Launched in April 2014 as BitMonero, Monero is one of the blockchains offering the most anonymity to its users. Its various technologies promote privacy, which states perceive as a hindrance in the fight against crime. But with more than 9 years of successfully fulfilling this mission, Monero ranks among the most important blockchains in the cryptocurrency ecosystem.
What is Monero?
Monero is a blockchain focused on anonymity and whose transactions are made untraceable through the use of several cryptographic techniques. Monero’s native cryptocurrency bears the same name as the blockchain and is known via the ticker XMR.
Its goal is to be a fully fungible cryptocurrency, meaning that it should not be possible to distinguish between XMRs.
Monero is in direct contrast to the queen of cryptocurrencies in terms of transaction transparency. On the Bitcoin network (BTC), transactions can be tracked through exchange platform identification processes and on-chain analytics. By tracking the transactions of a public key on the Bitcoin blockchain, we can determine the identity of a BTC holder.
Although Bitcoin network users have tools to corrupt the traceability of their BTC, such as cryptocurrency mixers, the vast majority do not use them. As a result, transactions on the Bitcoin network remain viewable by anyone: all it takes is access to KYC information to obtain your identity and track your funds to your current wallet.
In the case of Monero, the blockchain is opaque: although everyone can see the transactions made in the network, it is impossible to identify the person who sent the XMRs, the person who received them, or the amounts involved in these exchanges. Monero imposes a default confidentiality applied to all transactions in the network, except for miners’ reward transactions where the amount is indicated.
The Monero chain is validated by the consensus of the Proof of Work (mining), and everything is done to make the validation of transactions as decentralized as possible.
Monero can be mined with a processor (CPU) or a graphics card (GPU), and ASIC mining is deterred by a very hard to optimize Proof of Work algorithm, RandomX. The latter was created to ensure greater resistance to censorship on the Monero network.
These characteristics make the Monero blockchain the best alternative for those who care about preserving their privacy and staying out of the monetary control of states.
At the same time, this cryptocurrency is meeting a certain popularity among outlaws, especially on the dark web marketplaces. In fact, Monero comes 2nd on the list of the most accepted crypto-currencies on this part of the Web, behind Bitcoin which remains largely the most used crypto on these platforms.
Monero (XMR) logo designed by Cryptoast
In what context was Monero born?
Privacy has always been one of the main concerns in the history of cryptocurrencies. In the Bitcoin whitepaper, an entire section is devoted to privacy in which Satoshi Nakamoto writes the following words:
“The traditional banking model achieves a certain level of confidentiality by limiting access to information to the parties involved and to trusted third parties. The need to publicly announce all transactions precludes the use of this method, but confidentiality can still be preserved by interrupting the flow of information in another place: by keeping public keys anonymous.”
The Bitcoin model works on pseudonymity: as long as no one links your public address to your identity, your anonymity is preserved. Nevertheless, some people have found this model insufficient to preserve individual privacy.
Indeed, the transparency of the blockchain implies a traceability of transactions, even of individuals when we know the identity behind a public key.
It is in this context that CryptoNote, the theoretical ancestor of Monero, appeared. This protocol concept is developed by Nicolas van Saberhagen, whose first whitepaper is dated December 12, 2012.
The CryptoNote network features include circle signing and single-use addresses. These techniques allow users to remain anonymous when conducting transactions.
The Bytecoin Project (BCN) is the first system to empirically implement the principles of CryptoNote. The latter is announced on March 12, 2014 on the Bitcointalk forum by the user “DStrange”, claiming that his project has existed since July 4, 2012. But the life of this project will only be short-lived: a user named “thankful_for_today” demonstrates that 82% of BCNs had already been mined by its founder.
As a result of this discovery, thankful_for_today creates his own cryptocurrency by copying the source code of Bytecoin: it is BitMonero (BMR), launched on April 18, 2014. This cryptocurrency did not survive for long: since thankful_for_today considers himself the sole leader of the project, he makes changes to the network without consulting the other people involved in the BitMonero project.
On April 23, 2014, following these inconveniences, a set of enthusiasts created a fork of the project and decided to rename it Monero. The exchange acronym was briefly changed to MRO before finally becoming XMR in order to comply with the ISO 4217 standard.
Thus, Monero is the result of a community fork without a single leader, which is felt in all the decisions made about the evolution of the protocol.
How does Monero and XMR work?
What makes payments in Monero anonymous?
Monero uses a set of technologies to make payments as anonymous as possible. The three main technologies involved in a transaction are:
- Circle signatures that protect the anonymity of the remitter;
- Stealth addresses that protect the privacy of the receiver of funds;
- RingCT which allows to hide the amounts exchanged.
Circle signatures
A “ring signature” is a cryptographic process that allows one person to anonymously sign a message electronically on behalf of a group of individuals.
An observer of the blockchain only sees the circle signature without being able to determine who actually signed the transaction. In Monero, circle signatures are used to anonymize the issuer of a transaction.
Figure 1: Illustration of the cryptographic signatures of the Bitcoin and Monero networks.
The principle is as follows: for each XMR input to the transaction, the signer gathers several other XMRs available on the Monero blockchain (called decoy outputs), uses their public keys and signs with his private key.
It also provides a key image (corresponding to the coin) that is written to the blockchain and ensures that the same XMR is not spent twice.
Over time, the number of people in these circle signatures has changed many times, from 3 people in 2016 to 16 people in 2022. Keep in mind that this number could change with future updates to the protocol.
Stealth addresses
A “stealth address” is a one-time address generated from two public keys of the recipient: the public view key and the public spend key. This is a privacy-protecting process for the recipient of the funds.
At the time of the transaction, the one sending the XMRs generates a one-time use address using the recipient’s public keys. He then sends the funds to this address by also writing the public key of the transaction on the blockchain. With this public key and his private view key, the recipient of the funds can find the address in question.
Since the recipient is the only one (in theory) who knows his private inspection key, an outside observer cannot find the original address of the receiver (hence the name stealth address). The private spend key will be used, as its name suggests, to spend the funds when the recipient wishes to send them elsewhere.
Confidential circle transactions
The third element on which anonymity in Monero is based is the presence of confidential circle transactions or “RingCT”, the functionality of which was added to the protocol in January 2017 and was made mandatory in September of the same year.
Prior to this improvement, the system required that funds be separated into different denominations (12.5 XMR could be sent as: 10 XMR + 2 XMR + 0.5 XMR) to make the transaction less legible.
This type of transaction forms an adapted variant of the Confidential Transactions (CT) ring signatures described by Adam Back and Gregory Maxwell back in 2013. RingCTs are used to hide the amounts involved in user exchanges. To do this, each output of the transaction must contain:
- A Perdersen commitment that binds XMRs to the recipient’s public key without revealing it;
- A range proof, which is a zero-disclosure proof of knowledge that the amount is correct without revealing it.
While this enhancement makes transactions even less legible, it increases their weight. In addition, Monero has long had high default fees. Fortunately, since October 2018, this problem has been partially solved thanks to the implementation of “bulletproofs”.
Proving data with bulletproofs allows for large amounts of data to be processed while generating only a small range proof. As a result, this innovation has reduced the size of regular Monero blockchain transactions by 80%, and thus lowered the associated fees.
XMR Tokenomics
Like Bitcoin, Monero’s consensus is achieved by Proof of Work: miners use their computing power to validate blocks, and the longest chain is selected.
What sets Monero apart from other cryptocurrencies like Bitcoin and Litecoin is the fact that specialized integrated circuit (ASIC) mining is deterred by the RandomX hash function, which is difficult to optimize. This makes it possible for Monero to be mined with processors (CPU) or graphics cards (GPU).
The advantage of this feature is that it creates a more decentralized network of miners than in the Bitcoin network, where the bulk of the blocks are produced by mining farms located in the cheapest places in the world.
However, this ability to mine with a CPU on the Monero network allows hackers to set up XMR-mining malware on computers infected with them.
Like other cryptocurrencies, the Monero (XMR) has a predefined monetary policy with a limited issuance of tokens. Thus, since its inception, a quantity of 18,446,744 XMR has been planned to be created in a degressive manner, followed by a “tail emission” producing 0.3 XMR per minute in the future.
This corresponds to a money creation rate of 0.86% per year. On February 8, 2023, the number of XMRs outstanding was 18,147,820 units.
Figure 2: Number of XMRs and BTC in circulation over time
At a rate of one block mined every minute between April 2014 and March 2016, and then one block every two minutes since March 2016, new XMRs are issued and serve, along with transaction fees, to reward miners for their work.
This reward is recalculated at every block so that it gradually decreases over time. It also depends on the size of the mined block according to the dynamic block size system implemented in Monero.
Monero team and partners
The Monero network is the result of a community fork in which no one person has been given credit for the project.
However, here are the members of the development team, most of whom are anonymous:
- Riccardo Spagni, nicknamed “fluffypony” ;
- “tacotime”, who is the co-founder of the Decred project;
- « NoodleDoodle » ;
- “smooth”, which also develops the AEON fork;
- « othe » ;
- David Latapie, since deceased;
- « eizh ».
The last two members were replaced in 2015 by:
- Franciso Cabañas, nicknamed “ArticMine”;
- « luigi1111 ».
In July 2021, Riccardo Spagni was the subject of an arrest warrant and was arrested at the Nashville airport. His arrest had nothing to do with Monero: the developer was accused of fraud amounting to nearly 100,000 euros, and was alleged to have falsified invoices while working for the Cap Cookies company in South Africa.
Regarding the financial management of the project, the Monero network has no cash flow to finance its development: no pre-allocation of tokens (Ripple), no ICO (Ethereum), no detour of money creation (Dash). In Monero, developers and security audits are paid through a participatory funding called Community Crowdfunding System (CCS).
Regarding its partnerships, given its anonymous nature, few companies wish to collaborate with the Monero network. The regulatory institutions being against the deployment and use of network with untraceable transactions, companies refuse to be assimilated to a blockchain that could tarnish their image.
Despite this, we can note a few collaborations that have taken place in recent years. In early 2019, the game Fortnite allowed purchases to be made by paying in XMR through the Swiss platform GloBee. The following year, cell phone manufacturer HTC was considering integrating XMR mining into its Exodus 1S smartphone.
The evolution of Monero
Monero is not a fixed protocol. It is regularly improved to accomplish its core mission: to be an anonymous and censorship-resistant cryptocurrency.
In terms of its confidentiality, the Monero blockchain has improved over time with the implementation of RingCTs (2017), bulletproofs (2018), as well as the regular enlargement of the size of circle signatures.
In addition, the Dandelion++ protocol has also been added to the software to prevent the person issuing a transaction from being identified by their IP address.
Subsequently, in October 2020, the circle signing scheme changed from the Concise Linkable Spontaneous Anonymous Group (CSLAG) model to the Concise Linkable Spontaneous Anonymous Group (MLSAG). This evolution allowed for the improvement of performance related to block verification.
Figure 3: Representation of a cryptocurrency exchange without and with Monero network technologies
To continue its path against censorship, Monero has been opposed to specialized integrated circuits (ASICs) since its inception. The original hash function was CryptoNight, a memory-intensive hash function that was supposed to prohibit the development of ASICs.
Nevertheless, this method was showing its limitations and was preempted by the new technology market: in March 2018, the company Bitmain unveiled an ASIC suitable for CryptoNight to the general public.
After this revelation, it was decided to slightly modify Monero’s Proof of Work algorithm with each upgrade in order to discourage the development of ASICs.
The CryptoNight algorithm thus gave way to CryptoNight V1 in April 2018, followed by CryptoNight V2 in October 2018 and CryptoNight-R V3 in March 2019. In November of the same year, the hash function was permanently replaced by RandomX.
In terms of scalability, Monero has a dynamic block size that allows the network to adjust to the increase in activity on the blockchain. However, it is calibrated to accompany a slow and progressive increase in transactions, penalizing miners who build blocks that are too big.
Here is a table summarizing the different upgrades of the Monero protocol:
| Version | Main features | Application date | Block height |
|---|---|---|---|
| v2 | Minimum circle size of 3 people; block time of 2 minutes | 23/03/2016 | 1009827 |
| v3 | Separation of the block reward into cuts | 22/09/2016 | 1141317 |
| v4 | Authorizes normal and RingCT transactions | 10/01/2017 | 1220516 |
| v5 | Adjustment of block size and algorithm fees | 14/04/2017 | 1288616 |
| v6 | Transactions in RingCT mandatory; minimum circle size of 5 persons | 16/09/2017 | 1400000 |
| v7 | CryptoNight V1; minimum circle size of 7 people | 06/04/2018 | 1546000 |
| v8 | Bulletproofs enabled; CryptoNight V2; circle size set to 11 | 18/10/2018 | 1685555 |
| v9 | Mandatory Bulletproofs | 19/10/2018 | 1686275 |
| v10 | Cryptonight-R (V3); new RingCT format | 09/03/2019 | 1788000 |
| v11 | Banning of the old RingCT format | 12/03/2019 | 1788720 |
| v12 | RandomX displaces Cryptonight-R (V3) | 30/11/2019 | 1978433 |
| v13 | New CLSAG transaction format | 17/10/2020 | 2210000 |
| v14 | Banning of the old MLSAG transaction format | 18/10/2020 | 2210720 |
| v15 | Circle size equal to 16 people; bulletproofs+; dynamic algorithm adjusted to the weight of the blocks | 13/08/2022 | 2688888 |
| v16 | Prohibition of the old transaction format (that of V14) | 14/08/2022 | 2689608 |
At the time of writing (February 2023), several projects are under development by Monero teams. We can mention Haveno (a future decentralized cryptocurrency exchange on the Tor web browser and the Monero network), Seraphis and Jamtis (two technologies to improve privacy on the Monero blockchain), or a second layer solution whose development is still to come.
How to buy Monero (XMR)?
Despite its anonymous nature and the regulators’ fear of Monero, it is possible to buy XMR on many platforms.
One of the most reliable of these is Binance, the market leader in terms of trading volumes. You will find more than 600 trading pairs on this exchange.
- Register with Binance;
- You will receive an email and will have to click on a link to verify your account;
- Deposit euros on the platform via credit card or bank transfer;
- Click on the Market menu and search for the pair EUR/XMR ;
- All you have to do is buy them for the amount you want;
- Congratulations 🎉 You are the lucky XMR token holder!
👉 Find our complete guide to buying Monero (XMR)
How to store Monero (XMR)?
Storing your cryptocurrencies is important to keep them safe. To protect your XMRs, you can go for a cold wallet: these “hardware wallet” allow you to take your funds out of the cryptocurrency exchanges safely through offline storage.
The most famous cold wallet to protect its XMRs is the Ledger Nano S Plus: from the French company Ledger, this product has sold several million copies worldwide.
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Our opinion on Monero and its token XMR
By focusing on user and transaction privacy, Monero swims against the ideals of pseudonymous transparency claimed by most other blockchains. Its various technologies make this network a pioneer in safeguarding the privacy of individuals.
Despite this, tools that allow for anonymity and untraceability of activities are highly prized by criminals to carry out their operations. For this reason, many governments are wary of, or even ban, crypto-currencies or applications that allow for a high degree of privacy, as was the case when South Korean exchange platforms delisted Monero.
Monero has proven its resilience through several up and down cycles: its engaged community, privacy and decentralized miners’ network allow it to be one of the top 30 most capitalized cryptocurrencies on the market (February 2023).
However, in order to push its data protection ideals on a larger scale, Monero needs to expand its services, starting with offering a scalability solution, or even a programming language that allows for the creation of fully anonymous decentralized finance (DeFi).