Topics Altcoins
Bybit Learn
Bybit Learn
Intermediate
May 27, 2022

What Is Monero (XMR): Why It's the Most Popular Privacy Coin

As a medium of exchange, the primary benefits of cryptocurrency include decentralization and the promise of anonymity. Users hope to escape the prying eyes of state actors, hackers, giant corporations and others who may seek to gain from building a dossier of their financial activities.

But are cryptocurrencies really private? 

Contrary to the widely held belief of widespread anonymity with cryptocurrencies, the truth is that blockchain technology records and stores transactions permanently in an open, public ledger that anyone can access.

However, developers have come up with cryptocurrency projects that obscure user identity and transaction history. One of the most popular privacy-oriented cryptos in this space is Monero. In this article, we'll look at the Monero coin, which has become the gold standard for privacy in the crypto space.

What Is Monero? 

Monero (XMR) is an open-source, privacy-focused cryptocurrency built on a proof-of-work (PoW) blockchain. The Monero blockchain employs several techniques to obscure transaction details and encourage anonymity. 

A fork of Bytecoin, Monero first incarnated as Bitmonero in 2014. It was released by a Bitcointalk forum user who goes by the pseudonym thankful_for_today. Thankful_for_today presumably coded the new coin based on CryptoNote, a protocol described by Nicolas van Saberhagen in a white paper published in October 2013. The author highlighted the importance of privacy and anonymity for electronic cash, calling Bitcoin's traceability a "critical flaw."

Subsequently, disagreement over the future trajectory of the new coin led to community members forking it to create Monero.

Monero has the 3rd largest community of developers, just behind Ethereum and Bitcoin. One of the two publicly recognized developers is Riccardo Spagni, a South African developer who still works on the project. Many of the core development team have chosen to remain anonymous.

Over the years, the team has added more privacy features to promote an advanced level of digital anonymity for transaction details and user identity.

The project, and its native XMR coin, has rapidly gained popularity with crypto enthusiasts and privacy advocates. Monero is currently the largest privacy-oriented crypto by market capitalization.

Milestones

Spike in the Number of Yearly Transactions

Monero recorded a healthy increase in its number of daily transactions. In April 2020, Monero recorded 10,000 transactions per day. A year later, it was averaging 23,000 transactions daily. From April 2020 to April 2021, 5,868,096 transactions were performed.

From 2021 to 2022, 9,087,482 transactions were completed with Monero crypto, and its on-chain usage increased by 154% in just a year.

Merchant Acceptance

Merchants appreciate and value the financial privacy enjoyed when facilitating payments with Monero. Since people can use the crypto coin for payments and shopping, Monero’s adoption has increased as a payment tender.

Monero is currently accepted as a payment method by 278 companies worldwide. Some of the companies include:

  • Playhub Casino

  • ABACO Hosting

  • Chambery Inn

  • AD RIGA

  • Level On Demand

  • Nord VPN

  • Reagent Tests UK

  • WikiLeaks Shop

  • Bitpanda

  • I49 Seed Bank

These are only a handful of merchants that accept Monero to facilitate payments. Here is a complete list of places you can spend Monero.

Project Coral Reef

Project Coral Reef is an initiative created by Monero to partner with top musicians in the mainstream market. People can spend Monero crypto at stores belonging to Mariah Carey, Weezer, Dolly Parton, and the Backstreet Boys. Project Coral Reef offers you jaw-dropping discounts to buy music and merchandise from your favorite artists, partnered with Monero. This development has played a huge part in Monero’s popularity among privacy coins.

How Does Monero Work?

While other privacy coins allow users to choose privacy features, Monero takes privacy to another level with advanced privacy protection features that are hard-baked intothe protocol.

The core mechanism behind Monero transactions is called a ring signature, which is a digital signature that can be performed by a group or users who have keys. However, for security, it’s not possible to determine which user’s keys were used to produce the signature. This structure uses stealth addresses, so that transactions in Monero can’t be traced or linked to either the sender or receiver.

The primary features include:

  • Complete privacy through ring signatures, ring confidential transactions and stealth addresses. 

  • Security 

  • Decentralization

The main difference from other privacy coins comes from its implementation. Because Monero uses CryptoNote, an application layer protocol, it can obscure transactions at the protocol level while still allowing third-party validation. 

Ring Confidential Transactions (Ring CTs)

Ring confidential transactions hide a sender's transaction information, only allowing the recipient to decode and see the actual amount. Ring CTs consists of two technologies, Multilayered Linkable Spontaneous Anonymous Group (MLSAG) ring signature and Confidential Transactions.

MLSAG effectively conceals the source, amount and destination of transactions. Confidential Transactions use the Pedersen Commitment, a cryptographic algorithm, to hide transaction amounts. 

The Pedersen Commitment ensures that transaction values are encrypted and hidden from everyone except the beneficiary of the transaction. Users can still validate transactions on the blockchain. The sender reveals just enough information for the miner to confirm a transaction, without the details being publicly disclosed.

In October 2020, Monero adopted Concise Linkable Spontaneous Anonymous Group (CLSAGs) signatures, a more efficient variant of the ring signature technology, to replace MLSAG. CLSAG is smaller, and is said to be up to 10% to 15% faster to verify.

Stealth Addresses

Stealth Addresses are a critical part of Monero's privacy arsenal. They allow senders to create one-time public keys or addresses for each transaction. The sender generates a new address on behalf of the recipient to send XMR tokens with additional data. The address owner then uses these bits of data to create private keys that will unlock the funds in the address.

Transactions cannot be linked to wallets, since each sender generates new stealth addresses. The parties to the transactions are the only ones who know the stealth address that corresponds to the exact Monero address.

Bulletproofs

RingCT, as earlier discussed, was introduced to conceal transaction amounts. It achieves this by using a ring signature and decoy coins. While effective, this system uses up a significant amount of transaction data due to the decoys.

Monero introduced the Bulletproofs protocol in 2018 to cut down on the transaction data size, speed up confidential transactions and enhance scalability. Bulletproofs do not directly affect anonymity. Instead, they ensure that other privacy features work optimally. In addition to making Monero transactions faster, BulletProofs also lower transaction fees on the blockchain.

Dandelion++

Dandelion++ is a privacy feature that hides the IP address of Monero nodes (networked computers that validate transactions on the Monero blockchain). The idea is to eliminate the risk of using such pointing information to unmask transactions. 

Essentially, it's easy for internet service providers (ISPs) to use IP addresses to trace a transaction and identify the involved parties — which is the last thing you'd want if you were operating a node that helps maintain a privacy-focused network. 

Implemented on the Monero chain in 2020, Dandelion++ was initially created for Bitcoin. It works by using proxy nodes to broadcast and distribute “fluff” information to confuse bad actors seeking to track transactions.

Tor and I2P Support

For even more security and privacy, Monero works well with Tor and l2P addresses. Tor (short for The Onion Router) and i2P (Invisible Internet Project) are internet protocols that create a safe path for users to communicate securely and anonymously. However, they approach this objective in different ways. While Tor makes a secure connection to the internet, l2p runs on its own internet and exclusively secures the user’s internal link.Monero is the only privacy-oriented coin that does a thorough job of concealing the identity of the sender, receiver and amount. Monero's superiority over other privacy coins is evidenced by the sheer volume of the private transactions on it, compared to other popular privacy coins such as Zcash and Dash.

Can Monero Be Traced?

Despite its slew of high-end privacy features, recent developments raise concerns over the traceability of transactions on Monero.CipherTrace, a blockchain analytical company, boasts a tool that can trace Monero transactions. According to company representatives, the tool allows users to track stolen Monero or follow a trail of illicit transactions and alert exchanges when someone tries to send coins from illegal sources.

However, the Monero community has been skeptical. Crypto compliance professional Justin Ehrenhofer has said that it is "extremely unlikely that Ciphertrace can trace Monero."

XMR Tokenomics 

The Monero price as of May 23, 2022 is $185.51. XMR has a live market capitalization of $3,362,453,460 and a circulating supply of 18,125,109 XMR coins.

The initial total supply of XMR was capped at 18,300,000 XMR. However, once this cap is reached, it will trigger the emission of XMR at the rate of 0.3XMR per minute. The idea behind the proposed "tail emission" is to incentivize miners to continue to validate transactions on the Monero blockchain.

Is XMR a Good Investment?

Since launching in 2014, Monero (XMR) has performed relatively well in the bumpy crypto space. Technically, Monero is a brilliant cryptocurrency. It features reliable and advanced privacy technology to keep transactions from prying eyes.

With a growing demand for privacy, these features have the potential to endear Monero to an increasing number of crypto users. At the same time, these privacy features attract regulatory attention, with some exchanges refusing to list Monero and some countries banning it outright.

On the flipside, Monero developers are constantly upgrading the protocol and improving its performance. A major update is slated for July 2022, to include increasing ring size, upgrading the Bulletproof algorithm to make transactions even faster, and viewing tags to reduce wallet sync times.

These changes and improvements will potentially increase the usability of Monero, overcome the regulatory headwinds, and keep it one of the leading privacy coins to watch.

XMR Price Prediction

Based on the Monero coin's strong fundamentals and previous performance, crypto analysts are generally optimistic about the price of XMR. With its high-level privacy features and a steadily growing market capitalization, XMR has the potential to be a top-traded cryptocurrency.

WalletInvestor predicts an XMR price of $290.55 within a year — and that it will surpass the $300 mark in December 2023. They see the coin hitting a price of $592.20 in five years.

Analysts at TradingBeasts are a bit more cautious. They predict an average value of $195.11 in June 2022, hitting $192.78 in December, and expect XMR to witness a downtrend up to March 2024, with the price dropping to $146.99 before swinging up and hitting $203.73 in December of that year. By June 2025, they expect the coin to reach $238.59 

DigitalCoinPrice expects XMR to reach $304.97 in June 2022. Subsequently, they forecast average values of $321.63 by 2023, $323.73 by 2024, $412.74 by 2025, and a drop to $369.46 by 2026. Ultimately, they predict an XMR price of $983.73 by 2030

How to Invest in XMR

If you want to trade XMR USDT perpetual contracts, Bybit has one of the most user-friendly platforms. Here’s a step-by-step process on how to trade XMR/USDT perpetual contracts on Bybit.

Step 1: Click here to visit Bybit's XMR USDT perpetual contract trading page.

Step 2: Find the order placement zone on the right side of the trading page to open a position.

Step 3: Depending on your preferred order type, you can set the leverage, order price and contract quantity. You can also set additional functions, such as post-only and-in-force strategies.

Step 4: To open a position, choose Open Long or Open Short, and an order confirmation window will pop up. Click on Confirm after cross-checking your order details.

The Bottom Line

Monero (XMR) has maintained its position as the leading privacy coin in the crypto industry. Monero is built on its own blockchain and features several privacy technologies, including Stealth Addresses, RingCT, the Bulletproofs protocol, and Dandelion++. These systems do an effective job of protecting users’ identities and eliminating traceability. While these features can attract regulatory attention, they are still quite popular among privacy advocates.