This article will focus on the leading privacy coin Monero and its mechanisms. An introduction to DeFi and the cryptic nature of blockchain technology is imperative for better understanding, especially for non-experts.
Decentralized finance, DeFi comes with several pros and cons. As an umbrella term, DeFi includes all solutions that financial applications that shift global finance away from intermediaries to a decentralized manner of conducting global trade.
Blockchain technology is the major catalyst for a DeFi centred world. Blockchain is a decentralized public ledger that records transactions and information on blocks. Each block is arranged and recorded cryptographically making alterations impossible without affecting the whole network.
End users called miners confirm or verify transactions for blockchain network’s which makes it decentralized as no centralized body like banks records the transactions. Though blockchains are largely decentralized, it is worthy to note that some are more decentralized than others. For some blockchains, governance and development are handled by the community through holding and staking a utility token to completely do away with centralization.
The launch of bitcoin in 2009 opened the floodgates for more cryptocurrencies. Cryptocurrencies differ from fiat currencies which are regulated. Cryptos are the currency of the blockchain that perfects its decentralized nature.
Privacy, Decentralization, and the Crypto Space
The cryptic nature of these currencies means that it is difficult to trace the users who carry out the transactions. As a result, many people use cryptocurrencies to move huge amounts of money around that they don’t want to be traced to them directly.
The decentralized nature further improves this because there is no central body that regulates user’s spendings and thereby keeps track of their information with the government. The more decentralized a blockchain and cryptocurrency, the wider community-related activities are present as miners handle almost everything.
The widespread adoption of DeFi applications gives users the option of moving their wealth around through several applications on the blockchains and making money in return by investing the native tokens of those applications. This makes it even more difficult for cryptocurrency transactions to be traced as it has passed through several platforms.
However, as much as cryptocurrencies are touted as hidden and safe which is true to an extent, the government crackdown on cryptocurrencies have made the certain government pass regulatory policies with exchanges.
Exchanges are now made to register and some governments have boasted that they can monitor and follow transactions on centralized exchanges bringing them back to the user for tax purposes.
This move by governments may have crippled the core hidden nature of cryptocurrencies and blockchain technology. Privacy coins that are different from other crypto coins have been developed which makes it impossible for the government or third parties to track transactions.
What is Monero?
Monero is the leading privacy coin in the sector today. Monero is an open-source, privacy coin launched in 2014 with three core values for users: privacy, security, and decentralization. Monero takes privacy to new heights.
The company has expressly stated that all users need their privacy while handling cryptocurrency transactions to be safe from prosecution which in worse cases can lead to the death penalty.
Why Monero is Unique
Monero protects the privacy of users by making it impossible for the government and third parties to trace the activities of users without the users having any fear and changing their spending activity.
Monero handles the privacy issues of users without them knowing the technicalities involved. Monero also prides himself on being a tightly secured coin. Transactions are cryptographically secured with the latest encryption mechanism.
Monero users are assured that their transactions go through without risk of error and hacking. The mining community which helps in securing the network is properly compensated. In addition to this, Monero makes the mining process less cumbersome.
Monero is also a completely decentralized blockchain providing top-notch decentralization in both code development and network security. It adopts a fair distribution of block rewards among miners by adopting a proof of work mechanism.
Specialized mining hardware is also prevented from dominating the network through its Proof-of-Work algorithm. In addition to this, Monero always conducts open operations.
Its developmental stages are completely public giving everyone access to the technology while encouraging global participation and transparency. Every decision is open to public deliberations and also punished online.
Cryptocurrencies like Bitcoin and ether are popular but they do not guarantee 100% transparency like Monero and other privacy coins. Monero’s blockchain is completely opaque as it disguises the addresses of both parties making every transaction anonymous.
The downside of this is that Monero and other privacy coins can be used to promote and sponsor illegal activities usually through the dark web as these transactions can’t be traced to the parties.
While other cryptocurrencies like Bitcoin secures user privacy through the normal pseudo name allocation, Monero takes it a step higher. Pseudo names are random names given to users consisting of random letters and numbers.
These pseudo names offer little privacy as transactions carried out by a pseudo name can be traced to an account over time and the holders’ real identity can be revealed through a centralized exchange.
Furthermore, cryptocurrency addresses and transactions are registered with the public, making them open to the public. Monero completely makes the user names anonymous by masking the user’s identity and transaction details thereby making them untraceable to the users.
Monero is purely fungible. Even fiat currencies through two units can be of similar value, it still carries different codes for tracking. However, Monero makes it impossible to track as there is no serial number or code making it completely fungible.
Cryptocurrency transactions like bitcoin and ethereum transactions are recorded on the blockchain. This allows for the transactions to be traced to users. The transaction history of the coins can also be used to spot coins that have been used for fraudulent activities like illegal gambling, auctions, etc.
The units of bitcoin or crypto involved in such transactions may be flagged leading to blocking or suspending of affected accounts. However, with Monero each Monero is the same as there are no distinguishable units that can be specifically tracked and differentiated.
Ring Signatures and Stealth Addresses
Monero takes privacy to a whole new level by adopting ring signatures and stealth addresses. Ring signatures involve the use of a group instead of an individual signature. They are anonymous digital signatures from members of the group however they can’t be traced to a single user because of the group.
The particular member that executed the transaction isn’t revealed making it impossible to be traced to the user. A ring signature is created using the user’s keys (account) and the public keys on the blockchain. This makes privacy top-notch as it is now imposed to find out which member’s key was used in the signature.
Stealth addresses in addition to the privacy ring signatures provide, conceals the address of the transaction by creating a random temporary address. Like a one-time password, stealth addresses are created for every transaction to protect both parties and to make market tracing impossible.
The mechanism deployed to make Monero completely private includes; RingCT, stealth addresses, Dandelion, and transactions over Tor/I2P.
Monero: Tokenomics and The Community
Monero can be purchased through digital exchanges and can be mined easily. Individuals get rewards for mining the coin through joining mining pools etc.
It takes about 2 minutes to mine a Monero coin. It can be mined with the CPU of a computer. The mining mechanism which Monero uses is the proof of work mechanism which also guarantees its security.
Egalitarianism mining is also key to the development of the coin. This principle helps in the fast development of the coin as every miner has a sense of belonging and it is not being monopolized by big entities.
The community is at the centre of Monero and the developers showed this by not keeping any stake for themselves when they launched Monero but depended on the support of the community to push the privacy coin.
It also runs a community crowdfunding project where the ideas of members are shared and developed collectively. Monero prides itself on being completely decentralized with the help of its community. Block rewards are distributed evenly on activities on the platform with its project posted openly educating the public and bringing about public contribution to the project.
To keep mining on Monero incentivized, the emission curve is infinite. There is no maximum block size but rather a dynamic block size which leads to scalability. Monero currently has a CoinMarketCap ranking at #26 with a market capitalization of over $4.8 billion. The current supply of Monero is 17,934,879 coins.
The price of Monero has soared in recent weeks due to the decision by governments to tax cryptocurrency transactions. Both the American and Australian tax bodies made the announcement and it has led to more adoption of privacy coins with Monero at the fore.
Monero ensures that the identity of the users is protected as such, government agencies cannot trace the transaction back to the user which means they get to pay whatever they like as tax.
Activities and Growth of Monero
Monero can be purchased via top cryptocurrency exchanges and can be held in a wallet of the user’s choice. The roadmap and growth of Monero have been impressive over the years.
Starting back in 2014, it has taken the privacy of cryptocurrency transactions to new heights through constant innovation and community development.
Launched on Bitcointalk and renamed to Monero from Bitmonero, it has gone through several stages such as surviving a spam attack back in 2014 to concluding their research lab papers still in that year.
Over the years, many network upgrades have been carried out on the platform with many currently being worked on. The second layer solution for more speed and scalability will soon be released alongside linkable ring signatures with applications.
A major disadvantage of Monero is that it can be used to promote illegal activity through funding transactions confidently as it cannot be traced back to the user. Activities on the dark web are now being funded through privacy cryptocurrencies. CoinSpace Monero wallet.