Monero project purpose and description
What is Monero?
Monero is an open source blockchain platform that provides a secure, private and untraceable system for transactions. Monero uses a cryptographically sound system that allows users to send and receive payments across its network with complete privacy.
This creates a form of security and confidence for users who value privacy when it comes to their financial transactions.
Monero is a community project that is fully owned and controlled by a community rather than an individual. The initial developers who created what we now know as Monero comprised of a team of 30 core developers.
Over time more than 200 other developers have played significant roles in creating Monero. They have an open policy where everyone interested in positively contributing to the project is welcome to join and give suggestions to the team.
This is also a beneficial factor for Monero as no single government can control the project or limit any of its actions.
Taking us back a little bit, Monero was created back in April of 2014 by Nicolas van Saberhagen. He could be the same person who later launched it on Bitcointalk forum under the username “thankful for today”.
The Monero community took over from there and now play the leading role in determining the course of the project. Since its original launch, Monero has migrated the blockchain to another database structure, improving flexibility and efficiency.
The developers also set minimum ring signature sizes to make all transactions private, and RingCT was added, hiding all transaction amounts.
Almost every improvement made so far has made Monero easier to use or enhanced security and/or privacy.
Monero is able to make transactions untraceable to their origin and destination hence you cannot link a particular transaction to an individual address or account.
The technology that allows this is called ring signatures which we shall be examining later. But what it does is to mix up users’ addresses and break transactions down so that you cannot trace the exact origin of a transaction or the full details of each transaction.
The whole system used by Monero is set up to ensure privacy for its users. A spend key is used to send funds while a view key is used to allow others to view transactions on a given account. The view key which may be helpful say for tax purposes or in any event where the user deems it necessary to share the details of a transaction.
Monero is designed to work with all major operating systems such as Windows, Mac, and Linux and most importantly it is open source meaning that it anyone can make use of the software.
What is the problem that Monero Solves?
Blockchain technology has had a wide appeal because of the decentralization, trustlessness and the anonymity associated with the technology. But unfortunately, Bitcoin with other emerging cryptocurrencies have not managed to offer a decent level of anonymity, this is because transactions can always be traced back to the user’s address which ultimately can be linked to the real-life person.
Additionally, the Bitcoin network is a transparent ledger meaning anyone in the network can view the transactions of any given address and monitor the activities of an address they have access to.
An example: say J is a supplier and he sends his address to L so they can transfer to them some Bitcoins as payment for goods supplied. L will be able to view the transactions made by L and the number of Bitcoins that L is holding. If J knows the real life identity of L, they can determine their financial standing from this information.
This may not be a good thing for business; hence the need for privacy and complete anonymity in cryptocurrency transactions, and that is where Monero comes in.
Monero has used several techniques to go around this problem, of course not with 100% success, but they have made significant enough strides to place them among the top cryptocurrencies in the market.
Other than the privacy issue, Monero has also sought to tackle the issue of speed and high fees associated with the bitcoin network.
How does Monero Solve the problem?
In a nutshell, this is how Monero tackles the privacy problem;
Just like with Bitcoin and other cryptocurrencies, Monero issues a public address which is a sequence of random characters. If someone needs to send you some money, you will give them your public address to use, but unlike other cryptocurrencies, they will not be able to view the details in your account.
This is because each time someone is sending funds to your account, the system generates a brand new unique address that is used just once.
This means that the public ledger does not contain direct information on the details of each transaction at any given time, creating opacity of some sorts. Same applies to when you send out funds.
The public record will never show that a given transaction originated from a given public address. Instead, a stealth address is created allowing only the recipient of the funds to know that a certain amount of funds has been moved to them.
The recipient will use their private key to confirm that certain funds have been transferred to them at a given time. Because they are the sole owners of the private key, only they can see the transaction/ incoming funds.
Also, when a second transaction is made, there is no way to tell that a certain account is the same recipient of both transactions. The two transactions appear to be having unique recipients due to the stealth address generated each time a transaction is made.
However, you can share your private key to allow others to see the transactions in your account, at your discretion.
So how does Monero protect the privacy of the sender?
Using the example above, when you send money to a recipient, they can be able to view all your transactions, the addresses you have transacted with and how much bitcoin you have transacted.
So Monero tries to protect your sender address by the use of something called ring signatures.
Ring signatures work by jumbling up different addresses to conceal the true address from where the transaction originated from, this is called transaction mixing.
The sender will randomly select several other addresses that will appear as possible originators of the transactions, some of which may be off line at the time. So it will not be possible to pin a given transaction to a certain address.
The sender has the option to select the “mixing level” or the number of potential addresses added to the ring, but the fee charged for this transaction will increase commensurately.
Another advantage is that due to these cryptographic methods, the sender of funds is not able to know whether the receiver is spending the received funds or not.
This is because the receiver’s address could be randomly included as a potential sender in different transactions when in truth they are not taking part in any of them. It may appear as if a particular account has been very busy making transactions while in reality, they have been very passive.
Another additional technology employed by Monero is the Ring CT which went live on Jan 10th 2017, this disguises the exact amount of funds being sent. The amounts are broken down into fragments so that only the sender and recipient can tell the exact amounts transacted at a given time.
There is also project Kovri which is ongoing. This is all about complete privacy so that it would not even be possible to tell if a user is even using Monero in the first place. This will be achieved by routing the entire user’s Monero traffic through the Invisible Internet Project (I2P) which conceals the messages and final destinations of the messages. This will make it impossible for another party to track the Monero transactions of a user in any way.
This technology by Monero could potentially become the ultimate privacy solution for cryptocurrency transactions.
Monero units are also fungible, meaning that each unit is the exact replication of the next. Compare this to bitcoin. The transaction history of each bitcoin is recorded on the blockchain. If a certain bitcoin is traced to have been spent on illegal activities such as gambling, poaching, fraud or theft, that bitcoin will be blacklisted.
Anyone who eventually comes into contact with that particular bitcoin will be exposed to the same risk or loss. Monero, with its fungible units, offers participants a much safer network where they don’t run the risk of having their held units blacklisted for crimes they themselves did not commit.
But one question arises from having an “opaque” blockchain; if transactions are not visible to all network participants, then how can you prevent double spending?
Monero takes care of this by encrypting each ring signature so that it is recognizable when a user tries to double spend.
What makes Monero better than its competitors?
Zcash is the closest competitor to Monero in the privacy space. Monero has been in the market for longer and has managed to build a stronger community around it receiving greater support.
While Zcash allows users to choose whether to make a public or private transaction, Monero is an all private network.
For Monero this means the effectiveness of the privacy methods will increase over time.
Also fungibility, Monero coins are fungible while Zcash coins are not. Fungibility protect the coins held by investors as they cannot be linked to an illegal activity.
In comparison to Bitcoin and other altcoins, Monero offers a superior advantage by offering privacy and anonymity of transactions, even going further to completely dissociate the user from Monero through the project Kovri.
How can Monero be categorized?
Monero is first a digital currency then a privacy coin.
Monero and Security
Being a privacy coin, Monero has gone out of its way to ensure security on its platform.
Firstly, security is offered by the technology behind the blockchain itself which is a trustless and decentralized network. All transactions in the network are verified in a concensus model and immutably added to the blockchain creating a form of permanence for transactions.
Once funds are transferred, the transaction cannot be undone and the records remain on the blockchain. On Monero, ring signatures, stealth addresses and RingCT are technologies used to protect the identities of users in the network. Monero affords users the security benefits afforded by the blockchain without having to concede their privacy for it.
These cryptographic technologies obfuscate the details of the financial transactions so that no one can tell how much you are holding, receiving or sending through the network.
This is a security feature for individuals and businesses which value the privacy of their financial transactions and holdings.
The other security feature of Monero is fungibility, this means that all XMR units are identical and one cannot be differentiated from the next.
Take another example where a unit of XMR has been used for an illegal activity and ends up with you legitimately. If that unit could be blacklisted for being involved in the said criminal activity then the user would be at loss. But this does not apply to Monero as all XMR units are fungible.
Examples of Monero’s use cases / applications.
Monero first appeals to users who value privacy. Unfortunately, it has been associated with the “dark web” where users would want to launder their illegal proceeds.
As that could be a genuine concern, many business people would prefer to conceal their transactions for business reasons that may not be illegal.
Monero has been used as a digital currency to buy and sell goods and services. It has also been used to transfer money globally in a cost effective way. It has also been used as a trade vehicle on cryptocurrency exchanges. Lastly, you can mine Monero as a source of income.
For Monero, the privacy of transactions remains pivotal.