When Bitcoin (and blockchain technology) first emerged over a decade ago, it completely changed the financial landscape. There are many benefits to having a decentralized, transparent, and censorship-resistant ledger of value, but there are also some drawbacks, particularly the loss of anonymity and privacy. The date, time, and addresses associated with every Bitcoin transaction are permanently recorded on the blockchain for public inspection. Companies can even track the cryptocurrency and blacklist coins they believe are being used illegally. Because of this lack of anonymity, “privacy coins” have been developed. Monero is one of the most well-known of these coins, offering privacy in a variety of use cases.
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What is XMR (Monero)?
The peer-to-peer digital currency Monero (XMR) puts privacy first and is designed to be anonymous and untraceable. Because of the cryptocurrency’s fungibility, a transaction on the Monero blockchain cannot be linked to a specific user or individual. Each unit is the same and you can exchange XMR for any other currency. So while a Bitcoin purchased on Coinbase can be distinguished from a Bitcoin purchased on the dark web by analyzing the blockchain transactions, two different Monero coins have the same appearance and cannot be distinguished from each other.
Since they cannot track XMR payments or obtain user data, many financial regulators consider Monero a rather unpopular currency.
How does Monero work?
Monero relies on two key ideas — stealth addresses and ring signatures — to provide privacy and anonymity.
Using stealth addresses, a sender can create a unique public address for each transaction on behalf of the recipient. Like Bitcoin, the recipient can still accept all of their payments from a single public address. Each Monero user is assigned a private view key and a private spend key. They can verify every transaction associated with their account using the private view key, and can authorize payments with the private spend key, which functions similarly to the Bitcoin private key.
How to Use Monero
XMR’s primary use case is still anonymous transactions, but its growing supply makes it less suitable as an inflation hedge than other cryptocurrencies. It can be useful in a number of scenarios, such as when companies want to hide their suppliers, when people are fleeing government harassment, or when the average person simply wants to avoid scrutiny of their private transactions.
Monero Mining
Like Bitcoin and many other cryptocurrencies, the Monero network is built on a proof-of-work (PoW) consensus process that rewards miners for adding new blocks to the blockchain. Application-Specific Integrated Circuits (ASICs) are specialized mining devices that give corporations and wealthy individuals a significant advantage over other miners. The algorithm that runs this system is designed to withstand these devices.
ASIC mining facilities in China account for over 65% of the computing power for Bitcoin, indicating that they are at risk of network centralization. To maintain the decentralization of the network, Monero upgraded to the RandomX algorithm in 2019. This method is designed for both GPU and CPU miners, such as those using standalone graphics cards and laptops.
Frequently Asked Questions
What is Monero (XMR)?
Monero is a privacy-focused cryptocurrency designed to ensure secure, untraceable transactions. It operates as an open-source, decentralized network and was launched in April 2014 as a fork of Bytecoin. Its goal is to provide financial confidentiality and fungibility, making each coin indistinguishable from another.
How does Monero ensure privacy?
Monero uses advanced cryptographic techniques including ring signatures, stealth addresses, and RingCT (Ring Confidential Transactions). These tools hide the sender’s address, recipient’s address, and transaction amount, making it difficult to trace transactions on the blockchain.
What is XMR used for?
XMR is the native token of the Monero network and is primarily used for private and untraceable transactions. Because of its anonymity features, it is sometimes favored in cases where users prioritize privacy over transparency, including both legal and illicit use cases.
