Considered among the most private cryptocurrencies, Monero has a reputation for being used in illicit or dark-web endeavors. Here’s a guide on its history, how it’s used, how it differs from Bitcoin, whether it’s a good investment, and whether it’s legal.
What is Monero?
Created in 2014, Monero (XMR) cryptocurrency is a privacy coin that allows for anonymous transactions. Monero uses technology known as “ring signatures,” which makes it extremely difficult to see from which wallets coins were sent from and delivered to.
Monero has become one of the top cryptocurrencies. In mid-January 2021, XMR was the 15th largest cryptocurrency by market cap, according to data from CoinMarketCap. At the time of writing, XMR has a market cap of $2.7 billion. Prices in mid-February were $185.41.
While some private cryptocurrencies require the privacy feature to be “turned on,” the Monero blockchain functions in an anonymous manner by default. XMR is often thought of for being the currency of choice for illicit activity on the dark web and has faced controversy as a result.
Monero uses a technology called “ring signatures” to make their transactions opaque, meaning observers can’t see who sent the transaction, what amount of money the transaction involved, or who received it. Basically, ring signatures string transactions together in a way that makes it difficult (but not completely impossible) to differentiate between them.
History of Monero
To understand the history of Monero, we must look at another cryptocurrency that was created in 2012: Bytecoin (BCN).
Monero (XMR) is actually a hard fork of Bytecoin. A cryptocurrency hard fork involves a group of developers branching off the original software to create a new coin and network that will have similar features as that of the original but with key differences.
Monero’s blockchain is opaque. The transactions can’t be easily seen or tracked. For a while it was thought that XMR’s ring signature technology was 100% secure. But some recent revelations have shown that transactions can still be made vulnerable to detection. It’s worth noting that the IRS once offered a $625,000 contract to anyone capable of cracking Monero’s privacy features.
Bytecoin and CryptoNote Privacy Tech
Bytecoin is based on technology called CryptoNote. CryptoNote was intended to make transactions both a) untraceable and b) un-linkable. Untraceable refers to the fact that observers cannot tell who sent a transaction, while un-linkable means that observers cannot tell whether or not any single source received any two or more transactions.
To achieve un-linkable transactions, CryptoNote uses one-time keys. With ring signatures, it’s still possible to see incoming transactions to a public key (wallet address). To remedy this, CryptoNote generates one-time keys when someone receives coins. It’s based on an encryption method known as the Diffie-Hellman Key Exchange, which allows for sharing of secret data between two parties.
Basically, when someone sends Bytecoin to another Bytecoin address, the sender creates a unique code that gets used in the transaction. This unique code makes it look like the coins were sent to a different wallet each time.
The Creation of Modern Monero (XMR)
When Bytecoin was created in 2012, 80% of the total supply was unexpectedly brought into existence, as opposed to most minable cryptocurrencies that begin with barely any supply in existence. This was a bug that can be problematic because it leads to rapid devaluation of a coin’s value while also causing others to question the intentions of the developers.
This led a number of the developers working on Bytecoin to create a new coin by hard forking the BCN network. They called this new coin Bitmonero, which was later changed to Monero, which means “coin” in the Esperanto language.
What is Monero Used For?
Of all the different types of cryptocurrencies, privacy coins like XMR might be among the most controversial.
Monero can be used for any transaction an individual wants to keep private. It’s commonly associated with criminal activity for this reason, and XMR is purported to be the coin of choice on the dark web.
Beyond private transactions, altcoins like XMR are mostly used for speculative purposes. Traders buy coins hoping to sell them at a higher price later to make a profit.
Currencies typically serve two functions: as a store of value or medium of exchange. So far, despite their popularity, cryptocurrencies like Bitcoin haven’t taken off as a medium of exchange. For instance, with Monero, while some businesses accept XMR as a mode of payment, it isn’t widely used in the public as a way for people to pay for transactions.
How is Monero Different From Bitcoin?
Monero crypto is like Bitcoin in the sense that both are minable, proof-of-work cryptocurrencies.
The main differences involve how their blockchain technologies work, how many people use them, and how much value gets transacted over their respective networks on a regular basis. The bitcoin blockchain is transparent. Every Bitcoin transaction that has ever been made can be seen by anyone using publicly-available block explorer websites.
Still, it can be difficult to link users to specific wallets, meaning Bitcoin is still “pseudonymous.” The transactions are public, but there isn’t a name attached to every public Bitcoin address like there might be with many other financial transactions. Some companies even specialize in making sophisticated software that tracks transactions or users for this reason.
Is Monero a Good Investment?
Monero is an altcoin, meaning it’s a cryptocurrency other than Bitcoin. These are generally considered speculative investments that some traders make quick profits from, while others get “rekt” (crypto slang for losing a lot of money).
If there are any profits, they would also have to be taken in a different cryptocurrency, most likely Bitcoin. Or, if an exchange offers a Monero pairing with a stablecoin (e.g., XMR/USDT), then profits could be taken in the form of that stablecoin. But overall, the future of altcoins is a giant question mark, making them a risky investment in the long run. This could be especially true for privacy coins due to regulatory concerns.
How to Buy Monero
Purchasing Monero is similar to buying any other cryptocurrency. But because it’s a private altcoin with a complicated reputation, not all exchanges offer it. Here’s a step-by-step guide on how to buy and trade XMR.
1. Sign up for an account with a cryptocurrency exchange that offers XMR.
2. Verify your account. This may involve providing documents that confirm your identity and address.
3. Deposit fiat currency or digital money into your account.
4. Buy XMR with the deposited funds.
5. Withdraw XMR into your hot or cold wallet.
Is Monero Illegal?
As of the time of writing, Monero cryptocurrency is not illegal in the USA. Some have speculated that XMR, and other privacy coins like it, could one day be outlawed. Or cryptocurrency exchanges could just refuse to deal with such coins because doing so might be the easiest way to comply with cryptocurrency rules and regulations.
In 2021, privacy coins Dash, Monero, and Zcash were all delisted from an exchange for the first time. Bittrex made the announcement on Jan. 1 that they would be removing the coins from their exchange.
While the formal announcement gave no specific reason for the action, it was widely assumed that delisting privacy coins could be the easiest way for exchanges to comply with anti-money laundering (AML) and know-your-customer (KYC) laws. If this trend were to continue and other exchanges decide to follow suit, it could spell trouble for privacy coins like Monero.
So, asking “Is Monero illegal?” might actually be the wrong question. More to-the-point questions might be ones like “Will I be able to use Monero in the future?” or “Will crypto exchanges continue to provide support for Monero?”
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