What is Monero?

Monero (XMR) is an open-source cryptocurrency created in April 2014 that focuses on privacy, decentralization, and scalability that runs on Windows, MacOS, Linux, Android, and FreeBSD

Unlike many cryptocurrencies that are derivatives of Bitcoin, Monero is based on the CryptoNote protocol and possesses significant algorithmic differences relating to blockchain obfuscation.By providing a high level of privacy, Monero is fungible, meaning that every unit of the currency can be substituted by another unit. These units are indistinguishable from one another. This makes Monero different from public-ledger cryptocurrencies like Bitcoin, where addresses previously associated with undesired activity can be blacklisted and refused by network members.

In particular, the ring signatures mix spender's address with a group of others, making it exponentially more difficult to establish a link between each subsequent transaction. Also the "stealth addresses" generated for each transaction make it impossible to discover actual destination by anyone else but the address owner. Finally, the "ring confidential transactions" mechanism hides the transferred amount.

Monero is designed to be resistant to application-specific integrated circuit mining which are commonly used to mine other cryptocurrencies such as Bitcoin.It can be mined somewhat efficiently on consumer grade hardware such as x86, x86-64, ARM or even consumer grade GPUs.

The underlying CryptoNote protocol that Monero is based on was originally launched by pseudonymous author Nicolas van Saberhagen in October 2013.

Monero was originally launched by a Bitcointalk forum user only known as "thankful_for_today" under the name BitMonero which is a compound of Bit (as in Bitcoin) and Monero (literally meaning "coin" in Esperanto).Five days later, the currency's supporters opted for the name to be shortened to Monero.

In September 2014, Monero was attacked when an unknown party exploited a flaw in CryptoNote that permitted the creation of two subchains that refused to recognize the validity of transactions on each other. CrytoNote later released a patch for the flaw, which Monero implemented.^[9][10]

Monero experienced rapid growth in market capitalization and transaction volume during the year 2016, partly due to adoption in 2016 by major darknet market AlphaBay,^[which was closed in July 2017 by law enforcement.

On January 10, 2017, the privacy of Monero transactions were further strengthened by the adoption of Bitcoin Core developer Gregory Maxwell's algorithm Confidential Transactions, hiding the amounts being transacted, in combination with an improved version of Ring Signatures

Privacy

Graphical representation of ring signature tracking.^[14]

Monero's blockchain protects privacy in three ways. Ring signatures enable the sender to hide among other transaction outputs stealth addresses hide the receiving address of the transaction and RingCT hides the amount of the transaction. As a consequence, Monero features an opaque blockchain. This is sharp contrast with transparent and traceable blockchain used by Bitcoin. Thus, Monero is said to be "private, optionally transparent".

Monero has two sets of keys, called a "view key" and a "spend key". View key can be separately shared to enable optional transparency. However, the system is designed to ease processing on mobile devices^[15], as it is impossible to calculate an accurate wallet balance without a spend key.

Transaction linkability

In April of 2017 research highlighted three major threats to Monero user's privacy. The first relies on leveraging the ring signature size of zero, and ability to see the output amounts.The second, described as "Leveraging Output Merging", involves tracking transactions where two outputs belong to the same user, such as when a user is sending the funds to himself ("churning"). Finally the third threat, "Temporal Analysis", shows that predicting the right output in a ring signature is easier than previously thought

Monero development team addressed the first concern in early 2017 with introduction of Ring Confidential Transactions (ringCT)as well as mandating a minimum size of ring signatures in the March 2016 protocol upgrade. Monero developers also noted that Monero Research Labs, their academic and research arm, already noted and outlined the deficiency in two public research papers in 2014 and 2015.

Illicit use

The feasibility of CPU mining Monero has made it viable for malicious actors to covertly distribute miners embedded in malware, utilising the victim's hardware and electricity for the financial gain of the malware developer.

The JavaScript implementation of Monero miner Coin-Hive has made it possible to embed the miner into a website in such a way to utilise website visitor's CPU to mine the cryptocurrency while the visitor is consuming the content of the webpage. While this can be done with user's consent in an effort to provide an alternative funding model to serving ads, some websites have done this without informed consent which has prompted the in-browser miners to be blocked by browser extensions and ad blocking subscription lists.

Monero is sometimes employed by Bitcoin users to break link between transactions, with bitcoins first converted to Monero, then after some delay, converted back and sent to an address unrelated to those used before^[7]. Researchers have reported that the operators behind the global ransomware incident WannaCry have converted their proceeds into Monero. It is also the preferred payment method of choice for The Shadow Brokers