Monero (XMR) is one of the biggest cryptocurrencies on the planet and among the few that focus on privacy and anonymity. It uses a unique blockchain with privacy-enhancing technologies (PET) that obfuscates every transaction to keep it completely anonymous.
It’s based on CryptoNote, an application layer protocol that aims to solve several of Bitcoin’s issues — most notably, the traceability of transactions.
In the modern world, where cyberattacks and data breaches are steadily rising, privacy is becoming more critical for the financial sector. Monero is uniquely positioned to help with that: in fact, due to how successful it is at providing anonymity, it’s been dubbed the “privacy coin.”
Even though criminals try to use it to obscure illicit transactions, Monero’s benefits still outweigh its shortcomings, especially for a wide range of regulated industries. The best example is the online gambling sector, so you can find plenty of quality Monero sportsbooks that let you place bets and make payments using XMR instead of fiat.
Explaining the Basics of Monero Technology
Monero was launched in 2014 as Bitmonero, based on the Bytecoin codebase. However, it quickly changed its course since many community backers were disappointed that several promises were not kept.
Volunteers eventually took over the project from a user dubbed Thankful_for_today, and it became a massive undertaking for numerous developers and other contributors. Keeping in line with the project’s spirit, most have remained anonymous.
Monero quickly became one of the few original altcoins with no limited supply of XMR. Moreover, instead of making these privacy features optional like all the other altcoins, it has embedded them into the code.
Like every other cryptocurrency, the transactions are still placed in a decentralised public ledger, but their details are always obfuscated.
Monero uses several privacy features to achieve this, including Ring confidential transactions, bulletproofs, stealth addresses, and Dandelion ++, ensuring unprecedented security and privacy levels. The technology is so effective that the IRS even offered a $625,000 reward to those who could crack it.
Unfortunately, the unyielding focus on privacy has led Monero to get delisted from some exchanges, including Kraken. This crypto doesn’t comply with the standard KYC and AML procedures, which don’t always work well with centralised exchanges.
You should consider this when choosing a crypto exchange, even if you intend to use it for futures trading or another purpose.
Unveiling XMR’s Privacy Benefits
Monero’s privacy features have led to its community becoming the third-largest in the crypto world (right behind Bitcoin and Ethereum), even though Monero is far from the top two on the market.
But what exactly are these features? Below, you will find several that clearly demonstrate the benefits of this cryptocurrency and payment system.
Ring Signatures and Stealth Addresses
Transaction notes on the Monero blockchain are muddied with the help of ring signatures, cryptographic digital signatures that group your output with decoy ones, effectively hiding your information in a sea of data.
Moreover, on the receiving end, the person is protected with the help of stealth addresses that are created to receive funds. However, they cannot be connected to a specific owner by anyone on the system, as explained on Monero’s Wikipedia page.
Ring Confidential Transactions (RingCT)
Besides hiding the transaction details, XMR can also conceal the amount. It does that with the help of RingCTs, a feature implemented in 2017 that has made it possible to encrypt the transaction amount on the blockchain.
RingCT is essentially an improved version of ring signatures. It can effectively hide the transaction origin, destination, and amount.
Bulletproofs represent a zero-knowledge proof method that guarantees a transaction has actually happened on the blockchain without showing its amount.
To prove an extensive data set, it only generates a small proof; so even when the number of outputs rises, the proof will only slightly increase.
Separate proofs are not required for each transaction or destination — a single bulletproof can simultaneously prove that multiple amounts are in a specific range, so only one is sufficient to prove entire transaction amounts.
Kovri is a C++ implementation of the I2P network that is intended to be integrated into Monero.
It will further anonymise transactions by effectively turning off the ability of anyone to identify an IP of a user on the crypto’s network.
How to Mitigate the Potential Challenges
It can be argued that XMR is better in terms of privacy than every other coin, as it’s the only one that hides every part of the transaction without compromising the various features cryptocurrencies strive for. For instance, you can trade XMR as you would any other coin, even with the help of trading bots, and do everything you usually would with your crypto assets.
However, it still needs to overcome a few challenges and problems. Firstly, it has a long way to go before it becomes widely accepted. More than that, it’s often the target of regulatory bodies and governments, as its privacy features are not something these institutions appreciate in an increasingly controlled world. This leads to the need for converting XMR into a fiat currency, which would result in the loss of Monero’s privacy features.
Additionally, there are security issues in the form of cyberattacks like poisoned outputs and Janus attacks.
Thankfully, the Monero community is constantly working on finding solutions to existing problems. For instance, even though poisoned output attacks cannot be handled (they exploit the human factor, not a technical issue), there are already possible solutions for Janus attacks, and the community only needs to agree on which one to implement.
Despite the hardships, Monero is still a highly successful altcoin, as seen from its price history on CoinMarketCap.
Financial privacy is paramount in the digital age. With proper data protection, we can safeguard our sensitive information and ourselves from financial fraud, identity thefts, and cyberattacks.
Monero is working hard to contribute as much as possible to the broader privacy movement that’s been rising over the last few years, especially after disclosing what big tech firms (like Facebook) are doing with our personal information.
XMR manages to provide the privacy we often desperately need in the financial sector. This is where it’s most often misused, so even though the bans and regulatory bodies might not agree with Monero’s approach, it’s clear that we need the benefits it provides.
The project is constantly growing and changing, and there’s always the potential that we’ll find a way to settle the differences between these two worlds. For now, as an individual, you should consider embracing the privacy-conscious practices only Monero transactions can provide.