Monero means ‘coin’ in Esperanto and is another relatively recently created cryptocurrency that was released in 2014. It was created by a group of seven developers, from which five developers choose to stay anonymous. Like Bitcoin, Monero also works on an open source platform. However, the underlying protocol of Monero is significantly different from Bitcoin’s underlying protocol. The underlying protocol is called Cryptonote. Cryptonote helps in keeping the blockchain related to Monero anonymous. Like many other cryptocurrencies though, Monero is also decentralized.
The primary aim behind Monero’s creation is to ensure the privacy and anonymity of users while keeping the system decentralised. The public ledger is not visible to everyone like it is in Bitcoin or some other Altcoins. Instead, the identity of the sender and the receiver is encrypted using special signatures called ‘ring signatures’. Ring signatures are formed from the private keys of a group of users and not of any one user, thus concealing the identity of the sender and the receiver. Because of this anonymity, the transactions become totally untraceable and no coin can be linked to any person who has transacted the coin previously.
Another fundamental but advantageous characteristic of Monero is its fungibility. Fungibility refers to an ability because of which, one unit of a cryptocurrency can be exchanged with another unit. For instance, if a Monero coin can be exchanged with any other Monero coin, it is said to be fungible. Bitcoin, for instance, is not highly fungible because every bitcoin cannot be exchanged with every other bitcoin. This is in turn because the transactions of bitcoin can be linked to the other sender through the public ledger which is available with everyone participating in a particular transaction. If any previous transaction associated with a particular bitcoin is not purely legal, then a new user may not want to buy or invest in that particular bitcoin.
With Monero, however, since the anonymity is guaranteed and a coin cannot be linked to a previous sender or receiver, fungibility does not pose any challenge because a Monero coin can be exchanged with any other Monero coin.
With regards to Monero’s block size, there is no limit on the size of a block as such. Monero’s block size adjusts dynamically with network requirements. However, if the block size exceeds a certain limit, there is a penalty imposed on the miners. Additionally, there are no ASICs as of now to mine Monero. Therefore, Monero works with GPUs and CPUs and can thus, be mined by anyone having these machines. This adaptability of Monero to work with consumer devices avoids deploying expensive and specialized equipment to mine it.
At the time of writing this article, the market cap of Monero stands slightly above 5.5 billion US dollars and it trades at a price of 360 US dollars. Although the value appreciation is quite significant in the past 3 years, there have also been reports of Monero being used for illegal activities on the dark web. Apart from being a cryptocurrency investment option, Monero has also become a preferred currency for cyber crimes because of the anonymity and untraceability that it offers.
Barring the negative limelight that Monero has gained recently, it seems an effective transaction system that protects user identity.