DEFINITION of Monero
Monero is a digital currency that offers a high level of anonymity for users and their transactions. Like Bitcoin, Monero is a decentralized peer-to-peer cryptocurrency, but unlike Bitcoin, Monero is characterized as a private digital cash.
The plural of Monero is Moneroj.
BREAKING DOWN Monero
Monero was created as a grassroots movement with no pre-mine and no VC Funding, and launched in April 2014 as a fork of Bytecoin. A fork occurs when an original cryptocurrency is split into two to create another version, which is made possible due to the open source formats prevalent in most cryptocurrency designs. Most forks are formed to address flaws of the parent currency and to create better alternatives.
Monero’s popularity in the crypto world has been rising mostly due to its anonymization characteristic. All cryptocurrency users are given a public address or key which is unique to each user. With Bitcoin, the recipient of the coins has the coins transferred to his address which he has to divulge to the sender. The sender can see how much Bitcoins that the recipient has once he has knowledge of the fund recipient's public address. Through the Bitcoin blockchain, all coins transferred from the sender to recipient are recorded and made public.
Transacting with Monero however, does not give the sender a window view of the recipient’s holdings even though the sender knows the recipient’s public address. Monero transactions are unlinkable and untraceable. Coins sent to a recipient are rerouted through an address that is randomly created to be used specifically for that transaction. The Monero ledger, unlike blockchain, doesn’t record the actual stealth addresses of the sender and recipient, and the one-time created address that is recorded is not linked to the actual address of either party. Therefore, anyone examining Monero’s opaque ledger wouldn’t be able to track down the addresses and individuals involved in any past or present transaction.
Monero also has a feature called the ring signature, which obfuscates the sources of funds so that they are virtually untraceable to the parties involved in the transfer. The ring signature ensures that every Monero transaction between two parties is grouped with other multiple transactions that occur among other unrelated parties. This means that the recipient’s funds is mixed in with other Monero users’ transactions, and moved randomly across the list of transactions, making it exponentially difficult to be traced back to the source or recipient. The ring signature also decrypts the actual amount involved in any transaction. Note that the ring signature is different from the mixing and coinjoin anonymization technique adopted by other cryptocurrencies vying for anonymity.
Finally, Monero has a distinct way of handling transactions by splitting the amount transferred into multiple amounts, and treating each splitted amount as a separate transaction. For example a user who transfers 200 XMR (Monero’s currency unit) to a buyer would have the amount split into say, 83 XMR, 69 XMR, and 48 XMR, totalling 200 XMR. Each of these are treated separately and a unique one-time address is created for each of the split figures. With the ring signature, each of these splitted amounts are mixed in with other transactions which of course, have also been split, making it extremely difficult to identify the exact mix of 200 XMR that belongs to the recipient.
Monero allows for transparency based on the users’ discretion. All users have a view key which can be used to access an account. A user can give his view key to selected parties with limitations in place such as access to view the account holdings but without the ability to spend any funds held in the account; access to all historical and current transactions; or access to only specific transactions in the account. Selected parties include parents who may need the view keys to monitor their kids’ transactions and auditors who the user would like to give access to audit his account holdings and worth.
In addition to the view key, users also have a spend key which authorizes a selected entity that the user shares the key with to spend or transfer funds from the account. Like the view key, the spend key is 64 characters long and consists of alphabets and numbers.
The popularity of Monero has grown, not just for the intent of engaging in illegal activities in the underground market, but also for individuals who simply want to be able to acquire goods and services online anonymously. Individuals who don’t want unsolicited ads based on their spending habits from digital marketers, the wealthy who are frequently targeted by cybercriminals, individuals who purchase sex toys, and ill individuals who prefer to purchase their drugs anonymously online are a few examples of users who would prefer Monero’s unique privacy platform to Bitcoin’s transparent ledger.
The currency symbol for Monero is XMR.