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However, where does your knowledge stand on altcoins? Have you heard about Monero, or its abbreviation XMR, an open-source decentralized cryptocurrency that prides on being completely anonymous? That’s right, this coin promises to hide the identity of the sender and receiver as well as the amount sent.
If this was enough to make you eager to find out more, look no further! In our detailed guide on Monero and its appealing features, you’ll find an answer to all your questions and more.
What is Monero
Even though privacy was one of the main tenets behind Bitcoin’s ideology, the cryptocurrency and its payment system have so far only offered quasi-anonymity or pseudonymity. When you make a Bitcoin transaction, you sign it with your public key, i.e. an encrypted address that plays the role of a pseudonym.
This makes Bitcoin’s transactions traceable since all these transactions are forever stored on the blockchain as public knowledge. The blockchain keeps a record of all past and present owners of a given BTC coin which makes the coins in a way “stained”, especially if they have been used for illegal goods in the past.
This is why a group of developers designed a protocol that would address this issue and create private cryptocurrencies. The white paper for this protocol called CryptoNote was published in 2013. Bytecoin was the first private cryptocurrency to implement this protocol.
However, there were certain issues with this coin. As it turned out, 80% of the total coin supply was pre-mined before Bytecoin’s launch. In 2014, a group of seven developers performed a hard fork on Bytecoin and created Monero, a word that means coin in Esperanto.
Out of the seven developers involved in Monero’s inception, only two decided to reveal their identities – the main developer, Riccardo Spagni, and David Latapie. Monero was designed to follow and improve the CryptoNote protocol and offer anonymity through the use of one-time addresses and ring signatures.
How Does Monero Work?
So, how does Monero obfuscate the sender’s address?
Whenever a user makes a transaction, the blockchain signs it with a digital signature. Monero’s blockchain is programmed to sign the transactions by fusing a couple of past signatures that belong to various different users or “no-senders”.
These kinds of signatures are called ring signatures and their role is to act as a decoy and make it impossible to track back the transaction to its real sender. It’s like signing a cheque from a joint bank account, only the real sender’s identity remains anonymous.
To avoid double spending of any given ring signature output, a key image is attached to every single one of them. There’s only one key image per blockchain output, and miners can easily check whether an output has been spent twice or not.
Next, to obfuscate the amount of XMR sent in the transaction, the system uses ring confidential transactions or RingCT. In the past, Monero used to split the amount of XMR into denominations, i.e. a couple of separate rings that together make up the whole amount of XMR. For example, 15.5 XRP would be split into 10, 5, and 0.5.
However, third-parties were still able to see the separate rings which meant less privacy for senders and receivers. That’s when Monero introduced RingCTs to conceal the amount by broadcasting what seems like random numbers that miners are still able to verify.
If you’re interested in the cryptographic proof behind RingCTs, you can find more details on Monero’s YouTube channel.
Finally, Monero uses stealth addresses to obfuscate the receiver’s address. When you want to send XMR to someone, you enter their public address. On Monero, every public address starts with a ‘4’ and has 95 characters.
Now, instead of sending the funds to the receiver’s address, Monero’s blockchain sends it to a substitute stealth address, so that no third-party can make the connection between that address and the real one.
If you’re the receiver, you’ll be notified that the funds have been transferred to a one-time stealth address. Then, your private key will give you access to that balance and you’ll be able to spend the funds you’ve received without worrying that an outsider will connect that address with you.
How Is XMR Mined?
Unlike Bitcoin, the XMR token isn’t hard-capped and it’s ASIC resistant. This means that it doesn’t require powerful and expensive mining hardware. Instead, you can just as easily mine XMR using your personal computer.
Monero’s blockchain uses proof of work consensus mechanism that’s based on a different hashing algorithm from Bitcoin’s SHA-256 called CryptoNight that was proposed for the first time in the CryptoNote white paper.
This algorithm requires access to memory, i.e. it’s memory-hard. Each time the memory is assessed, CryptoNight takes up 2 MB of memory.
Moreover, CryptoNight depends on the blockchain’s latency, i.e. the time it takes to complete a calculation and receive the outcome. Every time a miner proposes a solution, his/her solution is dependent on all previously proposed ones.
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