable history. While other cryptocurrencies can be traced back to different addresses, perhaps ones that have been involved in shady business, each XMR is as clean as all the rest.
In spite of this, Monero is a grassroots community project that attracts the world’s best cryptocurrency researchers, engineers, and creative talent. An estimated 300 developers have contributed to The Monero Project alone. Monero is powered by the community and thrives without any institutional backing or corporate infrastructure. The Monero Project operates as a collective unit and is not dependent on any one individual’s interests.
How does Monero work?
That privacy is this coin’s main concern is evident in every level of its architecture. It is built on the CryptoNight protocol—a Proof of Work mining algorithm that makes mining easy for individual PCs, but difficult for big, centralized mining rigs. It is also more flexible than Bitcoin, allowing updates and changes to be made in response to weaknesses or changing needs.
Monero uses a concept called “ring signatures,” meaning that each transaction is digitally signed by multiple people making transactions at around the same time. The transactions you make cannot be linked directly to you—there are always a few other people who could have made it.
But the transaction still might be traced to the receiver, which is why the cryptocurrency also uses “stealth addresses.” This is a one-time-use, cryptographically-generated address that cannot be linked back to your private key. The sender uses the receiver’s public key to generate the stealth address and sends over some XMR. The holder of the corresponding private key will be able to receive that transaction, but only the stealth address is recorded on the blockchain.
Ring signatures protect the sender, and stealth addresses protect the recipient, but there’s one more level of privacy. The most recent major update (January 2017) enabled “ring confidential transactions” to hide the amounts sent and received. Every transaction carries with it a proof that its input and output amounts are the same, but those quantities are not revealed. The next step is expected to be a way to completely hide IP addresses.
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Recent major developments
Litecoin’s Charlie Lee recently talked with Richard Spagni, one of the two non-anonymous Monero developers. They have both hinted at the possibility of a Litecoin-Monero partnership to enable “atomic swapping,” or the ability to instantly exchange two cryptocurrencies across blockchains.
A malware attack was discovered using YouTube ads to force computers to use their processing power to mine XMR.
Fun fact
Monero means “coin” in Esperanto. And, speaking of names, Richard Spagni—the main spokesperson for the cryptocurrency—often goes by his online handle “fluffypony.”
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