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What is Monero? A layman’s introduction

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Table of Contents

Introduction

Monero is an open-source, privacy-preserving cryptocurrency project built on the CryptoNote protocol. It is similar to Bitcoin as it is a digital, peer to peer currency of which no one central authority is in control. However, there are also some key differences, which we will go into later. The ethos of Monero is quite simple. The community is attempting to build a cryptocurrency that is private, secure, and decentralised. The privacy comes from the specific cryptographic technologies used to obfuscate certain elements of information, the decentralisation comes from the commitment of the development team and community to something called ASIC resistance, and the security of the currency comes from a combination of the battle-hardened cryptography and the robust nature of a decentralised network.

In a previous article, we discussed how Bitcoin is a form of money that is not controlled by any government or central bank. Monero is very similar. The main difference between Bitcoin and Monero is that Monero is attempting to be a privacy-preserving form of value exchange, as opposed to an open, transparent and pseudo-anonymous one. Monero’s public ledger (the record of all transactions between parties) is public and verifiable, but the information contained within gives as little as possible away about transactions as possible. The main desire of the Monero development team and members of its open source community is to protect users, investors, and businesses from revealing information about their wealth, their spending habits, and their business dealings. 

One of the main criticisms of Bitcoin is that the public ledger is fully transparent. This means that anybody can investigate, probe and analyse the record of transactions in the pursuit of information. In reality, this means that information may be available to the general public (and prying eyes) that people may not necessarily want to be known. The most simple example of this is the ‘nosey shopkeeper problem’. Imagine that Alice has 100 Bitcoin in her wallet. Alice goes into a shop and spends 1 Bitcoin on some item, let’s say a television. The shopkeeper would be able to look at a Bitcoin block explorer, search for the address they received the Bitcoin from, see that Alice spent the 1 Bitcoin, and also determine how much money is left in Alice’s wallet. They would know that Alice still has 99 Bitcoins. The next time Alice goes to the shop, the shopkeeper may decide to charge her a little more, as they know how much she has to spend, and how much she keeps in her wallet! 

With Monero, this scenario would not be possible, as amounts and wallet addresses are not published on the public blockchain. There is no information that links individual transactions to wallet address, or to the value of transactions. All this information is kept private through the magic of cryptography!

Monero
Monero

History

The history behind Monero is quite interesting. Remember we talked about how the inventor of Bitcoin, and the author of the original Bitcoin whitepaper, was the anonymous Satoshi Nakamoto? Well, guess what? The creator of the CryptoNote protocol, on which Monero is built, is also an anonymous individual. in 2013, the CryptoNote whitepaper was released, authored by a person named Nicolas Van Saberhagen. The paper contained the schematic for a protocol that was very different from the design of Bitcoin. This ultimately led to a user, named thankful_for_today, creating a cryptocurrency called ByteCoin. After a tumultuous first few months, the community decided that thankful_for_today did not have the best interests of the community at heart, and so the project was forked. This essentially meant that the community created a new cryptocurrency based on the same technology. It was initially called BitMonero. Monero is the Esperanto word for Coin, and was named as such because Esperanto is seen as a politically neutral language as it does not belong to any specific country, government, or culture. It is important to note that BitMonero was launched as a fair cryptocurrency. There was no pre-mine, there was no airdrop, and there no initial coin offering (ICO). It was created by a group of individuals working towards a common goal.  The BitMonero project was later rebranded and renamed simply to Monero. 

Technology

The fundamental differences between Bitcoin and Monero is centred on the cryptographic technologies deployed within the protocol. There are three main technological  “pillars” to Monero, seen as the fundamental building blocks of how the currency works at the protocol level. They work together to ensure that as much information regarding transactions remains private as possible. The protocol rules ensure that the sender of a transaction remains private (Ring Signatures), the recipient (Stealth Addresses), and even the value of transactions (Ring Confidential Transactions).

Ring Signatures

Ring Signatures is a method of cryptographically signing a transaction so that any outside observer is unable to determine which specific private key signed the transaction. Without going into too much detail, the actual process is as follows. When a transaction is made, the sender (or signer) of the transaction places the actual signature into a ring containing the real spend (or output), and a group of decoy outputs. This ring is called a ‘key image’. At the moment, the protocol demands that these key images contain the actual spend along with ten decoys –  meaning there are 11 total outputs in each ‘key image’. The key image is what is published on the blockchain. The decoys ensure that an outside observer cannot determine which of the outputs is the actual spent in the transaction (at least without quite a lot of guesswork!). The effect of this is that it is near impossible to determine which private key (or signature) is the one that is actually spending funds. 

Stealth Addresses

The second technology deployed within Monero is an addressing scheme called Stealth Addresses. A stealth address is a one-time use address that is determined from the public address of a wallet, plus some blinding/hiding factor. An outside observer cannot link the stealth address to a public wallet address, as only the wallet that generates the stealth address and the receiving wallet know the blinding factor – also known as a secret. The receiving wallet knows that it can access the funds associated to a stealth address, but an outside observer cannot determine that information, as they do not have the associated secret. Public wallet addresses do not get published on the Monero blockchain – only the stealth addresses. This layer of privacy ensures that observers cannot determine where Monero is actually being sent when a transaction is made between two parties.

Ring Confidential Transactions

The last technology of the cryptographic, privacy-preserving Monero suite is entitled Ring Confidential Transactions (or RingCT for short). Confidential transactions is another small bit of ‘math-magic’. In Monero, the amount of a transaction is handled by a recently developed schematic named Bulletproofs. Essentially these are zero-knowledge (Zk) proofs that enable a sender and a receiver to prove that a valid amount was transferred between them, without revealing the actual amount. The maths ensures that the public ledger of Monero contains no amounts – ever – and nobody can ever know how much you are spending, receiving, or storing in your wallet (unless you choose to show them yourself by revealing your information). This level of protection ensures that the Monero rich list is very interesting reading.

ringct2

ASIC Resistance

One of the more interesting features about Monero is the communities commitment to ASIC (Application Specific Integrated Circuits) resistance. Remember that Bitcoin is secured by a consensus algorithm technique called Proof of Work. Proof of Work is a method through which consensus between miners is achieved; to determine who receives the write permissions for appending the next block to the blockchain. Monero also uses Proof of Work. However, the community believe that the barrier to entry should be as low as possible, and include solo mining functionality in the official GUI. As the demand for winning the coinbase reward has become so competitive in Bitcoin, miners and companies have developed special hardware, specifically designed to mine for Bitcoin. This hardware is expensive, and out of reach for most normal hobby users. This has the effect of centralising mining in the hands of those that have the resources and access to the latest mining technology. 

Monero, on the other hand, wants to keep these barriers at bay. They believe that by tweaking the Proof of Work protocol every now and again, they can mitigate against the design and development of specifically designed hardware (ASICs), ensuring that hobby users and small miners can remain competitive. This has meant that the POW algorithm that is used by the protocol (called CryptoNite) has been tweaked by the Monero development team a number of times, and has ultimately led to the development of RandomX – a POW algorithm specifically designed to stave off ASICs for the foreseeable future. While RandomX has not been deployed on the main protocol yet, Monero hopes that it will pass all audits,  and be included in the next major development upgrade. 

Where to buy Monero

At the moment there are two main places to purchase Monero. The first is Kraken, a very well known and respected cryptocurrency exchange that operate out of the United States of America. This is an exchange through which you can purchase Monero, using GBP, EUR, and USD. You can also purchase Monero using Bitcoin. The second option is LocalMonero. LocalMonero is a peer to peer site, so you are buying directly from other Monero users. This affords a higher degree of privacy but comes at the expense of slightly higher prices. The website works as the custodian in trades and will settle any disputes that arise between buyer and seller. 

Boinnex Bitcoin ATMs plan to also add support for buying Monero in the near future – so watch this space.

Wallets

There are a number of wallets available for Monero; both desktop and mobile. There are official Command Line Interface (CLI) and Graphical User interface (GUI) wallets available from the Monero website. These are available for all platforms. For mobile wallets there is the iOS based, community vetted and supported, open source CakeWallet. For Android, the open source Monerujo. There is also the community vetted and open-source MyMonero, which offers versions for a host of platforms. 

What can I buy with Monero?

There are quite a number of merchants, retailers, and service providers that now accept Monero. A comprehensive list is on the official site. With payment platforms like Globee and the WooCommerce extension, there are more and more retailers being added to the list every day. There are is also a really handy service called XMR.to which allows you to quickly exchange your Monero into Bitcoin without any sign-up. You can use the service to buy something with your Monero that you would otherwise buy with Bitcoin. 

Recommended Reading

There are some really great references out there for Monero, as it has firmly established itself as one of the leading cryptocurrencies, and is respected across the ecosystem for its friendly and inclusive commitment to privacy. There is a host of information available on the official site (https://getmonero.org), as well as companion sites such as Monero Outreach and MoneroStuff. There is also the rich information goldmine that is Monero.how. For a really simple overview of Monero, there is the QuickFacts sheet which has been written by the OutReach Monero workgroup. It is a really nice intro into Monero.

For those of you that prefer a deeper dive into Monero and its mechanics, I suggest Mastering Monero, a book that has been written by the community to explain the fundamentals of the protocol. For those of you that wish to know more about the cryptography, there is the Monero Research Lab – which is a dedicated workgroup that explores and researches a host of interesting cryptocurrency related privacy enhancing  technologies. If you prefer to watch an introductory video, then a really great one can be found on Youtube, which explains most of the inner mechanics in a simple and easily understandable manner. 

 

How to get involved?

As mentioned earlier, Monero is an open-source project – so anybody and everybody is welcome to get involved. The best place to start is probably the official Reddit sub. From there, a whole host of knowledge and opportunity is awaiting. If you want to start creating the future for privacy-preserving currency, the best time to start is now!

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