Guide to Monero (XMR) Cryptocurrency

February 18, 2021 · 6 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Guide to Monero (XMR) Cryptocurrency

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?”

Get Involved in Crypto Today

SoFi Invest lets users buy cryptocurrencies like Bitcoin, Litecoin and Ethereum. Investors can also make wagers on stocks or exchange-traded funds (ETFs). Learn valuable investing lessons and get first-hand experience in the markets.

Let SoFi Invest be your guide to crypto.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.


All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store
SoFi Android App, Get it on Google Play

TLS 1.2 Encrypted
Equal Housing Lender