There are now hundreds of new cryptocurrencies all trying to reach the heights that Bitcoin and Ethereum have reached. One of these rising cryptocurrencies is Monero (XMR), which focusses on privacy as its key selling point. Launched in April 2014, the idea behind Monero was to create a digital currency that could provide complete anonymity for senders and receivers whilst still using the revolutionary Blockchain technology. The key behind the Blockchain is that all transactions are recorded on a public ledger allowing anyone to tap in and view all transactions that have ever taken place. Using the Blockchain technology enables a currency to be decentralised, removing the need for a central bank or government to have eyes the market. It is also impossible to manipulate or falsify transactions which is why the Blockchain technology has become so attractive to banks and organisations around the world, such as Goldman Sachs.
Monero still uses the Blockchain but implements three extra privacy technologies to keep all transactions anonymous: Ring Signatures, Stealth Addresses and RingCT. These technologies are quite complicated; below is a simplified breakdown of how they work.
Ring signatures – hiding where the money is coming from
Every transaction is put into a group with other transactions that all seem identical. To an outsider looking at the blockchain, it is impossible to tell which source of money is the real one.
Stealth Addresses – hiding who the money is being sent to:
For every transaction, the sender generates a one-time random address unique to the recipient.
Whilst anyone can view these addresses, there is no way to make a link between this address (know as the ‘public key’) and the recipient’s real address (their private key), thus preserving the anonymity of the recipient.
RingCT (Ring Confidential Transactions) – hiding the amount being transferred:
This is the most recent of Monero’s privacy features. It was implemented in January 2017 to update the previous method of hiding transaction amounts. By September 2017 it will be compulsory to use RingCT on all Monero transactions.
When a Monero transaction is made, the sender has to input their entire wallet for the transaction and then set two outputs, the first as the amount they want to send and then the rest of the balance back to themselves as ‘change’.
The transaction is verified by the fact that the sum of the inputs is equal to the sum of the outputs which proves that no new coins were created in the transaction.
However, the actual amounts are not shown. The sender cryptographically commits to sending a certain amount, this can only be understood by the computers verifying the transaction whilst keeping the amount hidden. There is also a range proof check built into this technology which prevents senders from committing to values less than zero.
The recent rise in Monero
One of the main reasons for this is that the world’s highest-volume cryptocurrency exchange, Bithumb, added Monero to its platform. This means that Monero is now being traded in the South Korean market which has been extremely lucrative for cryptocurrencies in the past (Ethereum, Litecoin and Ripple). This is mainly because the South Korean traders are particularly interested in cryptocurrencies which differ from the norm. Monero, having a unique technology and a dedicated team of developers has proven attractive to the South Korean traders and could help bring it up in the ranks of cryptocurrencies.
The Value of Privacy
So does Monero have a future? Some may argue that its main customers will be people engaged in illegal activities on the dark net. Famously, the dark net marketplace for illegal drugs, Silk Road only allowed users to use Bitcoin for transactions due to the anonymity. This has caused many to associate cryptocurrencies with illegal activities.
However, there is another side to the coin. If cryptocurrencies were to be widely adopted across economies, merchants would not want everyone knowing exactly how much they are selling and who they are selling to, which is information readily available on a normal Blockchain. Individuals will also not want everyone knowing how much they are spending and where they are spending their money. Everyone should be entitled to privacy of their transactions; this does not necessarily mean that they have something to hide. It can also act as a reassurance for merchants that they do not need to engage in researching where money has come from and how it was obtained as everything is private.
The Future of Monero
With technology advancing at rates nobody ever could have predicted, privacy has become a big concern. With Big Data helping companies for profiles of consumers, being able to remain anonymous will become harder in the future. Whilst some believe other cryptocurrencies such as Bitcoin are anonymous, research at Princeton University has shown how transactions can quite easily be tracked using cookies and by observing the Blockchain. As more people become aware of their lack of privacy online, Monero could become a very important cryptocurrency in the future.
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