Cryptocurrencies work in many different ways. Bitcoin is primarily traded between people as a currency, while Ether is spent as fuel in a longer blockchain. Monero, or XMR, breaks from most cryptocurrencies by emphasizing privacy and preventing viewers from knowing who else owned a particular unit. Here’s how this currency works.
What Is Monero?
Monero’s key difference from many other cryptocurrencies is the use of blockchain obfuscation. This allows each coin to be “fungible” – a status where any unit can be substituted for another unit.
On top of this, each spender’s address is mixed together with a group of other addresses before the units are moved, which makes it drastically harder to create a link between the sender and the receiver. Indeed, these people are the only ones who can effectively monitor their changes.
One of the most important distinctions here is that Monero always mixes every unit involved in the transaction. This means that no sender or receiver sticks out from the crowd.
Also, Monero generates one-use addresses to move currencies. This stops hostile actors from monitoring a user’s public address to see what the transactions are, and it’s one of the most important components of the chain.
When All Coins Are Equal
The fungible nature of Monero is one of the leading drivers of its adoption. In currencies like Bitcoin, units that have been associated with a problem (such as being stolen at some point in time) may be refused by merchants, even if you, as the user, acquired them through legitimate means. With Monero, all units are functionally indistinguishable, so they all have equal value to merchants.
The Monero Wallet
The most official wallet is Monero’s client, which acts as a full node for the system and can help users mine for the currency. The service is available in both graphic (easy to use) and reliable (command-line) versions.
Other wallets are available (like Monero SimpleWallet), but Monero doesn’t have the widespread acceptance of some of the more popular blockchain currencies. As such, it’s rather hit-or-miss when you want to hold multiple currencies. Be sure to look around and see which wallet is best for your needs before selecting one.
Using Monero As A Break In Transactions
One of the more interesting uses of Monero is applying it as an in-between currency for transactions made in other currencies. Let’s take a look at an example of how this works.
Person A is sending $300 worth of Bitcoin, but for whatever reason, they want to secure the transaction. To hide things, they might begin by trading Bitcoin for an equivalent amount of Monero. After a certain amount of time has passed, they might purchase new Bitcoins with the shuffled Monero and then send those Bitcoins on. Since Monero ‘broke’ the line of the transaction, it’s possible to change the Bitcoin between when it’s sent and when it’s received.
The problem, of course, is the fluctuating values of each currency. It’s possible to lose money in each transaction – or to gain it if the prices move in the right direction. If the transaction is performed relatively quickly (say, within a few hours), prices aren’t likely to be too different. On the other hand, if it takes weeks or months to convert the money back to its original currency, there could be a significant change.
This feature gives Monero a valuable status completely separate from its role as a currency. It also makes it likely that this currency – or something like it – will continue to see use among people who are using cryptocurrencies with public ledgers.
The Dark Net Connection
Monero’s status as a privacy-focused currency has made it popular among certain groups, especially those trading in malware and other illegal items. This may be the biggest obstacle to its adoption by other retailers. On the other hand, as long as a system exists to convert one cryptocurrency to another, people will still be able to exchange it.
This is important. Most cryptocurrencies aren’t considered valuable in and of themselves unless they have a separate use, like the way Ether fuels the Ethereum system. Until and unless Monero becomes widely accepted as a means of payment, it’s limited by the need to trade for other currencies.
To put it another way, it doesn’t matter how much of the Monero cryptocurrency you have if you need to pay your bills in dollars.
(This isn’t as big of an issue as you might think. We are almost certainly going to see “pay” wallets that can exchange cryptocurrencies at the time of a transaction, allowing people to hold Monero but buy things in Bitcoin, Ether, or any other supported unit. The big issue is transaction times, which can take 20 minutes or more – not exactly the stuff of modern convenience.)
Monero has a permanent block reward system. In short, rather than having a limit on how much can be mined, the system allows for indefinite mining over time and has a minimum reward of 0.3 XMR (the Monero Coin) generated per minute.
This is one of its most important security measures – since there’s always an incentive to mine, the blockchain is more secure.
The question, then, is whether or not Monero’s demand will be able to keep up with its ever-increasing supply. If no competitor is accepted by the market, Monero’s ability to form breaks in transactions will probably keep it in use for the foreseeable future. On the other hand, if something even more private and secure comes along, demand for Monero could vanish overnight.
Privacy is really the only thing separating Monero from many of its competitors – it’s only valuable when it’s the best choice for that.
One thing to note about mining is that it’s possible for rewards to be reduced. The Monero blockchain constantly checks the median size of the previous 100 blocks in the system. If a new block is too much larger than the old blocks, the reward for mining it is reduced, all the way up to a 100% drop. Blocks that are twice the size of the average are essentially worthless, which helps to limit the possibilities for spam.
Monero is considered credible by traders. It’s still in the process of being fully supported and developed, but people are using it, and its value has been trending upward. Its current volatility makes it an opportunity for traders, who can either use it as a hedge for other currencies or aim to buy low and sell high.
The View Key
Despite everything we’ve mentioned about privacy, Monero isn’t 100% private – nor was it intended to be. People can optionally make transactions visible to others – for example, auditors or tax preparers. This is an important part of making Monero more attractive, since stores that couldn’t effectively ‘prove’ their transactions would be more hesitant to accept the currency.
Monero has been increasing in price since around August 2016. However, unlike some currencies, its volatility makes it hard to predict how much its value will change over the course of the next few days (or months). As of this writing, Monero was hovering around $389 per unit, but it has almost certainly changed since then.
One other thing to note is that Monero, like other less-popular cryptocurrencies, is often listed with a Bitcoin price as well. The comparative Bitcoin price resembles, but does not match, the dollar price. This difference in value creates potential for savvy investors, though currency trading is complex enough that it should only be done by well-trained individuals.
Monero to USD conversion is possible, but it may be easier to trade it for a more-popular cryptocurrency first. Some trading locations may not accept Monero, and as we said above, it only has value when someone is willing to buy it.
Where To Buy Monero Coin
Monero is not easy to purchase directly – in most cases, you’ll need to go through another service first. Retailers like Coinbase offer Bitcoin to Monero transactions through Changelly, and this is the simplest way of outright purchasing them.
Alternatively, your wallet may allow you to trade from within its own system.
The Final Verdict
Monero is among the most interesting cryptocurrencies because of the extreme amount of privacy it offers – however, that very benefit makes it harder for average people to use. Transaction speeds are fairly slow – it can take about 20 minutes for something to register – so there’s not much point in trying to pay with Monero when you want something right away.
Ultimately, we see Monero as an in-between currency. You convert money into it ahead of time, and then a day or two before you plan to spend that money, you can convert it back. There are transaction fees, so it’s better to convert the currency as few times as possible. Once is enough to ensure privacy – and in the end, that’s all you really need.