Monero: The Privacy Coin Explained

Most people look for privacy in their transactions alongside security and speed. While they usually get the last two, transaction privacy is not something everyone sees every day, at least not in the monetary systems we mostly use. Bank transactions can be easily traced; believe it or not, even cash can be traced if the need arises. 

Even though Privacy is a Human Right included in the UDHR Article 12, we still have a privacy crisis as big as the moon. This is where crypto and Defi come in. True, the blockchain technology powering crypto is more private and makes tracking harder, but it can still be tracked. This problem is what gave rise to the birth of what is called “Privacy coins.”

Privacy coins are designed from the get-go to be highly private, difficult to trace, and offer true anonymity to users. However, even privacy coins are more secure than others, and there are more than 63 different types, so why not use the best option–Monero? Let’s tell you more about it.

What is Monero?

Monero is best described as the leading privacy coin in the crypto space. It is designed with one major focus–to bring users as much anonymity as possible. Monero does its job so well, that there has even been academic research done on it. 

Monero fits in as a privacy-focused, censorship-resistant, and decentralized cryptocurrency. Built on an opaque network, it allows users to send transactions without revealing barely any detail. Information like the amount sent or the sender's address is obscured, giving users a truly secure and anonymous experience while allowing them to transact normally. The blockchain is also popular for its Monero cryptocurrency, marked by the ticker XMR.

Key Features of Monero

The crypto king of privacy, Monero is known for specific features that make its privacy-centric and security-heavy approach possible, such as:

Ring Signatures

The Ring Signature is a cryptographic anonymity technique that combines the transaction sender's digital signature with other users' signatures. 

Monero’s ring signature, by default, adds ten signatures to every group of transactions and mixes them before they even enter the blockchain.

Stealth Addresses

Crypto transactions are done through wallet addresses with identifiable markers, but Monero’s stealth address system works differently. For every transaction, the stealth address protocol creates many “one-time use only” addresses to hide the user’s original address.

After that, the user’s actual wallet can reference a Vie Key, which acts like a password to scan the blockchain and detect any transactions relevant to its existence.

RingCT

Ring Confidential Transactions are a privacy feature invented by the Monero development team. Introduced in 2017, they work by hiding the exact amount of XMR users exchanged in transactions even before they are made available to be viewed on the blockchain. Monero achieves this by creating multiple inputs and outputs for a single transaction.

These three main features create Monero’s nigh-impenetrable privacy, security, and decentralization system.

How Monero Works

Knowing what Monero is, you can probably already guess that making it work takes a lot, and you would be right.

Sending Monero

While Monero users have a dedicated public address when they set up their account, the system does not associate any of their funds with that address. To send Monero, the system creates a temporary brand new address for that single transaction, making it impossible to tell that you sent Monero to anyone. Only you can see the stealth address created for that transaction using the public view key generated for you.

Finding Your Own Monero

If no funds are associated with your actual address, how do you find your money? Monero’s system for this is a “private view key.” Users scan the Monero blockchain with their private view keys to check which transactions apply to them. This key is only known by the receiver and allows them to view only incoming transactions. However, the receiver can also share the secret key with someone else.

Mixing Transactions

Monero uses its Ring Signatures to mix transactions. Thus, when a user sends a transaction, the system randomly selects other users' funds to appear in the transaction, making Monero traceability to the original address extremely difficult and almost impossible.

Users can also increase the number of mixed transactions to obscure their transactions further. However, this incurs additional charges on the blockchain.

Hiding IP Addresses

Monero goes all out to ensure privacy and even obscures users’ IP addresses. The blockchain uses a feature called Dandelion++ to hide IP addresses from VPNs and Internet Service Providers. It’s another thick layer of extra Monero security on top of everything Monero already offers.

Monero Challenges

While Monero’s impressive and highly technical system may make it seem like everything is all figured out, that is not exactly the case. It has its challenges. 

Permissionless System

Monero’s permissionless system works well to its advantage by giving users all the privacy they want. That feature is one of the factors boosting Monero market trends. But at the same time, it also makes Monero the ideal blockchain for criminals to transact business. It’s called suffering from success.

Regulatory Scrutiny

Monero’s story of suffering from success continues. Since the system attracts criminals and criminal activity, it will also be a focal point for regulators and lawmakers. The crypto industry has already received a lot of regulatory scrutiny, but you best believe Monero will be getting some extra.

Increased Technicality

One would not be lying if one said that Monero’s entire system was hard to get. The way Monero works is very technical, making usage of Monero for beginners a bit tough, especially for users who just want to send and receive some money. 

Limited Adoption

This is another story of suffering from success. Monero’s complicated system makes it a not-so-commercial-friendly public blockchain, at least compared to others, especially if you consider Monero vs Bitcoin. This reduced Monero adoption is just shooting itself in the foot. 

Monero Controversies

Monero privacy features benefit many users, but while that may be the case, not everyone is in love with the idea of a multi-layered privacy network like Monero. 

The government, for one, is not too on board with Monero’s line of work. Reports have it that the IRS has already started million-dollar research to develop systems to break the privacy of these Privacy Networks like Monero, especially to identify the criminals investing in Monero, hiding in the shadows of privacy, safety, and security Monero offers. 

Even the Russian government is not a fan of Monero’s business. Reports also indicate that Russian regulators have launched a prototype blockchain tracking system that can break the layers of security systems like Monero used to provide privacy. This was in line with the Russian government’s initiative to fight drug trafficking and other illegal activities. 

While Monero might be facing certain challenges, mostly generated by its successful systems, it is undisputable that Monero’s system is brilliant and helpful. Users have found many Monero use cases despite heavy Monero regulation. 

There are many other Privacy coins, but Monero is definitely among the best with its incredibly detailed and multi-layered approach to providing security. The ideal Monero future outlook now would be to find a way to stay compliant with the law while also retaining its signature features.

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