Monero: the benefits of the new virtual currency
Warning : The author of this article owns Bitcoins and Moneros.
Bitcoin is the most famous virtual currency but is not the only one. Monero, presented here, incorporates many principles of Bitcoin but adds a better management of confidentiality.
Cryptocurrencies such as Bitcoin are based on a public registry of transactions, the famous blockchain , each of which can see the authenticity by verifying with software the cryptographic evidence recorded there. This system makes it possible to dispense with central authority and the risks associated with it (dependence, piracy, variation of inflation according to political criteria).
THE MANY ALTCOINS PROJECTS
From the beginning of Bitcoin as an open source project, variants were created by taking over the source code and making small modifications such as the transaction validation algorithm. Other projects started by taking over the basic principles of Bitcoin but from a new source code. All of these projects say altcoins (alternative parts), based or not on Bitcoin source code are numerous (more than 700 have been listed) but the vast majority have been failures or scams.
These altcoins each operate with their own blockchain and are convertible through specialized exchange exchanges such as the site Poloniex.com.
Among the most developed altcoins, we can mention:
- Litecoin: very close to Bitcoin, aims for shorter transaction confirmation times.
- Ethereum: integrates “intelligent contracts” from its conception to define automatic behaviors that correspond to the clauses of a contract executed without human intervention. Despite many problems (theft, split), this remains one of the most promising projects.
- Nxt: requires fewer validation calculations and therefore has a lower ecological footprint
- Dash: is a currency to be anonymous but some technical choices are controversial.
- Monero: is another currency to be anonymous, treated in the rest of the article
Bitcoin remains largely in terms of transaction volume thanks to its position as first-time entrant, its notoriety and the presence of a more developed ecosystem.
The starting principle of having a public trading register is also one of the main weaknesses of Bitcoin. For several years, more and more efficient transaction analysis software has been developed to make deductions in particular about the identity of Bitcoin users . Just as for the monitoring of communications and the analysis of social networks, a party is legitimate as for the search for criminals but it is also an invasion of privacy of everyone and it is legitimate to seek to protect themselves .
Although there are still ways to protect its anonymity with Bitcoin, we can consider that it is safer to have this integrated aspect from the design as is the case of Monero.
The name “Monero” comes from “Money” in Esperanto and this explains why the plural “Moneroj” (pronounced “moneroille”) is sometimes used.
THE TROUBLED ORIGINS OF MONERO
The original story of Monero is quite murky. Instead of relying on Bitcoin source code, Monero is derived from Bytecoin which uses a protocol named Cryptonote. This protocol was published in early 2014 by one or more people known by the pseudonym Nicolas van Saberhagen. It was very well received by the cryptographers who analyzed it but turned out to be a scam based on many lies ( see here for more details).
A reddit user, also anonymous, using the pseudonym thankful_for_today 1 wanted to launch Monero on a better basis in April 2014 (originally called bitmonero). The behavior of thankful_for_today was not appreciated by the small community that had formed around the project and that criticized bad decisions taken without consultation. This community eventually took over the project which was abandoned by thankful_for_today.
Without going into the technical details, the anonymity of the Monero transactions is based on the one hand on the use of a temporary address of the receiver instead of its public address (which protects the one who receives the money) and of on the other hand on the addition of “fictitious” transmitters (which partially protects the one who pays 2 ). The issuer and the receiver of the transaction are the only ones with the necessary elements to check where the money comes from and where it is going. The cost of the transaction is related to the desired level of anonymity (which can be chosen by the issuer).
WHAT PUBLIC INFORMATION VIA MONERO?
Total anonymity would be an obstacle in many situations, for example to prove that a product has been paid for or to audit accounts. So there are mathematical methods to publicly disclose, or just to a person, some information while controlling access.
More concretely, if we look at the public information of an arbitrary transaction ,
we can observe the following elements:
- The block containing the transaction (“From Block”)
- The amount the receiver will receive (“total output”)
- The fees of the transaction (“Fee”)
- The number of fictitious issuers added (“Minin”)
- The entrants of the transaction (“Inputs”) whose sum corresponds to “total output” and “Fees”. By clicking on the “+”, we see the possible origins without knowing which one is really used (here 7, or “Mixin” + 1)
- Outputs that will go to the receiver.
This transaction is included in block 1124044 which can also be seen and which contains in particular:
- its height (“Height”): its place in the blockchain
- the moment of its creation (“Timestamp”)
- the transaction that rewarded the creator of the block (“Coinbase Transaction”)
- a number of other transactions (8 here) including the one mentioned above (“Transaction”)
The creator of the block, who was the first to cryptographically validate the elements and solve a mathematical “puzzle” used to regulate the speed of creation of blocks ( “proof-of-work” as with Bitcoin) received the fees of the 8 transactions and the new coins of the reward (which allows to have a inflation controlled automatically and not manipulated)
In a few months, the amount of the transaction will also be hidden thanks to a method called RingCT.
In addition to the technical aspects, we can note that the identity of the main developer, the South African Riccardo Spagni, is known (although several other developers prefer to remain anonymous). The community of users is open, especially on Reddit, and values the actual use of Monero in the long run rather than focusing on the rising price of money.
Monero has recently had a space on the famous technical questions and answers site stackexchange.com as well as Bitcoin and Ethereum.
In recent weeks, marketplaces on the Dark Nets ( anonymous networks ) have expressed their interest in the anonymity of Monero and this has greatly increased its visibility and its course which progressed slowly until then (from $ 0.5 per Monero January 1, 2016 at $ 2 in early August and $ 10 at the end of the month).
This role of illegal (or at least underground) markets may be bad for the reputation of this project (just as the Telegram encrypted e-mail application is often referred to as “Terrorist Messaging”) but the use case of basis considered by developers remains that of a person who wants to buy a product such as a religious text that puts his life in danger as prohibited by the government 3 . As for Telegram messaging or other privacy protection tools, possible illegal uses do not engage the moral responsibility of creators or honest users.
It is not possible for the moment to buy Moneros directly from Euros. It remains necessary to buy Bitcoins for example on paymium.com or kraken.com and then exchange them for Moneros on a site such as poloniex.com .
It is not recommended to leave Moneros (or another cryptocurrency) for a long time on an exchange site because of the risks of piracy or bankruptcy. Several solutions corresponding to different compromises between security and complexity are explained on this page .
Upcoming events for the Monero project include hiding amounts (RingCT discussed above), finalizing an official GUI to replace the command line used so far, and probably increasing the number of merchants accepting Monero at side of Bitcoin (the site xmr.to can already pay in Moneros and send to the merchant bitcoins if he accepts them). There is therefore reason to be optimistic about the future of this project (which does not constitute in any way an investment recommendation from the author or Contrepoints ).