Bitcoin, the original cryptocurrency, was created with the intention of maintaining privacy and anonymity in each transaction. However, in order to establish its own credibility, each and every transaction that a Bitcoin has ever been involved in is recorded in a public ledger.
The senders and receivers in each transaction are protected by pseudonyms, but ultimately still identifiable because of the ability to link network activity with individual Bitcoin addresses.
Blockchain users desired a cryptocurrency that had the same levels of privacy and anonymity as fiat cash. This presented quite a challenge to developers, and as a result, several methods of transacting anonymously were created. The first major cryptocurrency to achieve more anonymity than Bitcoin and operate on a larger scale was Dash, created in 2006.
Anonymity of Dash vs. Monero
Dash uses an early method of maintaining anonymity known as coin-mixing, based on CoinJoin (originally proposed by Gregory Maxwell). Although this method, termed PrivateSend, was an improvement in privacy, there were still vulnerabilities that left users open to possible disclosure of their private activities.
Enter Monero. Monero was developed on CryptoNote technology, which utilizes ring signatures and stealth addresses to make transactions between users untraceable. Monero is so decentralized that no user has to trust any other user in the network. Additionally, Monero was designed with a “Proof of Work” algorithm that makes mining possible on regular computers, and more difficult for individual users to hoard mining power. Monero’s developers publish meeting logs for all users to see, and major decisions are open to public discussion by users.
History of Monero
Before Monero was Monero, it was BitMonero–though the transition from one name to the next took just five days. Launched in April of 2014, it was created as an evolution, or “fork”, of Bytecoin. Bytecoin was developed with the intention to create a better anonymous cryptocurrency. It came eight years after the development of Dash in 2006, a cryptocurrency also created with the intention of being more anonymous than Bitcoin. Bytecoin was the first cryptocurrency based on CryptoNote technology.
In addition to general cleaning-up and replacement of sub-par code found in Bytecoin, the two main differences between Monero and Bytecoin were in emission speed (decelerated by 50%) and target block time (decreased from 120 to 60 seconds). Bytecoin also has a rather storied past–associations with the deep web and tales of market manipulation by the coin’s creators can be found in various places around the web, but these chapters are missing from Bytecoin’s official history. Monero was created as a cryptocurrency that would expand and develop on the CryptoNote base, and be a more reliable and secure coin than its predecessor.
Monero now stands as a shining example of an open-source, privacy prioritizing blockchain that is devoted to the protection of each and every one of its users. According to Monero’s website, “Monero needs to be able to protect users in a court of law and, in extreme cases, from the death penalty. This level of privacy must be completely accessible to all users, whether they are technologically competent or have no idea how Monero works.”
Of course, the level of privacy provided by Monero has caused the coin to have some association with illegal activities. However, the same was said of Bitcoin at the time of its origin. As it gains popularity, Monero will undoubtedly shift towards a more mainstream base.
As far as monetary value, Monero began a meteoric rise in 2016. Valued at just $0.44 at the beginning of the year, it had risen to $10.38 by the end of the year. As these words are being written, it is worth $ 45.3378499.
How Monero Works
When you create an account with Monero, you’ll be assigned two unique “keys” along with a public address. The “spend” key is what you will need to use to send Monero. The “view” key’s function is to view payments that are coming into your account.
Giving the “view” key away allows others to see your Monero balance, which may be useful for accounting or auditing purposes. However, there is currently no way to track outgoing transactions, which may make determining the balance in the account difficult without having full access.
CryptoNote, the technology that Monero is built on, consists of two smaller methods: ring signatures and stealth addresses. Stealth addresses are one-time-use addresses that are created at random for each transaction; they cannot be traced back to the sender or the receiver. Monero’s system allows for the recipient to provide senders with only one address while receiving all incoming coins through separate addresses.
Here’s how it works: each time a transaction is made, the sender creates a new address for the receiver, which is based on the receiver’s public key. The newly-formed address will have a private key that is created from the receiver’s private keys. Each transaction is then time-stamped using a ring-signature, which is a signature that uses the receiver’s private key along with public keys extracted from the block chain.
There is no way to discern which key belongs to the receiver. Users can choose the about of “mix-ins”, or public keys, that they would like to be included in their transactions (the more mix-ins, the less traceable the transaction is). However, some reports show that most users opt for the minimum, making their transactions more vulnerable.
Let’s explore this with a metaphor. You have five envelopes on a table, and one of them contains $500. The rest of them are empty. In order to move the $500 from one envelope to another, you need to open the correct envelope. If you walked up to only one envelope, anyone would be able to tell that the envelope you walked up to was the source of the money. So, you walk up to all five envelopes and open each of them. No one can tell which envelope the money came from, and no one can tell where the money went (except for you, and the person who is receiving the envelope with the money in it).
Like BitCoin, CryptoNote uses a public ledger. However, because of the use of stealth-addresses, transactions in CryptoNote cannot be traced through the blockchain to their origins or final destinations, though the approximate amount of Monero in any given transaction may be discoverable. Only the sender and receiver have access to all of the data involved in their transaction, and anyone who has access to the transaction’s “secret keys”.
Comparison With Other Anonymous Blockchain Methods
The original cryptocurrency to truly prioritize privacy, Dash, uses PrivateSend (formerly known as Darksend), a method that mixes coins to keep the transaction process anonymous. Here’s how it works: when you want to make a transaction, PrivateSend finds other users who also want to make a transaction, and the transactions are made together. This happens at both the sending and receiving ends. At least three users are needed for this process.
Similar to Bitcoin, Dash uses a public ledger. The coin-mixing method that PrivateSend uses ensures that users can audit transactions without compromising the identities of any of the users involved in a particular exchange.
Another major player in the anonymous cryptocurrency ring is Zcash, founded in 2016. Zcash’s anonymity features include the use of a so-called “shielded address” and verification through zk-SNARKS, a platform that uses zero-knowledge proofs. What is a zero-knowledge proof? Essentially, zk-SNARKS (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge) allows the verifying party to check that a statement is true, without revealing what the statement itself is (for example, proving the existence of a number without providing the value of the number itself).
Monero is arguably the best out of the three, although there are many varying opinions based on personal preference and the context of individual transactions. Monero’s technology is more secure and private than Dash, and it is a bit more established than Zcash. Additionally, the option to choose the amount of “mix-ins” may make users feel more in-control of their transactions.
The MyMonero wallet is a third-party, desktop-only application that has run for the last two years with no significant issues. The mobile MyMonero wallet is reportedly on its way. The wallet does not store the user’s private key, which makes it less vulnerable to attack, although it is not as safe as a cold wallet.
Monero also has a GUI (graphic user interface) wallet in its second beta version, available on github. It is a “full node” wallet. This means that it will provide its user with heightened security, though the user must download the complete blockchain and be an active part of the network. Like the MyMonero wallet, this wallet also does not store its user’s private keys, and utilizes a mnemonic seed as backup.
Future of Monero
A hard fork will be instituted in Monero in September of 2017, although Monero’s relative stability in the market in comparison with other cryptocurrencies in the last several months suggest that the coin has gained some level of maturity and that the fork is a non-issue.
Monero is currently the 9th most-valued cryptocurrency in the world, and if the mountainous rises in Monero’s value are any indication of its future path, it is almost certain that it will be (and perhaps already is being) adopted into the mainstream world of crypto trading. It may be the most effective currency for providing users with nearly iron-clad privacy, should they desire to have it.
Although Monero’s level of privacy may still have some associations with the deep web, the changing global political climate and the trend of “privacy-as-commodity” could make Monero more attractive to users who are looking for a secure way to store their money.