What is Monero?
Abra acts like a Monero wallet. Monero is one of a handful of cryptos focused on privacy. The privacy characteristics are important for security and freedom, but since Monero is untraceable it also means that the currency is more fungible than some other cryptocurrencies. Monero’s privacy characteristics make it fungible, and it’s untraceable, with sending and receiving addresses and amounts unreadable by default.
Besides privacy, Monero also has other features that are innovative for the crypto space. One interesting design is dynamic scalability or the ability to change the block size as necessary to improve the network. The goal is for Monero wallets to hold Monero as electronic cash that allows fast, inexpensive transactions anywhere in the world.
Monero is also supported by a grassroots community and has seen its value rise steadily since it was launched in 2014.
Why is Monero (XMR) important?
Privacy coins provide benefits and peace of mind for ordinary, law-abiding citizens that is simply lacking with other more publicly traceable cryptocurrencies. Not to mention more traditional transactions. In recent years, banks, large corporations, and even governments themselves have experienced hacks and major data breaches.
While a few other cryptocurrencies such as dash and Zcash come close, with options or privacy or features known as “selective transparency,” Monero is inherently untraceable. With Dash, for example, the receiver can see some level of detail on who has sent them the payment. With Monero, the receiver has no access to or record of who sent them the transaction, only that they have received it.
Monero is also censorship-resistant, and truly decentralized. What this means is that if a news organization like WikiLeaks is viewed as dangerous or controversial by governments or financial institutions, a company like MasterCard can step in to stop facilitating the transaction of funds on their behalf because they disagree ideologically or politically with how the funds will be spent.
With censorship-resistant cryptocurrency, no central organization controls or monitors the flow of currency, and Monero is specifically designed to resist any form of control like this, even if the pressure was put upon the community to try.
How does Monero (XMR) work?
Monero is grassroots: open source, decentralized, and freely accessible to all. It’s built on the contributions of the community, with a current team of 30 core developers, and 240 developers contributing to the project in total. The community features active forums and chat.
Like other cryptocurrencies, Monero uses a distributed peer-to-peer consensus network to record transactions on a blockchain. Participants who validate the transactions on the network work together to reach consensus and create the blockchain in an irreversible way once they have reached an agreement.
Unlike bitcoin, Monero is dynamically scalable, which means that the block size is able to be adjusted over the course of time by the miners working on it, letting the market decide how many transactions should be contained in one block. As block size debates and lagging network speeds have plagued the bitcoin community, it’s valuable to understand what a block is, and what block size means.
In short, a block is a batch of transactions posted to the public ledger. To work efficiently, certain block size was implemented early on in the design of bitcoin to prevent malicious miners from spamming the network with huge blocks. The block spamming issue is accounted for in Monero by implementing a penalty for big blocks by reducing the reward for miners creating them.
There’s a big debate in the bitcoin community as to whether to increase the block size in order reduce the possibility for delayed confirmations because smaller blocks are filling up too quickly to handle the level of traffic coming in. The key thing t is that with Monero being “dynamically scalable,” the market will be able to decide on things like block size, reducing the need for mass-consensus.
Monero is inherently private, with the Monero wallet addresses themselves (the things that identify sender and receiver) never actually appearing on the blockchain. One way that Monero accomplishes this is by using stealth addresses to hide the receiver, ring signatures to hide the sender’s information, while ring confidential transactions to hide transaction amounts.
In the case of stealth addresses, think of them as a “one-time public key” to unlock the transaction within a Monero wallet. It shows who can spend the funds later, and is only spendable by the proper recipient, but an outside observer cannot tell if funds are moving between people or be able to link the addresses together. The sender can verify if the payment was received by the receiver, but the payment cannot be traced back to the sender.
In the case of ring signatures, the source of the outputs is obfuscated, which means that the true sender is hidden. The transaction is signed by the true sender with the one-time public key and is concurrently signed by a bunch of decoy senders. Think of it as signing a check form a joint bank account with a number of your friends, where only one of the signers is the actual account holder, and the rest are decoys. If you take a look at the check, the true signer will be on there and the check will be valid if it needs to be verified with the right person, but to anyone who had intercepted the check, they wouldn’t be able to tell who the actual account holder is. Effectively, this hides the origin of the transaction. Ring confidential transactions are built out of this methodology, but function to hide the transaction amounts. Put together, Monero has built a solid way to hide the sender, the receiver, and the transaction amounts.