Key Feature: Anonymity
Monero offers anonymity by default in contrast to the optional privacy-preserving functionalities of its peers. Through the use of ring signature cryptography and other features like stealth addresses, Monero aims to make transactions both private and anonymous, hence solving some of the issues of large PoW cryptocurrencies like Bitcoin, such as lack of fungibility and transaction traceability.
Monero traces its origins back to Bytecoin, the first implementation of CryptoNote, which was an application layer protocol aimed at solving various issues with Bitcoin such as traceability, mining centralization, and irregular coin emission. Bytecoin launched in March 2014; however, after a controversial 80% pre-mine, a Bitcointalk forum user known as thankful_for_today forked the codebase of Bytecoin into a new project named BitMonero, a compound of Bit (as in Bitcoin) and Monero (meaning "coin" in Esperanto).
The release of BitMonero was poorly received by the community that initially backed it, leading seven community members to fork BitMonero into a new project called Monero. This largely pseudonymous group, led by Fluffypony (Riccardo Spagni), ultimately became the first Monero Core team. Monero launched its project in April 2014 with no premine.
Monero's payment anonymity has garnered significant attention from a panoply of crypto-curious persons. Since its launch, Monero has become one of the world's most widely used darknet currencies due to its anonymity by default features.
In 2017 Monero further enhanced its privacy features by incorporating Ring CT signatures, a solution proposed by Bitcoin Core developer Greg Maxwell, that obscures transaction amounts for each entry in the ring signature, in addition to obscuring the transaction address. This provided near complete transaction anonymity in contrast to just sender anonymity as it was previously.
In October 2018, Monero implemented bulletproofs, a zero-knowledge proof technology that replaced the previous zero-knowledge range proofs that its confidential transactions relied on. Bulletproofs cut the size of its confidential transactions by at least 80 percent, significantly increasing transaction efficiency.
Monero undergoes scheduled hard forks every six months intended to allow Monero to evolve at a regular cadence, while still leaving users enough time to update before being forked away from the network. These hard forks tend to include everything from patches and bug fixes to hashing algorithm changes and functionality upgrades.
In December 2019, Fluffypony (Riccardo Spagni), Monero's lead maintainer stepped down from the project in an effort to further decentralize the project.
Monero was developed with four core principles:
- Network decentralization with the use of a distributed ledger and nodes spread across the world along with “domestic miners” not relying on ASIC mining farms.
- Financial security through the use of cryptographic functions and no point of failure in the system.
- Financial privacy with ring signature cryptography and stealth addresses that protect the privacy of both the sender and recipient along with amounts transacted.
- Fungibility i.e., one $XMR is always equal to one $XMR as the origin of each individual $XMR is supposedly untraceable.
Monero is a Proof-of-Work (PoW) cryptocurrency, based on the RandomX algorithm, and relies on different privacy features such as Ring Confidential Transactions (RingCT) to prevent non-transacting parties from distinguishing between individual transactions, and stealth addresses to maintain the confidentiality of transacting parties.
Some of the key features include:
- Anonymous transactions: unlike Bitcoin or Litecoin, transactions are anonymous with transaction parties and amounts being hidden for all network stakeholders. Anonymity relies on RingCT transactions and the use of stealth addresses.
Ring Confidential Transactions (RingCT)
Ring Confidential Transactions (RingCT) hide the amount of $XMR being sent in a unique transaction. Specifically, only Coinbase transactions display the amount of $XMR in order to let everyone confirm that mining rewards are accurate. Ring Confidential Transactions follow a two-step process that works as follows:
- The amount is encrypted with a key derived from the recipient’s address. This encrypted amount can only be decrypted by the recipient.
- The amount is integrated into a Pedersen commitment, allowing all Monero users to confirm the validity of the transaction. Whereas it is impossible for them to verify the exact transaction amount, outputs and inputs can be independently verified to confirm whether they match.
Stealth addresses can be interpreted as unique single-use addresses. One-time addresses are used by both the recipient and the sender. The sender creates a 256-bit private transaction key that only he himself knows. This number is multiplied by the recipient's public address. The output index is added to this value before it hashed through the Keccak-256 algorithm. Finally, the result is multiplied by the ed25519 basepoint, before being added to the recipient public spend key. The final result is the stealth address. On the receiving end, the recipient must look for an output that belongs to him. Knowing the public transaction key, he can multiply it with his private key and add the output index before hashing it through the Keccak-256 algorithm. Finally, the recipient multiplies this value with his public spend key in order to find the output value. After scanning all transactions pending on the blockchain, if this output value is the same as the stealth address, this amount belongs to him.
- Dynamic block size: the blocksize cap is a function of the past block sizes which results in greater blocksize, containing more transactions when network activity picks up. Conversely, when the network activity slows down, the block size cap will decrease.
Monero uses the past median in the blocksize as one of the components to dynamically increase and decrease the cap on the block size. Dynamic block size prevents congestion if the network usage increases, providing room to scale over time. However, some research companies (e.g., Noncesense Research) uncovered a potential vulnerability known as a “big-bag attack”. Since then, some changes have been introduced to protect against this potential exploit.
- ASIC resistance: Monero relies on GPU/CPU mining pools through regular network updates to provide greater decentralization at the mining level.
Initially, the ASIC-resistant feature of the network owed itself to a modified version of CryptoNight (a PoW algorithm) that was frequently adjusted to prevent ASIC mining. However, since December 2019, RandomX has replaced CryptoNight. Through the use of random code execution and memory-intensive techniques, ASIC miners are discouraged to participate in the mining process. In addition, GPUs have also been penalized since the network upgrade. Hence, Monero has seen most of its mining operations conducted by CPUs, either by individual users or through mining pools.
In 2014, Fluffypony (Riccardo Spagni) established the first Monero Core team, consisting of seven community members from the previous BitMonero project. In December 2019, Fluffypony (Riccardo Spagni), Monero's lead maintainer stepped down from the project.
Currently, Monero is community-oriented with more than 30 active core developers, supported by community developers along with a research lab (named Monero’s Research Lab).
Current known investors of Monero include Advance. Fund, Astronaut Capital, Asymmetry Asset Management, Block Ventures, Boost VC, CypherMines, Electric Capital, Galaxy Digital, LuneX Ventures, Myriad Capital Management, PECUNIO Cryptocurrency Fund, Parallax Digital, Solidum Capital, and The Hive Index.