Monero is another altcoin that has seemingly come out of nowhere and made massive gains this year - but what is so special about this particular crypto?
As a potential investor, it is important that you avoid the hype and look at the fundamentals of this digital currency. What you are going to discover as you dig deeper into XMR cryptocurrency is the most secure and anonymous cryptocurrency on the market.
What we will do do is explain the tech behind this impressive coin without any of the fluff.
Like other cryptos, Monero works on a distributed network that uses a blockchain to process and verify user transactions. These transactions are completed with digital tokens that represent value on the network. There are however key differences that make XMR currency different to the other offerings out there.
Let’s not waste any time and get straight into how this altcoin works.
While Monero may seem new to some people just entering the scene, it has actually been around since 2014. It’s origins lay with a fork from Bytecoin, which uses the CryptoNote algorithm rather than the Bitcoin source code. This fork occured due to disagreements in the direction of Bytecoin and its implementation.
A team of 240 developers, with a core team of 30 are the driving force behind this innovative crypto, which prioritizes anonymity above all else. Despite its Bytecoin and CryptoNote origins,the project now has a life of its own and the codebase has since changed considerably.
In order to understand why it stands out from the rest, let’s take a closer look at the main features of this crypto.
As mentioned already, this digital currency can deliver serious anonymity. Through some unique protocols which will be explained in detail below, this is a truly anonymous coin.
Other cryptocurrency, such as Bitcoin, are lauded as anonymous but are actually pseudonymous.
With enough computing power and investigative legwork it is possible to track Bitcoin transactions and identify the owners of individual accounts. Monero addresses this weakness, allowing for anonymous transactions and storage.
The large developer base and strong community involvement has been the key to Monero’s success. Without a company or central figure controlling the currency through premining or an ICO, any large controversies have been avoided.
This has led to a close knit community that works together for the betterment of the currency.
Now that you have an idea of where XMR currency came from, let’s dive right in and look at how it all works.
Even if you have experience with other cryptos (see the other ones we've reviewed here), you may still find Monero a little difficult to understand. That is because it incorporates some technologies and techniques that were developed specifically for this coin.
The large development team has worked hard to make XMR cryptocurrency the most anonymous coin and most technical observers agree that they have been successful. Here are the main technologies that are unique to Monero.
CryptoNight is a proof of work algorithm that favours CPU’s, which is very different to other popular algorithms which favour GPU or ASIC mining. A the core of this is the 2mb block size, which is perfect for the L2 cache on modern processors.
One of the interesting side benefits of this algorithm is how it discourages large miners from dominating the network.
This helps to maintain the community feel of the coin, whilst also lowering the chance of a 51% attack on the network.
You may not realize it, but any reusing of an address in Bitcoin is a massive privacy concern. Once an address you use has been identified, someone who wishes to can see your total balance and track money coming in and out.
There are even people now specializing in the tracking of Bitcoin transactions.
Monero solves this problem by implementing secure addresses. All sender and destination addresses are obscured within the public blockchain. Only the sender and receiver will ever see the full address, so you can keep a much tighter control on who has your information.
To understand ring signatures, it is important to know how Monero payments are processed. If you send a shop some of this crypto, it is actually broken into smaller chunks and routed in different directions before landing in their account.
Ring signatures make this process even more secure. With this process, each smaller piece of your payment joins a ‘stream’ of other transactions of the same amount. In practice, this means that it is impossible to figure out which address the payment that lands in the merchants account originated from. It makes tracing the origin of payments close to impossible.
Also an important factor to consider - let’s take a closer look at how you can store Monero.
If you have decided to get some Monero for yourself, the most important thing to consider is how you will store it.
First of all, you will need to download a wallet application. You can get started with MyMonero, which is recommended by the community. After installing the wallet, you will need to make your very own address for receiving your digital currency.
This is best done on a PC that is not connected to the internet at the time. Once you have recorded the address, the best policy is to erase any record of it that is not secured by you. That way, only you will be aware of your Monero account details.
Once this has been set up, you can fund your account. Using Bitcoin is the most common way, although it is possible to buy some with USD or other major currencies.
But what if you want to mine instead of using Bitcoin? Is mining this crypto still feasible?
Like almost every other crypto, mining is the ‘work’ that satisfies the proof of work algorithm and rewards you with new coins. Unlike other cryptos that have become too difficult for the average person to mine, Monero can still be mined at home with a CPU.
As we explained, the algorithm used for this digital cryptocurrency is designed to favour CPU mining. This encourages home mining and pool mining over commercial operations. Before you download a mining application and get started though, you should calculate your expected return.
Using a calculator such as this, you can figure out whether mining Monero will be worthwhile with your existing hardware.
Maybe mining isn’t for you.
Here’s how you can buy some Monero instead?
Buying this cryptocurrency is the easier option if you want a large position, or do not want a steep learning curve. Monero is widely traded, but it is not as easy to outright buy some.
The best exchanges for buying this digital currency with USD or other major currencies right now are Kraken, Bitfinex and Poloniex. You will need to provide ID, set up an account and wait a few days for your funds to be cleared on the platform.
Alternatively, you can trade Bitcoin for Monero using a swapping site like this. These sites require no sign up, so your anonymity can be maintained. If you do not have any Bitcoin already, you can purchase that on an exchange, then move it into Monero using the above method, making the funds anonymous in the process.
Before you dive in though, you should be aware of the latest developments with this cryptocurrency.
If you want to be successful buying, trading or mining Monero, then you need to keep up with the news and developments. With such a large development team, this coin can change fast. Let’s look at some of the more recent developments and discussions.
Recently, there have been a lot of questions raised about the ability of Monero to scale beyond its current number of transactions.
Some features of the currency, such as the payment splitting and ring signatures are very resource intensive. Many more blocks than necessary are generated, putting strain on the computing power of the network. This is further exacerbated by the focus on CPU mining.
The developers are currently working on optimizations and they are usually quick to push out good solutions. You can expect this issue to be meaningfully addressed in the near future.
One challenge this coin has is gaining wider acceptance on exchanges and on the wider internet. Although XMR coins have been used on the ‘dark web’, mainstream adoption has been slow.
Even though it has risen up the altcoin charts in value, the community has a lot of work to do in marketing the cryptocurrency and making it a more well known option. This does mean that with a bit of work the value of this coin could shoot right up.
So should you invest in Monero? Let’s find out.
Whether you should invest in this cryptocurrency is your decision, however there are some interesting indicators that say it could be a time to buy. We will explain them below and give you our verdict.
The value of Monero has fallen quite a bit from it's all time highs, which is a warning sign for some. These massive rises and falls are a feature of even the biggest cryptocurrencies so we don’t think this is the end for XMR.
In fact, it is most likely that this most recent dip actually represents a buying opportunity. Although nothing is guaranteed, there is a high chance that Monero will move upwards from its current price.
Whether it will reach or exceed previous highs remains to be seen.
Some people see the speed and transaction limitations of this crypto and have predicted that other coins will overtake it. Usually, it is predicted that an established cryptocurrency such as Bitcoin will incorporate the same anonymity features that make Monero popular.
However, the evidence suggests that getting new technology approved by a coins community is difficult and sometimes impossible. There have been many schisms in BTC over similar issues already. This makes it unlikely that a large competitor to Monero will emerge soon.
Now is a good time to think about investing in this crypto considering the low cost and potential upside. As always, do your own due diligence before investing.
The content of this post is for educational purposes only. Please do your own research and consult a financial professional before making any investment decisions.