Monero (XME) Cryptocurrency: Definition, Mining, Vs. Bitcoin (2024)

What Is Monero (XMR) Cryptocurrency?

Cryptocurrencies are increasing in popularity. These are virtual or digital currencies that are decentralized and can be used to trade or spend using blockchain technology. Many of them are aimed to enhance privacy and anonymity, and whether they achieve success is unpredictable. A few of these currencies allow public viewing of all transactions, while others make privacy optional. And still, others keep the privacy feature strictly implicit.

When most of us think of cryptocurrencies, Bitcoin is usually the first one that comes to mind. It was one of the first of its kind, using peer-to-peer technology to allow users to make payments with their coins. But there's another currency that has achieved a high level of popularity and acceptance, mainly for its privacy-oriented features. This one is called Monero. This article explains the key concepts, features, and challenges of Monero.

Understanding Monero (XMR) Cryptocurrency

Monero (XMR) is an open-source, privacy-oriented cryptocurrency that was launched in 2014. It is built and operates on the concept. These blockchains, which form the underlying technology behind digital currencies, are public ledgers of participants'activities that show all the transactions on the network.

Monero's blockchain is intentionally configured to be opaque. Itmakes transactiondetails, like the identity of senders and recipients, and the amount of every transaction, anonymous by disguising the addresses used by participants.

Along with anonymity, the mining process for Monero is based on an egalitarian concept. This is the principle that all people are equal and deserve equal opportunities. Its developers did not keep any stake for themselves when they launched Monero but they did bank on contributions and community support to further developthe virtual currency.

As of Aug. 26, 2021, Monero was trading at $295.05 and had a market capitalization of $5.3 billion. That's a stark difference from the closing price of $89.12 on Aug. 26, 2020. The market cap on that date was $1.58 billion.

How Is MoneroDifferent from Bitcoin?

As mentioned above, Bitcoin is the most popular cryptocurrency on the market. It works on a protocol that attempts to shield the participant's identity using pseudo name addresses. These pseudo names are randomly generated combinations of alphabets and numbers.

But this approach offers limited privacy as both Bitcoin addresses and transactions are registered on the blockchain, opening them to public access. Even pseudonymous addresses are not fully private. A few transactions carried on by a participant over time can be linked to the same address, allowing the possibility of others to become awareof an address owner's trends and their identity.

Another advantage of Moneroover bitcoin is fungibility. This means that two units of a currency can be mutually substituted with no difference between them. While two $1 bills are equal in value, they are not fungible, as each carries a unique serial number. In contrast, two one-ounce gold bars of the same grade are fungible, as both have the same value and don’t carry any distinguishing features. Using this analogy, abitcoin is the $1 bill, while a Monerois that piece of gold.

The transaction history of each bitcoin is recorded on the blockchain. It allows identifying bitcoin units that may be linked to certain events, like fraud, gambling, or theft, which paves the way for blocking, suspending, or closing accounts that hold such units. Imagine receiving a few bitcoins todaythat were previously used for gambling, and they are banned in the future, leading to a loss.

Monero has a non-traceable transaction history, which offers participants a much safer network where they don’t run the risk of having their held units be refused or blacklisted by others.

How Does Monero ImprovePrivacy?

Moneroalleviates privacy concerns using the concepts of ring signatures and stealth addresses. Ring signatures enable a sender to conceal their identity from other participants in a group. Ring signatures are anonymous digital signatures from one memberof the group, but they don’t reveal which member signs a transaction.

To generate a ring signature, the Monero platform uses a combination of a sender’s account keys and clubs it with public keys on the blockchain. This makes it unique as well as private. It hides the sender's identity, as it is computationally impossible to ascertain whichof the group members' keys was used to produce the complex signature.

Stealth addresses add additional privacy, as these randomly generated addresses for one-time use are created for each transaction on behalf of the recipient. The use of these stealth addresses enables concealing the actual destination address of a transaction, and it hides the identity of the receiving participant.

Ring Confidential Transactions, or RingCT, also enable hiding the amount of a transaction. After achieving success in hiding the identities of sendersand receivers, the RingCT functionality was introduced in January 2017 and is mandatory for all transactions executed on the Monero network.

Monero's Challenges

While privacy fuels the rapid adoption of Monero, it also brings with it several challenges. For instance, the non-traceability and privacy features allow them to be used for disreputable purposes and at questionable marketplaces, including those like drugs and gambling. This is one of the reasons why markets that were popular on the dark web, like AlphaBay and Oasis, showed increased use of Monero before they were shut down.

Reports by CNBC cite the case of hackers creating malicioussoftware that infected computers to mine Monero and send itto North Korea. Monero is essentially open to be used for illicit activities and for evading law enforcement, as it remains outside of capital controls with no traceability.

How to Mine Monero

Monero runs on all leading OS platforms, including Windows, macOS, Linux, Android, and FreeBSD. The currency supports a mining process where individuals get rewarded for their activities by joining mining pools, or they can mine coins individually.

Monero mining can be performed on a standard computer and does not need any specific hardware such as the application-specific integrated circuits (ASICs). An ASIC is a costly form of hardware that is commonly used to mine cryptocurrencies like Bitcoin. Instead, you can use the CPU or GPU of your own computer to mine the currency. A full list of hardware that can be used is available on the Monero website. Users can also install certain software, which may cost a developer fee.

According to the company's website, Monero relies on proof-of-work mining. This is an algorithm that provides security to certain cryptocurrencies like Monero. This system prevents problems surrounding double-spending, which can skew the supply, showing there's much more than actually available.

Purchasing the currency is as easy as going on an exchange or looking for a seller who's willing to unload their supply. You can also buy Monero through an automated teller machine (ATM) that is enabled for cryptocurrencies.

The Bottom Line

Cryptocurrencies are a very popular investment for many people. But the popularity—and price—of Bitcoin may be a turnoff. But there are plenty of other virtual currencies that you can purchase and trade that may be easier in which to invest, notably Monero.

The privacy-rich attributes have helped Monero become a recognizable cryptocurrency and one to keep an eye on. Investors can trade in Monero on leading cryptocurrency exchanges like Kraken, Poloniex, and Bitfinex. However, it's important to remember that what makes Monero so popular—namely, its privacy features—can also lead to some major challenges, such as its use in illegal activities.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.