The cryptocurrency world has given a lot to talk about lately, but most people only know about the big guys in the game, Bitcoin and Ethereum. However, there is also a big group of so called “altcoins” which have more specific use cases than those of Bitcoin and Ethereum, and one of those altcoins is Monero ($XMR).
The Monero Project was born in April 2014 with the sole purpose of creating an Open Source cryptocurrency which focused on extreme privacy, untraceable transactions, decentralization, fair mining and that had its very own codebase (written primarily in C++), which at the time was pretty rare, since most other altcoins got a big part of their code from Bitcoin or Ethereum.
How it all began. A brief bit of history on Monero.
The beginning of Monero dates back to April 2014 and was first talked about in the forum Bitcointalk (as a lot of other cryptocurrencies were in their beginnings). A user by the name “thankful_for_today” posted about a new coin which he called “BitMonero” (Bit from Bitcoin, and Monero from “coin” in Esperanto), however a week later, the currency’s users voted to have the name changed to just “Monero”.
The first revisions of the Monero Project were based on most of the code of the Cryptonote Protocol, which was developed by the pseudonymous user Nicolas van Saberhagen in October 2013.
However that early code of the Cryptonote Protocol had a flaw in the Merkle Root calculation (which basically allows to compute the block hash using the hashes of the transactions inside said block), that in September 4th 2014, just 4 months later after Monero’s first appearance, allowed unknown hackers to exploit the flaw that managed to create two different subchains that refused to recognize the validity of the transactions in the other chain.
The Cryptonote developers managed to fix this issue in just a few days by applying a patch that fixed the Merkle Root calculation flaw and hardcoded which was the correct subchain called CryptoC-3 patch.
If we advance a few months, until January 2015, we can see that just 8 months after its creation, Monero was trading at around half a US Dollar. However it had already had previous All-Time-High of around 5 USD. But it wasn’t until the Darknet market places started swarming from Bitcoin to Monero that Monero started growing its value exponentially.
In 2016, Monero’s value grew rapidly due to the adoption it gained from major Darknet marketplaces such as AlphaBay (which was shut down in July 2017), that quickly noticed that using Monero instead of Bitcoin would make their transactions fully private and totally untraceable, instead of having to go through the process of “cleaning” Bitcoins after they had executed any transactions.
This was done by first changing the Bitcoins used into Monero, then after some time, exchanging them again for “clean” Bitcoins.
In January 2017, Monero was already trading at almost 20 USD and had a peak volume of more than 60 Million USD in 24 hours. It was at this time when the privacy and confidentiality Monero provided were further improved by implementing an algorithm from a Bitcoin Core developer called “Confidential Transactions” which had the purpose of hiding the exact amounts of XMR being transacted and implementing an improved version of Ring Signatures, which we will talk about later.
If we advance even further to late 2017, we can see Monero’s price surging (along most other cryptocurrencies at that time) to an All-Time-High of almost 475 USD in January 9th 2018.
Why is it more private than other coins? Obfuscation and Ring of Signatures.
If Monero became one of the most important altcoins as well as having one of the top ten daily traded volumes, is because of its immense focus on privacy and security.
The way the Monero Project protects transactions consists in generating a new address utilizing random data every time we receive or send XMR. This means that the person at the other side never actually gets to know the address of our wallet.
Furthermore, transactions also use Ring Signature signing. Bitcoin, and most of the other coins not oriented towards extreme privacy, use whats called asymmetric encryption. Which basically consists on a Public Key, which everyone knows, and a Private Key you use to sign your transactions which only you know. However this makes your Public Key, well just that, public.
The Monero team implemented the Ring of Signatures, which is one of the most important aspects of Monero. The Ring of Signatures allows a signer to sign his transaction with just his private key, the same as in asymmetric encryption, however a verifier cannot establish which of the members of the Ring Signature actually signed that transaction, he can only know that one of the members of the ring signed it. This follows the concept of “Security by obfuscation”.
CryptoNight, Monero’s Proof of Work consensus algorithm and “fair mining”.
As all other cryptocurrencies, the concept of decentralized consensus is very important. It is used to validate which transactions are correct and which are not. Most cryptocurrencies use a Proof of Work (PoW) consensus algorithm, also known as mining, and some use a Proof of Stake (PoS) algorithm.
The Monero Project went for a Proof of Work algorithm instead of a PoS algorithm, but one of the most important pillars the vowed to protect was that of “fair mining”, which means that everyone wanting to, should be able to contribute to the distributed consensus (mining) and no one should accumulate enough hashing power to “hurt” the blockchain and the rest of the miners.
For this purpose, they chose the CryptoNight algorithm, which is a PoW algorithm that until mid 2018, could only be mined with a normal CPU or GPU. The algorithm uses 2MB of cache per instance, so there was no point in having a 16-core CPU with only 8MB of L3 cache, because the algorithm would run as fast as in a quad-core CPU with 8MB L3 cache.
However in early 2018, Bitmain, the biggest manufacturer of Application Specific Integrated Circuits (ASICs) for Bitcoin and other coins, produced the Antminer X3, which was designed to mine Cryptonight-based coins extremely faster than with normal a normal CPU or GPU.
This was an obvious attack against the “fair mining” policy of the Monero team, so the team decided to fork to Monero-v7 on the 6th of April 2018 to slightly change the Cryptonight algorithm. This way, the Antminer X3 would no longer be able to mine Monero, and normal home computing parts would still be able to mine it at the same hashing rate, thus protecting the “fair mining” in Monero. This fork also created Monero Classic which is an ASIC-friendly variant of Monero.
Monero can be run almost anywhere.
Since the Monero Project is primarily developed in C and C++, their software runs on mostly anything that has a CPU. So anyone having a Windows PC, MAC, Raspberry Pi, Android phone, or many other kinds of computing devices, can go ahead and compile Monero from their Github and run a node themselves.
One of the implementations of Monero, the Javascript implementation from Coinhive, allowed website owners to embed their websites with an XMR miner that will utilize the visitors unused CPU power to mine XMR. This has been used by site owners in both good and malicious ways. Some allow the user to choose between watching ads, or mining XMR in the background. And others outright steal CPU power without the visitors consent.
The existence of a mobile wallet, its orientation to privacy, anonymity and confidentiality and fair mining sure make Monero one of the best and most promising altcoins for the general public and also for censored countries.
Hope you liked Crypto Tales #1, the history of Monero. I plan on making this a series of articles which I will try to post every week, telling you everything about a coin on each of them. Remember to upvote and follow me for more updates!