Monero (XMR) – the anonymous crypto­cur­rency

Nowadays, there are so many altcoins on the crypto­cur­rency market that it is easy to lose track of them. Although many still consider block­chain-based digital cur­ren­cies to be an in­com­pre­hens­ible gimmick, others have turned this business with spec­u­la­tion objects into a major source of income. There are other useful digital cur­ren­cies on the trading exchange besides the major flagship Bitcoin. One of them is Monero. This crypto­cur­rency, which is always near the top but never quite at the top, poses no threat to Bitcoin or Ethereum. It also does not provide the advantage of a high exchange rate. So what sets Monero coins apart from other crypto­cur­ren­cies?

Monero (traded under the symbol XMR) was created in 2014 through a fork in the crypto­cur­rency Bytecoin and is thus open source like its pre­de­cessor. Developed in 2012, Bytecoin was the first crypto­cur­rency to use Crypto­Note (a protocol designed to prevent sender iden­ti­fic­a­tion). As a result, Monero offers a higher degree of privacy than many other crypto­cur­ren­cies. Bitcoin, for example, is commonly described as an anonymous currency. However, this is not quite accurate. The basic principle of Bitcoin is that every transfer can be publicly viewed by anyone in the ledger. It is im­possible to delete trans­ac­tions and their details from the block­chain af­ter­wards.

Bitcoin’s trans­par­ency is intended to guarantee security. Nev­er­the­less, only the personal Bitcoin address is displayed initially. The true identity can only be de­term­ined if the person behind the address can be iden­ti­fied during a trans­ac­tion. However, it then becomes possible to determine which transfers the person was involved in. Monero takes a different approach to pro­tect­ing the privacy of its users.

Monero is also based on the idea of a block­chain. It uses a long hash chain which is regularly extended through trans­ac­tions. This requires complex cal­cu­la­tions which are then executed by miners. Monero is  trying to set itself apart from its major com­pet­it­ors in this area since this should make mining much more efficient. Ef­fi­ciency and privacy are their driving factors. Even the petition platform Change.org has its own Monero miner now. Users can freely download a screensaver which will mine XMR through their computers on behalf of the or­gan­isa­tion.

Monero is based on Crypto­Note, which is a privacy protocol for crypto­cur­ren­cies. To prevent the trans­ac­tion sender from being traceable, their identity must be hidden. This means con­ceal­ing not only the actual person behind the public key but also their entire presence within the block­chain. Crypto­Note groups the sender with several other senders. This makes it im­possible to tell who trans­ferred which amount. Other crypto­cur­ren­cies work with a pair of public and private keys.

En­cryp­tions cannot ever guarantee absolute security. There are already cryp­to­graph­ic re­search­ers in­vest­ig­at­ing how to trace Monero transfers back to their source. They have been suc­cess­ful to some extent. Whenever Monero tries to improve its en­cryp­tion, the other side tries to crack it again.

Crypto­Note and Monero use a ring signature. In the group of senders, each sender has both a public and private key. Only one member of the group actually endorses the trans­ac­tion, but this group member remains anonymous. All possible senders ref­er­enced in the trans­ac­tion are equally probable. The actual sender uses a unique key that is auto­mat­ic­ally generated by their Monero wallet. The other members of the group are auto­mat­ic­ally selected from the block­chain and used as cam­ou­flage. The issue is that since the trans­ac­tion is not publicly viewable, Monero coins could the­or­et­ic­ally be sent twice. No one would be able to prove that the money had already been trans­ferred.

This is why Monero has im­ple­men­ted key images. Key images are cryp­to­graph­ic keys which are unique for each trans­ac­tion. These keys cannot be faked and are not traceable back to the sender. Key images allow miners to verify that a trans­ac­tion has not already taken place since there would then be two identical key images in the block­chain.

Monero does not just ensure the privacy of the sender. The recipient can also remain anonymous by using stealth addresses. The sender does not transfer the Monero coins directly to the recipient. Instead, they send it into the block­chain without an actual recipient. For iden­ti­fic­a­tion purposes, a key is generated from the recipient’s two keys (i.e. the spend key and view key) as well as random data. The recipient, and only the recipient, can then search for the transfer using the view key in the block­chain and add it to their wallet.

Ad­di­tion­al pro­tec­tion is provided with regard to the value of a trans­ac­tion. Monero uses Ring Con­fid­en­tial Trans­ac­tions (or RingCT for short) for this purpose. In this case, only just enough in­form­a­tion about the transfer is disclosed for a miner to be able to confirm whether the sender has the correct value. This is based on the basic idea that whatever goes out must come back. Miners can use the sums to check whether everything is as it should be.

There is one final mechanism which is used to ensure a user’s anonymity as much as possible. It is called Kovri. It is not a part of Monero’s block­chain, but it is a program developed by the same people. Kovri ensures that IP addresses are not visible to third parties on the network. To do this, an anonymous layer for accessing the internet is used. This is based on the open source tech­no­logy I2P (Invisible Internet Project). The Monero network and its nodes function normally over the internet. Therefore, it is possible to access IP addresses at the nodes. Kovri relies on Garlic routing, which is a more secure version of the better-known Onion routing. Multiple transfers are encrypted together and then sent through tunnels.

Anyone who has mined Bitcoins before has also heard about mining farms which consume a lot of power and use spe­cial­ised hardware with very powerful GPUs (or ASICs). Cracking these math­em­at­ic­al puzzles for Bitcoin requires more and more effort. Monero, on the other hand, has taken a com­pletely different approach which allows average users to use a standard home PC to ef­fect­ively mine the crypto­cur­rency. Monero uses a proof-of-work algorithm to verify blocks. Unlike other crypto­cur­ren­cies which use SHA256 or scrypt, Monero uses Crypto­Night.

The Crypto­Night algorithm is known for relying on memory rather than computing power. Therefore, having a strong CPU is as effective as focusing on the computing power of the graphics card. The required hardware can be found in any of the latest home PCs. This means that average users can par­ti­cip­ate in mining. The mining is de­cent­ral­ised and is thus not con­trolled by the major players. However, its sim­pli­city also attracts criminals. It is possible to use a website’s JavaS­cript to hijack a website visitor’s computer and use its computing power to mine XMR without the user’s knowledge.

In addition to the PC, you need a software program. To choose the best software, you need to consider what hardware you are using and whether you want to use your computer’s CPU or its graphics card. There are programs which work for a variety of con­fig­ur­a­tions. It is also re­com­men­ded to join a mining pool. This is a com­bin­a­tion of multiple miners.

Mining is more effective when resources are pooled over a network so the profits are generally equally dis­trib­uted amongst all par­ti­cipants. Fur­ther­more, a mining program is usually directly linked to one's own wallet. Thus, profits can be directly trans­ferred to the right wallet.

The number of Bitcoins is finite. At some point all Bitcoins will be in cir­cu­la­tion. This is not the case with Monero. Monero plans to keep in­creas­ing the number of XMRs. However, the dif­fi­culty as­so­ci­ated with mining new coins con­tinu­ously increases while mining. Sim­ul­tan­eously, the reward for miners decreases until it reaches a limit of 0.6 XMR per block. The reward for mining halts at this value. Due to the in­creas­ing degree of dif­fi­culty, it is assumed that the creation of new coins will approach zero. It is believed that a balance is main­tained with the user gen­er­at­ing new coins and losing existing XMR creating a stable currency.

If you want to work with Monero, whether you want to use the crypto­cur­rency as a money sub­sti­tute or just as a spec­u­la­tion object, you need to know how to obtain the altcoins. Needless to say, you could just start mining, but you would have to be patient because your income would be steady but low. You can get Monero coins faster by buying them, in other words ex­chan­ging for them. You spend fiat money (e.g. pounds) to receive the crypto­cur­rency.

Before you can buy Monero, you will need a wallet to store the crypto coins. Every digital currency has a wallet. All your coins are stored on this private account. The wallet provides the address which you need to have XMR sent to you. You will also receive a private key (for purely online trans­ac­tions). This is a password for logging into your digital wallet. This key is extremely important. Unlike with other web services, you cannot request for the password to be resent if you forget it. If you lose your private key, you will no longer be able to access your Monero coins. The money will be gone forever.

A popular provider of Monero wallets is My Monero. This wallet operates entirely online. Creating an account takes just a few clicks, and you do not have to download anything. This option is strongly re­com­men­ded for beginners.

For another method, you can check the Monero website. Here you can download the program Monero GUI which can be used with various operating systems. You should also exercise caution with the software when it comes to security. Choose a highly secure password and try to prevent criminals from accessing your computer to the best of your ability. Since Monero coins for this wallet type are not stored in the cloud but are instead stored directly on your device, the security of your hardware is also important. If your laptop is stolen or your hard drive dies, your money will be lost.

If you choose Monero's official program, you will also become a full node. This means that the entire Monero block­chain is stored on your device. This requires a lot of storage space and bandwidth. That is why many users use a virtual private server (VPS). There are already hardware wallets for other crypto­cur­ren­cies. At the moment, there is no specific solution available for Monero, but the man­u­fac­turer Ledger is busy working on one. This type of wallet is a small device with a secure chip which you can connect to your PC or laptop via USB to transfer coins.

If you already have a digital wallet for XMR, you can start buying Monero. To do this, you must go to an exchange service. There are quite a few to choose from. Coin­Mar­ket­Cap, an analysis website for everything to do with crypto­cur­ren­cies, lists almost 100 different websites. On this list you can see an important piece of in­form­a­tion: which cur­ren­cies you can exchange for Monero. Whilst some platforms allow you to exchange euros or pounds, others require you to exchange Bitcoins. This means that you must first purchase Bitcoins, if you do not already have coins in this crypto­cur­rency, before you can purchase Monero coins.

To choose the best exchange service for your situation, you need to consider various factors: Which crypto­cur­ren­cies and fiat cur­ren­cies can be exchanged? How secure is the platform? The country in which the company is located may also be a factor. And finally, how high are the fees? Most mar­ket­places keep a per­cent­age of the trans­ac­tion to cover their own costs.

If you would like to exchange pounds directly for XMR, there you can use mar­ket­places like the well-known Kraken. This website allows you to work with Monero along with the other major crypto­cur­ren­cies: Bitcoin and Bitcoin Cash, Ethereum and Ethereum Classic, Litecoin, Dash, EOS and even Dogecoin. To use it, you must first create an account on the platform. The second step involves a bit more effort as Kraken requires veri­fic­a­tion before you can start ex­chan­ging cur­ren­cies. This is to guarantee the security of everyone involved.

There are several veri­fic­a­tion tiers. The first tier defines the limits of what you can do. To purchase Monero, you will need at least Tier 2 veri­fic­a­tion and to provide your name, date of birth, phone number and address. The veri­fic­a­tion process may take several days. You can then transfer pounds to your Kraken account via an in­ter­na­tion­al SWIFT wire or a SEPA transfer.  

You can then use this money to buy Monero. You will then have Monero coins in your exchange account. From there you can and should transfer the coins to your wallet. To do this, enter the address of your digital wallet on the exchange platform and initiate a payout.