Boasting security and privacy, including untraceable transactions, Monero (XMR) is among the most popular and controversial cryptocurrencies in an increasingly saturated market. Like other cryptocurrencies, Monero features an open-source blockchain that records transactions and creates new units through mining. What sets Monero apart is its opaque blockchain, which prevents transactions and their amounts from being traced to specific addresses — providing an extra layer of protection to the identities of its users.
In this beginner’s guide to Monero, we will go over:
The history of Monero starts in 2013 when a white paper outlining an application layer protocol for powering digital currencies called CryptoNote was released. The author of the paper used the pseudonym Nicolas van Saberhagen to protect their identity similar to Satoshi Nakamoto, the mysterious creator of Bitcoin.
Typically, white papers lay out a mission statement and then introduce technical plans for a technology’s implementation. The CryptoNote white paper, however, doubles as a thorough criticism of Bitcoin — citing major privacy and censorship issues.
Saberhagen quickly addresses their concern with the privacy of Bitcoin:
“Unfortunately, Bitcoin does not satisfy the untraceability requirement. Since all the transactions that take place between the network’s participants are public, any transaction can be unambiguously traced to a unique origin and final recipient. Even if two participants exchange funds in an indirect way, a properly engineered path-finding method will reveal the origin and final recipient.”
Not long after the paper was published, developers began working on realizing the platform’s mission, resulting in the creation of the transitory digital currency Bytecoin.
It didn’t take long for the controversy to start with Bytecoin as the founding team decided to “pre-mine” coins and distribute amongst themselves before the currency was available to the public. This, along with other questionable behavior, resulted in an eruption of drama that is chronicled here.
Some of the developers, led by Riccardo Spagni, decided to carry out a re-launch through a hard fork of the Bytecoin network. They decided to call it BitMonero (Monero is the Esperanto word for coin). Supporters of the digital currency decided on a shortened name of Monero.
Monero climbed the ranks of cryptocurrencies, with incredible growth in market capitalization throughout 2016 largely due to adoption by darknet marketplace AlphaBay, which has since been shut down due to illegal activity. The untraceability of Monero predictably lends itself to use among seedy individuals for illegal transactions.
The high-flying digital currency has been making its way into headlines for more than just a meteoric rise in market cap.
Recently, there have been a number of instances of hackers distributing malware that turn infected web pages into mining systems without the consent of users. Monero is uniquely susceptible to such problems because — unlike other cryptocurrencies like Bitcoin, which require specialty hardware — it is possible to mine Monero with normal CPUs.
Monero has a thriving community made up of more than 240 active developers contributing to the Monero project, including 30 core developers. Much of the Monero core team is made up of a group of pseudonymous developers who tend to stay out of the crypto limelight, the exception being the outspoken Riccardo Spagni also known by his twitter handle @fluffypony.
Spagni, the controversial face of Monero, is a South African resident who seems to thrive on disrupting the world, particularly the banking system. A self-described Twitter troll, Spagni is notorious for repeatedly claiming that he lost his private keys “in a series of horrible boating accidents,” while simultaneously flaunting his love for Rolex watches and elaborate wine racks.
Serious question: if you don’t have an LED wine rack are you even an altcoin developer? pic.twitter.com/Gdgray2cJG
— Riccardo Spagni (@fluffypony) April 13, 2017
In regard to the re-launch of Monero, Spagni was quoted as saying,
“I thought, ‘I’m going to pump it and dump it,’ because I was interested in taking the ideas and implementing them in bitcoin. The bitcoin code base was far more interesting to me than Monero, and I thought, ‘I’m not going to work on this codebase, it’s terrible,’”
Despite his initial disinterest in Monero, Spagni stuck around with the Monero team and remains the cryptocurrency’s loudest voice and lead maintainer.
Three different privacy measures are used in the Monero blockchain to maintain the anonymity of users.
Ring signatures allow the sender in the transaction to hide among a group of sending addresses on the network. Basically, when a transaction occurs, there is a group of possible senders represented by their keys but the actual sender is never revealed in the data recorded on the blockchain.
Here is a visualization of ring signature tracking.
Ring confidential transactions or RingCT, is how transaction amounts are hidden. It was implemented on the Monero blockchain in January of 2017 and after September 2017, all transactions on the network feature RingCT by default. This upgrade improved upon ring signatures and other transactional components by allowing for completely hidden amounts, destination and origin address, and trustless coin generation.
Stealth addresses allow the sender to create a one-time address for a transaction that is randomly generated. The transaction is recorded as taking place between these addresses, yet they cannot be linked back to either the recipient or sender.
Unsurprisingly, there are those who are concerned about the secrecy of Monero transactions. The obfuscating of senders, recipients, and transaction amounts are the perfect features for criminals looking to do business and avoid detection. But privacy is something that people hold dear. Everyone has things that they would like to be kept private and the vast majority of those things are perfectly legal.
Fungibility is an economic term that is used to describe individual units of a good or commodity that are interchangeable. The easiest example of this is to use something like US dollars. Two 10 dollar bills can be exchanged for a 20 dollar bill without any value being gained or lost on either end of the transaction.
Most digital currencies, including Bitcoin, follow the basics of fungibility, as one Bitcoin will typically be worth 1 Bitcoin. However, one of the weaknesses of Bitcoin pointed out by the creators of Monero is its transparency that leaves users open to censorship and other problems.
Say that there was an exchange hack and Bitcoins were stolen from users who left their funds in their exchange’s wallet (try to avoid doing this). Those coins could be given to unsuspecting users, not aware that the coins are stolen, and then be rendered useless by those with the knowledge and means to identify the stolen funds.
Imagine that you were given cash in exchange for an item or service sold to someone else. If some or all of that cash is found to be counterfeit, you lose out on that money and are potentially open to an investigation into how you obtained that illegal currency, despite you doing nothing wrong.
Monero’s privacy features protect users from something like this happening, but it has also earned Monero a bit of an unsavory reputation. The untraceability of Monero transactions undoubtedly attracts some as a way to conduct illicit activity, but its supporters would point to this being a natural side effect of the currency’s effectiveness as a form of digital cash.
Mining is the process in which transactions on a blockchain network are compiled and verified until a block of transactions and their data are completed. Using a proof-of work system, miners connected to the network are essentially volunteering the computing power of their hardware to solve puzzles that, when completed, deliver a reward in the form of the network’s currency. This is how new coins are created and how these systems incentivize people to maintain the network.
Monero is built around the CryptoNight proof-of-work hash algorithm — one of the features of CryptoNote that was designed to create a more egalitarian approach to cryptocurrency mining compared to Bitcoin.
Bitcoin started out as a currency that could be mined using graphics processing units (GPUs). As the system grew, the complexity of the puzzles that needed to be solved in order to complete blocks and earn rewards had to be increased. At this point, GPU miners did not have the power to mine in any sort of profitable way and they gave way to specialized hardware in the form of application-specific integrated circuits (ASICs).
Monero is designed to be ASIC resistant, meaning that the mining process can be carried out using a mixture of GPU and central processing unit (CPU) functions. This is possible due to the system’s proof-of-work mechanism. Instead of a standard proof-of-work hash algorithm, the network is really a voting system where users vote for the right order of transactions on the blockchain.
Every participant has equal rights using this method, and it was specifically developed to create a more uniform distribution of coins throughout the lifetime of the currency. ASIC resistance is bolstered further by regular hard forks with the explicit goal of keeping ASICs at bay.
While Monero’s egalitarian approach allows almost anyone with computer access to participate in the maintenance of the network, it does have some exploitable features.
Monero (XMR) is available for trading on many of the major cryptocurrency exchanges. A handful of exchanges allow Monero to be traded for fiat currencies such as the US dollar, Euro, and British pound. However, most exchanges only allow for trading pairs between Monero and other cryptocurrencies, most often Bitcoin and Ether, the Ethereum network’s cryptocurrency. For those interested in obtaining XMR, we recommend using Bitcoin or Ethereum to buy Monero on the Binance exchange.
Like all other digital currencies, Monero needs to be stored in a wallet which can be in the form of a desktop application on your computer or smart phone, a web wallet, or a hardware wallet. Despite the popularity of Monero, the wallet options are actually pretty sparse. This is because the security measures built into the Monero blockchain pose a challenge to many of the most common wallets. But due to its standing in the market cap rankings, a good portion of wallets are working on Monero integration.
For a comprehensive guide to the best Monero wallets, check out our guide.
Monero is an interesting digital currency that truly lives up to the term digital cash. Fast, cheap, and anonymous transactions are possible thanks to the unique technology that underlies the Monero blockchain. It was developed not to increase the wealth of the already wealthy, but as a means of transacting for the common person who wants to break free from the often restrictive practices of traditional financial institutions and their instruments.
Though Monero is not free from scandal, the use of the currency for illegal purposes is not encouraged by the underlying technology or caused by any flaws within its design. Monero was developed to be a truly disruptive force in the world of personal finance. “Be your own bank” is a phrase often uttered in cryptocurrency conversations, and while sometimes Monero is more like “A digital mattress stuffed with cash”, it definitely has utility in a market full of projects without much to offer outside of mere potential.
The Hard Sell
The prices are low and the panic is high. Is this the time to sell?
If you’ve been around crypto for longer than a couple of months, you’re probably familiar with the feelings that come with your average market-wide correction.
Euphoria fizzling away as that first red candle starts dropping down, down, down. Confidence in a quick recovery giving way to sweaty-palmed anxiety as the correction passes the 10, 20, 30% mark. Is this the big one? We all know what happened on March 13th last year. Finger hovering over the “Sell” button, knowing that if you just pressed it this horrible feeling would go away.
And even worse are the recriminations. How could I have been so blind? How did I let this happen? Why didn’t I sell when the going was good? Will I ever feel joy again?
Unrealised profit and loss
Look, I’m not going to say I told you so, but if there has ever been a market in need of a correction it was the crypto market of the last two months. It wasn’t a question of if your alt was going to do a 50 or 100% day; it was a question of when. Meanwhile, Bitcoin basically tripled its 2017 all-time high over the course of eight weeks, making it (briefly) a trillion dollar asset.
It’s not that bitcoin doesn’t deserve to be in that August club, but more to point out that markets will always revert to the mean, no matter how compelling the background narrative might be. And in the same way that you don’t expect to see an elephant jump over a small apartment block, an asset of bitcoin’s size shouldn’t be tripling in size like it ain’t no thing. Especially not when it’s taken three long, hard years to get back to its previous peak.
Timing is everything
Here’s the thing though: in every other market that humanity has ever created, taking three years to make a new all-time high actually is perfectly reasonable, bordering on suspiciously fast. Investments aren’t supposed to be measured in days or weeks. They’re supposed to take years, if not decades to play out. But the speed, 24/7 relentlessness and hyper-visibility of the crypto markets means it’s very easy to lose sight of the bigger picture. People who bought in at the absolute peak of the last bubble are still up 250% – presuming that they had the patience to hold on for a measly three years.
Nonetheless, selling can produce a real and concrete advantage. Get out near the top and you might be able to buy back in close to the bottom, thereby compounding your gains. (Despite what the people of TikTok Investors would have you believe, this is far harder than it appears.)
More simply though, money is money and when assets are appreciating like crypto assets have recently that can mean getting ahead of your mortgage, or buying a car, or paying for a holiday for your family, or being able to cover rent for the next month. If what you’ve made could make a difference in your life, then it makes complete and total sense to sell some – even if you think the crypto market is going to keep on going up. As the old adage goes, no-one ever went poor from taking profits.
Respect the sell-out
That’s not an invitation or a suggestion to sell it all right now – a good rule of thumb is sell when it feels hard (i.e. on the way up) not when it’s easy (on the way down) – but more to start thinking about what your endgame is. What do you hope to gain from this bull run? How much is enough? And will you be strong enough to start getting out when you reach your target? (Also, on a more prosaic note, what would taking profits mean for your tax?)
These are questions without easy answers, but start planning now and you’re less likely to be swept up in the mania and delirium that marks the real, bloody and unmistakable end of the bull market. And until then? DIAMOND HANDS ENGAGE.
Kraken Daily Market Report for March 02 2021
- Total spot trading volume at $1.68 billion, down from the 30-day average of $2.09 billion.
- Total futures notional at $584.1 million.
- The top five traded coins were, respectively, Bitcoin, Ethereum, Tether, Cardano, and Polkadot.
- Strong returns from Curve Dao (+12%), Flow (+5.1%), and Melon (+6.4%).
|March 02, 2021
$1.84B traded across all markets today
Crypto, EUR, USD, JPY, CAD, GBP, CHF, AUD
#####################. Trading Volume by Asset. ##########################################
Trading Volume by Asset
The figures below break down the trading volume of the largest, mid-size, and smallest assets. Cryptos are in purple, fiats are in blue. For each asset, the chart contains the daily trading volume in USD, and the percentage of the total trading volume. The percentages for fiats and cryptos are treated separately, so that they both add up to 100%.
Figure 1: Largest trading assets: trading volume (measured in USD) and its percentage of the total trading volume (March 02 2021)
Figure 2: Mid-size trading assets: (measured in USD) (March 02 2021)
Figure 3: Smallest trading assets: (measured in USD) (March 02 2021)
#####################. Spread %. ##########################################
Spread percentage is the width of the bid/ask spread divided by the bid/ask midpoint. The values are generated by taking the median spread percentage over each minute, then the average of the medians over the day.
Figure 4: Average spread % by pair (March 02 2021)
#########. Returns and Volume ############################################
Returns and Volume
Figure 5: Returns of the four highest volume pairs (March 02 2021)
Figure 6: Volume of the major currencies and an average line that fits the data to a sinusoidal curve to show the daily volume highs and lows (March 02 2021)
###########. Daily Returns. #################################################
Daily Returns %
Figure 7: Returns over USD and XBT. Relative volume and return size is indicated by the size of the font. (March 02 2021)
###########. Disclaimer #################################################
The values generated in this report are from public market data distributed from Kraken WebSockets api. The total volumes and returns are calculated over the reporting day using UTC time.
Vitalik proposes solution to link certain layer-two scaling projects
In an ongoing effort to battle escalating transaction fees while creating a unified ecosystem, Ethereum co-founder Vitalik Buterin has proposed a solution for a particular type of cross-rollup scaling.
The proposal outlines how two protocols using rollups can communicate with each other while maintaining interconnectivity and composability.
Rollups are layer-two solutions that are essentially smart contract networks that process and store transaction data off the main chain. However, there are a number of different rollup types, with each using unique smart contracts such as optimistic and zero-knowledge.
While a number of DeFi projects have deployed layer-two rollups, such as Loopring and Synthetix, the particulars of the various rollups mean projects are unable to communicate to one another directly on layer-two.
Buterin’s proposal assumes that one rollup can process simple transactions whereas the other has full smart contract support. There are already proposals for transfers between two smart contract enabled protocols using rollups.
To explain how the proposal works, Buterin provides the example of a hypothetical exchange intermediary he called ‘Ivan’ — where Ivan has an account ‘IVAN_A’ on rollup A that he fully controls, and also has some funds deposited in a smart contract ‘IVAN_B’ on rollup B.
The smart contract would be programmed to accept “memos” that include additional data from anyone sending to it in order to secure any future transactions. The transactions create a connecting layer that keeps deposits in all these isolated contracts, allowing rollup A to send to rollup B via this layer.
Buterin suggested that the behavior would work as follows;
“Alice sends a transaction to IVAN_A with N coins and a memo ALICE_B. Ivan sends a transaction sending TRADE_VALUE * (1 – fee) coins through IVAN_B to ALICE_B”
He added that the worst-case behavior would be if Ivan does not send coins to ALICE_B as he is expected to.
Addressing the “worst-case” scenario that could arise as a result of using the proposed situation, Buterin emphasized that Alice would still be able to wait until the transaction on rollup A confirms, find some alternate route to getting coins on rollup B to pay fees, and then simply claim the funds herself.
Responding to the proposal, Alon Muroch pointed out that it worked in a similar way to how banks clear transactions:
“That’s very interesting, similar to how banks clear transactions between themselves. Batching assets into separate “accounts” could have limitations, a solution could be just big pools on either ends and fees split pro-rata.”
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