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What is Monero? A step-by-step guide to XMR
If you’re looking for an anonymous and untraceable currency, you should consider whether Monero has you covered.
|Icon||Symbol||Initial release date||Algorithm type||Max. supply|
|XMR||April, 2014||CryptoNight||18.4 million XMR|
Monero (XMR) appears to have become synonymous with anonymity and secure transactions. While many people believe that bitcoin is already anonymous, this is definitely not the case as we’ll see in this guide. The anonymous nature of bitcoin is very much up for debate and Monero is the natural outcome of that debate.
What is Monero?
- Security. Without trust, no cryptocurrency can survive and none of them are more reliant on that trust than Monero, whose users not only trust it with their money but also with keeping their transactions anonymous.
- Privacy. Monero claims that they need to be able to protect their users’ anonymity, even in a court of law – including, as their website states “in extreme cases, from the death penalty”.
- Decentralization. Monero isn’t run by anyone. It’s unlike some other coins where there’s a central agency that runs the network, or blockchain. In the case of Monero, not only does this central, controlling agency or business not exist, but the development decisions and the developer meeting logs are published and available online for anyone to see.
How is Monero different from bitcoin?
Monero focuses on anonymity, and this is where it diverges significantly from bitcoin. Many believe that bitcoin already is anonymous, but that’s just a very common misconception, as we’ll see.
The problem with public transactions
Bitcoin is built over what is known as the public ledger, or blockchain. This was done so that users of bitcoin can verify other people’s transactions, especially in cases where these payments need to be transparent (e.g., government spending and not-for-profit organizations (NPOs).
The issue is that once you share your bitcoin address, all past and future transactions and how much money you’re sending/receiving will always be linked with you. Buyers may not always find this desirable. It’s not only an issue of revealing that users may be purchasing or paying for illegal services/products. You just might not want your employer to know that you sent money to WikiLeaks, or maybe you don’t want to have freelance clients know how much you’re charging other clients.
Bitcoin did come up with somewhat of a temporary solution or a user guideline, so to speak. The idea is that whenever you’re requesting money from someone you should always provide them with a temporary wallet address. This address is related to your actual wallet but would be a one-time-use address and then will be destroyed, making it harder to trace your wallet’s main address back to you. This solves the problem for one-off payments, but organizations and businesses who want a public address visible on their website, for example, would still have all their transactions traceable back to them.
Monero presents a solution to this problem by using what is known as ring signatures and stealth addresses.
Monero mixes addresses for a user’s transactions with another user’s addresses making the path between sender and receiver virtually untraceable. Analysis of the Monero blockchain would reveal nothing more than a cryptographic hash of the transaction.
Similar to the explanation of bitcoin’s suggested solution, Monero hides addresses behind one-time-use ones, which are then destroyed so that the transaction cannot be traced back to a public address.
Where can I use Monero?
Many of the merchants that currently accept bitcoin and the other more common cryptocurrencies already accept Monero.
Where to buy Monero
Monero is available on many popular exchanges, including:
Using Monero to transfer money
Sending and receiving money with Monero is very similar to other coins, although XMR transactions are thought to be more secure. Here’s how installing a wallet and receiving money works:
- Start with an XMR wallet. Some wallets let you have multiple different currencies stored in them. When working with XMR, you should ideally get the official wallet to avoid any conflicts and leakages of anonymity.
- Store the seed. During the process of installing the wallet, you’ll get a 25-word mnemonic word seed. It’s imperative that you keep these words secret and safe. If your computer ever breaks down, they will be your only method of getting back your XMR.
- Get your address. Your wallet will give you a Monero address. This is the address you will use to receive money. Share this address with your sender and they will send you money. While this address will always technically remain the same, on the Monero blockchain this address will be hashed and obfuscated and only you and the sender will know the actual address.
Can I make money with Monero?
The possibility of making money with Monero is very similar to the options for making money with other currencies. After all, the main difference is Monero’s focus on security and anonymity. Everything else is very much the same as other coins, such as bitcoin. Also the same is the need to consider the options carefully and make a wise decision.
Transactions in XMR
The best way to make money from a cryptocurrency is to buy it, provided you are satisfied that it’s the best plan for you. Buying XMR and paying in XMR should help the currency grow, and when the currency grows, your wallet should also increase in size.
What to watch out for
No cryptocurrency is without its concerns, and Monero is no different.
- Mining Centralization
Mining is currently controlled by 4 large pools. While no particular pool controls more than 20% of the entire hash rate, this is still a problem as decentralization is of utmost importance. Luckily, the Monero development team has stated that this is as important to them as to Monero users. Because a hack on a blockchain requires convincing 51% or more of the users that your data is the correct one, with only 4 pools you would only need to hack 3 mining pools to control 60% of the blockchain, at which point you control the entire blockchain.
- Large Transactions
Because Monero has to add overhead to every transaction to make sure they’re anonymous and secure, the system is quite noticeably slower and the transactions are larger and consume more space on a user’s computer.
What’s next for Monero?
Monero should be watched for its growth potential and whether the developers are placing a focus on decentralization and security.
We are told that in the works is a bigger effort to push adoption by merchants – especially in certain areas of the world where adoption has been slow – and a better platform for developers to build upon.
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