What is Monero(XMR) ?

Monero is a private, decentralized, peer-to-peer cryptocurrency. Monero is designed in such a way that all its transactions are completely untraceable. It is not possible for any third party to find out any information about the sender, receiver, and the amount transacted.

Monero was released by an anonymous coder by pseudo-name of “Thankful_for_today” in the Bitcointalk website forum in 2014. Monero codebase is not taken from Bitcoin. The codebase is completely different. Monero was started to overcome 3 main shortcomings of Bitcoin:

Privacy by default
ASIC resistant mining algorithms
Scalability

Bitcoin was a major innovation and paved the way for future development. However Bitcoin not perfect. Bitcoin transactions are recorded in a public blockchain. Anyone can view public blockchain to see how much bitcoin was transacted, sender’s and receiver’s address. The sender’s and receiver’s addresses are linked to a person by KYC.

This has major repercussions, imagine you buy a cup of coffee using bitcoin. Coffee shop can now see how much balance you have and what was your transaction history.

This makes almost all the cryptocurrencies using open public blockchain even less private than fiat. No-one using Bitcoin signed up for this.

Origin of Monero

Bitcoin was the first cryptocurrency launched in 2009. Bitcoin was a major breakthrough however it was not perfect. Several additional cryptocurrencies were also launched later that improved upon the shortcomings of Bitcoin.

Bytecoin, a privacy-focused and decentralized cryptocurrency was launched in 2012. However, it was discovered that the Bytecoin launch was unfair. Founders of Bytecoin had pre-mined approx 80% of the total supply.

An anonymous participant on the Bitcointalk forum by the username “Thankful_for_today” forked Bytecoin to create Monero.

Monero was built on Bytecoin codebase. However, it also added additional features based on CryptoNote, a cryptocurrency protocol first described in a white paper published by Nicolas van Saberhagen (presumed pseudonymous) in October 2013.

Monero is now being maintained by decentralized developer community.

Fungible

Fungibility is an important property of money. Fungibility means that all the tokens of currency are interchangeable.

For example, I cannot exchange your dog with mine because your dog is special to you. Our dogs are not fungible. However, two bars of gold of equal weight are completely fungible.

Similarly, Bitcoin is not fungible. Each Bitcoin has a history associated with it. The history contains complete record of its previous transactions.

What problems does it solve ?

Bitcoin is the first cryptocurrency. But there is nothing cryptographic about it. All its transactions are completely public. This was not a big problem earlier when only a handful of people were using Bitcoin. Bitcoin addresses were just strings of random numbers and were not linked to any person’s identity. But today most of the addresses are linked to a person with KYC. Blockchain analysis companies can identify any bitcoin addresses following the transaction history.

There are tools available on the internet like Chainalysis that can be used to trace any transactions.

Public blockchain makes Bitcoin even less private than a credit card. Credit card transactions are not visible to the public and it takes several days for a credit card company to make transactions available when asked by authorities.

Persons holding a large amount of Bitcoin can be a lucrative target for criminals. Criminals can kidnap a Bitcoin holder and ask him to transfer all his Bitcoins. This has already started happening. Here is a link to such an incident. Such incidents will occur more frequently as Bitcoin becomes even more valuable. Other assets like real estate and stocks are free from such risks of extortion.

Governments can destroy the value of Bitcoin if they can exploit its limitation of non-fungibility. Governments can ban Bitcoins that have ever been used for any illegal transaction. They can detain people who receive such tainted bitcoins even if they did not commit any crime. The average person does not check history of a Bitcoin when they withdraw Bitcoin from an exchange or receive it for a service.

The government may detain and punish innocent people under an investigation involving illegal activity if they are in possession of tainted Bitcoin. This will create fear among the population and they will think several times before accepting Bitcoin. An average person does not have sufficient skills to check the complete history of received Bitcoin even with the available tools.

This is also the reason why newly mined Bitcoins bought from miners sell at a premium.

Governments can force Bitcoin miners to exclude transactions of tainted Bitcoins. Most Bitcoin miners are not cyberpunks running a small node from an unknown facility. Bitcoin miner farms are being run by registered companies for making profits. They pay electricity bills and file income taxes. Governments are aware of what they are doing. They cannot afford to disobey any laws. There is no incentive for them to include transactions involving tainted Bitcoins if such a law gets passed.

Governments all over the world are trying to increase their control.

China monitors each and every activity of its citizens to assign a social score. Citizens are controlled using the social score. They can be stopped from taking flights, jobs, etc based on their social score.

Governments can use open public blockchain transactions to build a complete social profile of their citizens. Governments are already monitoring their citizens’ financial activities, but they have to ask data from several private companies and cannot record cash transactions. Open public blockchain will make their task easier.

Companies like Facebook and Google also collect user data to build their profiles.

These companies use user data to target them with ads and take advantage of their biases to mold their opinions. These companies will also crawl open public blockchain data to study the transaction history of users and build powerful AI models.

Bitcoin founder Satoshi Nakamoto and early adopters like Hal Finney were aware and tried to make Bitcoin anonymous. However, they were unsuccessful because no such technology existed.

Traders exploit the opportunity to front-run when a Bitcoin whale transfers Bitcoin to exchange for selling. Selling large amounts of Bitcoin will depress the price of Bitcoin. Traders exploit this information to arbitrage Bitcoin prices.

Bitcoin uses proof of work mining algorithm. ASICs are specifically designed to run proof of work algorithms. This makes them several times more efficient in mining Bitcoin than CPUs and GPUs. This has resulted in centralization of hashing power in hands of just a few Bitcoin mining pools which are able to source the cheapest ASICS miners.

Bitcoin mining reward gets reduced to half every 4 years. Less profitable miners have to shut down as they are no longer profitable. This results in even more centralization of Hash rate. Eventually only the most profitable miners will remain in operation and will have all the hash rate.

Monero uses RandomX mining algorithm that is designed to be ASIC resistant. ASICs do not have any advantage over CPUs and GPUs for mining Monero. This avoids consolidation of minning operations.

What's the vision ?

Monero community believes that privacy is a basic human right. Anonymous transactions do not mean that you have something to hide.

Monero ideals have evolved from the original cyberpunk manifesto. You can read the manifesto here.

How does it work ?

Monero code was forked from Bytecoin. It also added additional features to Bytecoin codebase based on CryptoNote, a cryptocurrency protocol first described in a white paper published by Nicolas van Saberhagen (presumed pseudonymous) in October 2013.

Monero hides sender’s, receiver’s, and transaction amount, unlike Bitcoin which records all transactions on a public blockchain.

Monero uses Ring signature to hide sender identity, confidential transaction to hide XMR amount, and Stealth address to hide receiver’s identity.

Stealth address

Stealth addresses are used to hide receiver’s identity. A new one-time stealth address is created every time receiver wishes to receive funds. The funds are transferred to this stealth address.

It is not possible to identify the receiver because they use a fresh new address for every transaction. Receiver’s wallet has record of all such stealth addresses. The wallet scans for all stealth addresses linked to the user’s account and sums the amount to show account balance.

Ring signatures

Ring signatures are used to hide sender’s identity. Every transaction has to be signed by a sender to identify whose funds are being spent. Monero cryptographically combines actual sender’s signatures with randomly selected signatures of previous senders. Previous sender’s signatures act as decoy and make it difficult for anyone to identify the actual sender.

For example, you want to gift your mom but do not want her to know who bought the gift. So you add names of all your cousins along with your name so that she is not able to guess who actually bought the gift.

Ring confidential transactions - Ring CT

Ring confidential transaction also known as Ring CT is used to hide transaction amounts. This feature was added to Monero protocol in 2017.

The sender broadcasts a random-looking number instead of the actual transaction amount. This number has sufficient information for miners to check whether the sender has sufficient balance for the transaction. However, it not possible to reverse engineer to find out the transaction amount from this number.

Kovri

The sender broadcasts the transaction requests to Monero miners for including the transaction in the next block. It is possible to analyze internet traffic to find out the sender’s location by analyzing from where the transaction request first originated.

Sender’s IP address can then be linked to a physical identity to find the actual sender. Senders cannot solve the problem by buying VPN because the service providers can view data flowing through their VPN. Even the Tor network cannot be trusted completely. Tor network may have malicious nodes that leak sender’s information.

Kovri project aims to hide sender’s location. Once implemented sender’s transaction request will be routed through multiple Kovri nodes. It will not be possible to find a specific location from where the transaction request generated.

Kovri will use Garlic routing protocol which is a more secure version of Onion routing protocol being used by Tor.

Kovri project was successfully crowdfunded by Monero community and is currently under development. Kovri is being developed in C++. Other applications will also be able to integrate Kovri protocol once it is developed.

Blockchain

Bitcoin uses SHA-256 hashing algorithm for mining blocks. SHA-256 hashing algorithm can be efficiently mined using ASICs. As a result, most of the hashing power has got consolidated with miners who have access to cheap ASICs. This reduces decentralization in Bitcoin.

Monero uses Random X mining algorithm that was developed to overcome shortcomings of Bitcoin’s SHA-256 hashing algorithm. Random X was designed in such a way that ASICS do not have advantage over CPUs and GPUs when mining Monero blocks.

Monero community has changed Monero’s mining algorithm 4 times since 2018 to ensure that Monero’s mining algorithm remains ASIC resistant.

Random X algorithm can also be run on internet browsers. Several websites use browsers of website visitors to mine Monero instead of showing ads.

Because of ease of mining Monero, many viruses are being developed that use victim’s computers to mine Monero.

Bitcoin has a fixed block size of 1MB. Whereas Monero uses flexible block size whose size varies depending on network demand. Flexible block size ensures that Monero’s transaction fees remain cheap.

Monero also uses a protocol called Bulletproof. Bulletproof protocol reduces the size of Monero transactions. As a result, more transactions are able to get accommodated in the block. This helps in reducing transaction fees even further.

White paper

Many new features have been added to Monero since its inception. You can read whitepapers regarding new upgrades here.

Ideals of Monero are based on the original cyberpunk manifesto. You can read the original cyberpunk manifesto here.

Working Demo

Monero is a fully functional project. One can use Monero to send funds anywhere in the world anonymously.

Here is a video showing how you can set up a Monero wallet to send and receive funds.

Founders

An anonymous participant on the Bitcointalk forum by the username “Thankful_for_today” forked Bytecoin to create Monero.

Today Monero is being maintained by team of 7 core developers. 5 out of 7 core team developers are anonymously.

Hence just like Bitcoin’s founder Satoshi Nakamoto, Monero’s founder also remains unknown.

Team

There is no company behind Monero. Monero is being developed by community of volunteers.

Monero community has organized itself in workgroups. Each workgroup works on a specific aspect of Monero’s development.

Anyone is free to Monero join workgroups. You can check out the link to join Monero’s workgroup here.

Community

There is not much hype around Monero, unlike other crypto projects. This is because Monero community largely consists of geeks and cyberpunks who would rather remain anonymous. You can check out their community on social platforms:

Governance model

Monero is a decentralized cryptocurrency. Its code is open source. Updates approved by the Monero community are added to Monero codebase every 6 months by core developers.

Although core developers update the codebase they cannot add any features that are not approved by the community because:

It is not sufficient to just update the code in the Github repository. All the miners also have to download the code and run it on their nodes. Core developers certainly cannot control that.
Someone will fork the code and make a new repository if the community does not like the changes made by core developers.

This makes Monero decentralized. Monero has developed CCS – community crowdfunding system. Anyone can submit their ideas to CCS. The rest of the community members donate the money to the projects they support.

The projects that get funded are developed and implemented.

Competitors

Monero has the largest market cap among all the private cryptocurrencies. Its closest competitors are Zcash and Dash.

Both offer option to send funds privately. Unlike Monero they do not use privacy by default. The user has to select the private option deliberately. Whereas all the transactions are private by default in Monero. There is no option in Monero to send public transactions.

They also lack passionate community like Monero. A passionate community is even more important for the growth of private cryptocurrencies because they will be facing maximum resistance from the governments.

Future plans

You can check out the roadmap of Monero here.

Some of the major upcoming updates are as follows:

Monero <-> Bitcoin atomic swaps: Users will be able to swap their Bitcoin for Monero without any trusted third party. Many Exchanges have delisted Monero because of its privacy concerns. Users from such countries will be able to access Monero using Monero <-> Bitcoin atomic swaps. Some wallets have already started integrating Monero <-> Bitcoin atomic swaps.

Interested in learning more about Samourai Wallet's upcoming integration of XMR <-> BTC Atomic Swaps?! Check out the Reddit thread below ⬇️https://t.co/CENEPBPAKE https://t.co/stw82aKCHD
— Monero || #xmr (@monero) July 1, 2021

Bulletproofs+: It is an upgrade to the currently used Bulletproof algorithm. Bulletproofs+ will reduce the size of transactions allowing more transactions to be filled in a block. This will reduce transaction fees even further.
Triptych: It will increase the number of decoys used in Ring signatures. This will make it even more difficult to find out sender’s identity.
Return address: What this would mean is when someone sends you XMR, you don’t know who it is or what their address is, but you can send them Monero back. This feature find application in e-commerce services to offer refunds etc.
Second-layer solutions for speed and scalability: Monero will explore scaling options like lightning, sidechains, and second layer to increase speed and scalability. This will reduce Monero transaction fees even further.

Monero will become even more secure and accessible after these upgrades.

How much money do they have for future expansion ?

There is no company behind Monero. Its founder is anonymous. It was not premined and there are no separate funds kept in reserve for development.

Monero community has developed CCS – Community crowdsourcing system. Anyone is free to submit their idea to CCS. The community then crowdfunds the project. Funded projects get developed and implemented.

Monero’s community has organized itself in several workgroups. Each workgroup looks after a specific aspect of Monero’s development. Many volunteers contribute their time for free in these workgroups.

Tailwinds

Monero is a direct threat to corrupt Governments and central banks. It gives citizens an option to opt out of a corrupt system strictly controlled by their governments.

In the future, more and more people will be introduced to Monero. A lot of them will choose Monero over their corrupt, inflating, and controlled fiat system. One can already see Monero posters and flags in protests all over the world.

Monero will become even more accessible once atomic swaps are developed. People will be able to swap their cryptocurrency for Monero using atomic swaps even if Monero is delisted from exchanges in their countries.

Monero has network economics effect. Monero will become exponentially more valuable as its network grows. More customers will pay in Monero when merchants start accepting payments in Monero. More merchants will start accepting Monero as more customers want to pay in Monero. This will start a chain reaction resulting in explosive growth in a short period of time.

Governments may introduce a complete ban on all cryptocurrencies. Government agencies will be easily able to track all the public nonprivate cryptocurrencies like Bitcoin. All crypto holders will then try to convert their holding to private cryptocurrencies like Monero.

Bitcoin is the first and most popular cryptocurrency. Most people learn about Bitcoin first when they enter the crypto space. After some time they become aware of its shortcomings and try to find a better alternative. Most of these people learn about Monero and make a switch.

Monero does what people think Bitcoin does. Monero is what experts wish Bitcoin was.

Risks and challenges

Following is a list of challenges that Monero may have to face in the future:

Exchanges will delist Monero: Several exchanges have already delisted Monero because of its privacy concerns. However, users can buy any cryptocurrency and use atomic swaps to swap their cryptocurrency for Monero without trusting any third party.
Government will ban Monero: Governments will try to defame Monero by linking it to illegal activities and ban its use. Ban will force weak hands to liquidate. However, it will give a lot of free publicity to Monero. This may result in even more people become aware of Monero and its uses.
Monero privacy protocols may get hacked: Nobody is able to hack Monero till now but the possibility cannot be ruled out. IRS has also announced that they will be giving 650,000 $ to anyone who is able to help them in hacking Monero.( Monero must be doing something right if it is seen as a threat by regulators😎) There are many private companies trying to break Monero’s privacy, however, none of them have succeeded till now. Monero’s community understands security is a continuous process. Hence they also keep updating Monero to keep up with the latest developments.
Large financial institutions will not buy Monero: Large financial institutions like pension funds are strictly regulated by government. Government will never allow them to buy Monero, unlike Bitcoin. Hence institutional money will never flow into Monero, unlike other cryptocurrencies.
Unknown inflation bug: It is not possible to audit Monero supply. Hacker can find an inflation bug and no one will come to know. Inflation bugs are actually quite common which have been exploited several times in the past. Here are links to inflation bugs of Bitcoin and Stellar. This is a real threat that is not discussed enough and no development is being made.
All cryptocurrencies become private: It may happen that everyone in the crypto community realise importance of privacy. As a result all public cryptocurrencies like Bitcoin, Etherium decide to become private. This scenario is highly unlikely. It will be the ideal case for the progress of human species but not so bullish for Monero’s price 😅.
Worst case scenario😢: Monero is only used for illegal activities. As a result illegal activities and terrorism increase. The world becomes a dystopian place. This scenario is also unlikely but possible.

Tokenomics

There is no company behind Monero. No ICO has ever been conducted for Monero. Monero was released by an anonymous founder.

Demand pressure

Demand pressure on a token increases its price.

Demand pressure on Monero will come from:

Citizens: Large world population lives in countries with oppressive governments and dictatorships like North Korea. Most of their citizens are trying to find a store of wealth that cannot be inflated away by their governments. Soon they will realize the use of Monero. They will choose Monero over their corrupt and centrally controlled fiat system. The silent revolution has already started.

Illegal activities: Monero is the primary currency of exchange on dark web. Soon less sophisticated criminals and terrorists will start using Monero.

Tax evasion: Governments all over the world are increasing tax liabilities of their citizens. People use innovative means to avoid paying taxes. Soon they will discover Monero and its privacy features.

US Sanctions: Countries like North Korea can use Monero to bypass USA sanctions etc and trade anonymously with other countries.

Black money: A large amount of black money is stored in Swiss banks, precious metals and artwork. Most of this corrupt money will find its way to Monero.
Speculators: There will always be speculators who will acquire tokens purely for price appreciation.

However, Governments will not allow large financial institutions and public companies to hold Monero.

Supply pressure

Supply pressure on a token decreases its price.

There are no major players trying to sell their Monero holdings:

Founders did not pre-mine and keep a portion with themselves.
There was no ICO or initial investors.
There is no company behind Monero.
There are no reserves for development of Monero.
Monero is not mined by large ASIC farms that have to sell their cryptos to cover mining and electric costs.

Token Inflation

Monero does not have a max supply. Monero mining reward is decreasing and will be fixed to .6XMR per block after 21 May 2022.

Inflation(New Monero/Total Monero) is decreasing as a fixed amount of Monero is added to the total existing Monero every year.

Monero has inflation rate of approx 1% which is similar to gold. Over a period of time inflation rate of Monero will asymptotically tend to 0.

Whale dumping

Monero is a private cryptocurrency. It is not possible to study blockchain to find large whales. There may be short-term price fluctuations if any whale decides to dump large amounts of Monero in the open market.

Market cap

It is not possible to calculate multi-trillion-dollar black-market industry and funds with people who are fed up with their governments. It is also possible that all the value in the complete crypto ecosystem flows into Monero once people become aware of their shortcomings.

The current market cap of Monero is:

Indicators to watch out for

Google trends results fo” buy monero” is as follows:

Monero worldwide popularity is as follow:

Graph showing contributors to Monero code is as follows:

Monero’s Twitter following is growing:

Monero’s Reddit following is increasing:

Growth of Monero Facebook community:

Monero transaction are increasing:

Monero inflation rate is less than Bitcoin:

Monero hash rate is increasing: More people are mining making it more secure.

Monero ecosystem is growing. Here is a link to merchants and services accepting Monero.

The indicators indicate that Monero ecosystem is growing.

Final remarks

Here is a nice video that summarises Monero:

People all around the world have started taking their privacy seriously.

Monero is even better than cash for conducting private transactions. A person is at physical risk as cash transactions have to be carried out in person.

Monero’s launch was even fairer than Bitcoin. Monero’s founder was also anonymous like Bitcoin. However, unlike Satoshi Nakamoto, he did not keep any Monero with himself.

Using open public blockchain is a systemic risk to complete the Crypto industry. Holding Monero in the portfolio is a nice hedge against such a catastrophic failure.

However one has to weigh risks like inflation bugs with the upside potential before investing. Monero has tremendous upside but also has a risk of going down to 0.

Monero investors must have strong hands to endure a long and bumpy ride as governments will ban it, exchanges will delist it and media will defame it.

Monero is a fully functional cryptocurrency. Its price may explode over the coming years as the technology matures and finds widespread adoption.

Investors buying Monero should also go one step further. They must do further research to buy Monero anonymously.

Monero is a versatile cryptocurrency. It is used by criminals and geeks. It can be used to fund terrorism or opt-out of a corrupt system. Only time will tell if its advantages outweigh the costs.

Do further research

You can continue your research by following these links:

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