Foreword

XMR, a privacy coin based on the CryptoNote protocol, was created in about 2013-2014. It is designed to achieve absolute anonymity through ring signatures and stealth addresses.

In English, the word Monero means “world currency”. After the encrypted transaction method that fully records the addresses and transaction details created by BTC, people believed that the on-chain transformation and even personal information of BTC users have the possibility of being tracked. CryptoNote, a paper focusing on achieving 100% encryption through ring signatures and stealth addresses, was proposed in such a context.

However, CryptoNote is just a technical paper instead of an actual cryptocurrency. After it was published, some people used the technical methods mentioned in CryptoNote to create Bytecoin, the predecessor of Monero.

There was a problem with the distribution of Bytecoin, as up to 80% of the tokens were in the hands of developers. The general public tended to think that Bytecoin was a scam.

But technically, Bytecoin was designed to be a privacy coin. It has given birth to new cryptocurrencies, among which is Monero (XMR).

The XMR team has been committed to the updates of the project, making XMR one of the most prominent ones among various privacy coins, such as Zcash and Dash. It remains the largest privacy-focused cryptocurrency by market capitalization.

How Monero (XMR) Works

Essentially, XMR works the same way as most other cryptocurrencies. As an early cryptocurrency that is committed to achieving absolute privacy, the features of XMR are mainly reflected in its technology.

XMR is confidential and untraceable. Although it is also composed of the mathematical model of the mining pool and the transaction on the market, XMR adopts strengthened encryption measures to obfuscate the wallet address and transaction amount.

Though technically, the privacy measures that XMR adopts are not as rigorous as the mathematical model of computing power that miners use, it uses a special principle to encrypt transactions on the chain. We will talk about this in detail later.

In short, XMR is a privacy-focused cryptocurrency. The way it works might not necessarily be as many people see it. Particularly, with regard to privacy, people tend to think that it brings few practical uses. For many crypto users, especially public figures, transactions of most other cryptocurrencies cannot better hide their identities. But through privacy coins represented by XMR, users can participate in on-chain transactions with nearly 100% anonymity.

Why “nearly” 100% anonymity? That’s because XMR adopts a ring encryption technology for every transaction, and the authorized information comes from previous transaction information in the contract.

But theoretically, XMR may still be cracked. Hackers from all walks of life have never stopped attacking XMR over the years. Fortunately, there has not been any major news that XMR was cracked. Even the IRS of the United States offered an impressive bounty to incentivize people to crack XMR. IRS did this because of XMR’s intention of pursuing absolute user anonymity, which has greatly contributed to the growth of a series of illicit activities such as dealings on the dark web.

Core technical features of Monero (XMR)

In addition to XMR, there are many other privacy coins in the crypto market, such as ZEC, DASH, XVG, SCRT, etc., most of which use similar mechanisms to protect users’ privacy. Some privacy coins allow users to choose for themselves whether to enable the anonymous transfer function. But notably, XMR is configured to be a privacy coin in its initial design, meaning that users cannot choose whether to use private transfer or not. This design helps protect users’ privacy in a thorough way.

XMR ensures the untraceability of the sender, receiver, and amount of every transaction by using three technologies: ring signatures, stealth addresses, and ring confidential transactions.

Ring Signatures

When conducting a transaction, the private key will implement the transaction only when the blockchain receives authorization from your wallet, without which the origin of the transaction will be traceable in the whole chain.

The ring signature is to randomly mix users’ authorization to the wallet with other transaction authorizations in the past. At present, XMR’s ring signature can be combined using up to 11 signatures, making it impossible for anyone but the user to know the transaction details.

A ring signature composed of 11 signatures allows the transaction to be executed under effective disguises. Miners are unable to discern which one is the real signature, and even the recipient cannot ascertain which wallet the transaction came from. But indeed, a valid signature exists for the transaction to be executed.

Stealth Addresses

In non-private cryptocurrencies, the flow of each transfer on the chain is transparent, making it possible to track the flow of funds.

XMR uses private addresses to ensure that the sending and receiving addresses cannot be determined. The private address is a one-time address and is recorded on the chain along with the transaction. It is created by a combination of real addresses and random data.

Similar to ring signatures, users can still verify the correctness of the addresses, but will be unable to ascertain the real one. And only parties involved in the transfer know that they have a transaction occurred.

Ring Confidential Transactions

The ring confidential transactions used by XMR will obfuscate the true transaction amount. Miners cannot know the actual transfer amount but the change of the total amount after the transaction, as the real transfer amount is obfuscated by a random number. There is no excess outflow of funds. Only the parties involved in the transaction clearly know the amount of XMR they have transferred or received.

Based on the features of this technology, an XMR transaction can be summarized as follows:

A combination of the three technologies enables XMR to achieve nearly absolute anonymity.

The Value of Monero (XMR)

As mentioned above, cryptocurrencies themselves do not provide enough privacy guarantees to users, especially to public figures. Although the identities of users participating in transactions on the chain are anonymous, every transaction on the chain is open and transparent, allowing users to query the transaction amount and addresses of the sender and receiver through a blockchain browser.

It is possible to extrapolate the true identity of the trader by tracking the transaction information and analyzing information revealed in their social media posts. This makes it difficult to guarantee the assets and identity privacy of users participating in on-chain transactions.

Privacy coins, notably XMR, feature privacy, and fungibility. Privacy is demonstrated by the fact that the addresses, time, and amount of a transaction can be hidden completely. Users do not need to worry that their real identity might be disclosed.

XMR circulates on the market and enjoys value in use. The price of XMR has shown long-term stability, with two highs occurring between $400-$500. Since its inception, the price has fluctuated with the movement of the entire crypto market most of the time. Trading XMR is common in the crypto space.

As the pioneer of privacy coins, XMR enjoys an unrivaled level of privacy protection. Its transaction information can be completely hidden and is untraceable.

XMR is set to protect privacy and become anti-tracking. It is committed to addressing weaknesses of asset and identity privacy in the blockchain.

Further, many cryptocurrencies will be labeled negatively if any transaction is found to be used for illicit purposes or the tokens are obtained through disreputable means. In such cases, all subsequent transactions related to the token are very likely to be rejected or confiscated. The wallet address used in the transaction will also be affected.

However, benefiting from its unique technology, XMR will not be labeled negatively even if it is related to illegal activities. Therefore, a transaction will never be declined for this reason. XMR has become a commonly used cryptocurrency in the dark web over time, and even the sole cryptocurrency that many illegal transactions support.

XMR has no supply cap. According to its initial design, each new block generates rewards. As of today, there are approximately 18 million XMR in circulation. The output of its mining pool diminishes over the years since its creation.

Despite the fact that privacy coins are often considered to be related to crimes, they are playing irreplaceable roles in protecting users’ privacy. This is what XMR is committed to doing. XMR has been existing nearly ten years since its birth and will definitely continue to generate value due to users’ consensus and the privacy-protection mechanism. This is where the value of XMR exists.

Recent Trends and Future Development of Monero (XMR)

The value of XMR has been identified by an increasing number of users. XMR survives several bear markets, ranking in the top 50 list by market capitalization. Although it was overtaken by many new DeFi projects in the last market boom, its market cap is steadily rising.

Although the price of XMR is far below that in the second quarter of 2022, it has stabilized above $100 after several market fluctuations. This price even exceeds that of 2020 before it rises exponentially.

By far, XMR is still dominating the privacy coin market, accounting for over 90% of payments. Notably, the market cap of XMR is twice that of ZEC, the second-largest privacy coin by market cap.

In terms of the future development of XMR, it will definitely benefit from the market demand generated by its privacy protection. As mentioned above, due to its nearly 100% privacy protection, XMR is playing an important role in illegal dealings. As long as illegal dealings and the dark web exist, privacy coins will have a place in the cryptocurrency space.

XMR is the most popular and widely used cryptocurrency among all the privacy coins. Therefore, its value is substantially supported in application scenarios.

Although most of the mainstream currencies have reached a broad consensus with regard to their value, privacy coins such as XMR have found their unique position in the ecosystem. Honestly, XMR is better than BTC, ETH, and BNB in terms of features of decentralization, encryption, and on-chain transactions. If XMR can gain wider recognition in the future, it will achieve better performance in both its price and usage.

XMR has no maximum supply, which coincides with the market cycle of positive user growth.

In the bear market currently, the most impressive value of XMR is still its favorable price. If you are considering investing in it, it will undoubtedly be a safe and profitable choice in the long run.

Conclusion

Although XMR can achieve nearly 100% anonymity, it is often used for illegal transactions because of this feature. As a result, it is very likely to suffer from restrictions from the government.

Over the years and since its inception, XMR has been constantly criticized by regulatory institutions. If XMR is deemed illegal in the future, its price will definitely drop.

But there is good news about XMR. With the emergence of Atomic Swap, XMR can be conveniently swapped for BTC and ETH and vice versa. For many optimistic users, it resolves the disputes between Web3 ecosystem and users’ calls for privacy, while enabling the trading of XMR with fiat currencies.

However, the regulatory issue still hangs in doubt. If XMR finally strikes a balance between regulatory institutions and its privacy feature, it can be expected that XMR will be used in a wider range of scenarios.