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Monero's role in the cryptocurrency space and the benefits of the latest software upgrade (Bulletproofs)
Monero (XMR) has long been one of my favorite cryptocurrencies, simply because of the privacy it gives users. Financial privacy is an important aspect of money that has slowly been eradicated from the mainstream financial systems. Surreptitiously, financial privacy is slowly being branded as somewhat criminal, on the basis of the “What do you have to hide?” line of thought. Perhaps a more useful question would be, “What and why would you like to see?”
I believe privacy and transparency both have their place in the financial world and we should be able to choose for ourselves which of the two applies to which situation, without force or coercion. That's where Monero comes in: to give us an option, to opt-in to financial privacy as and when we see fit. Coming from a background of having experienced pervasive government monetary policies that entrench high levels of surveillance and shackle-like restraints on economic freedom, I have come to appreciate the benefits of owning your money and of privacy.
Monero in brief
In the cryptocurrency world, Monero's strength lies in its strong privacy features. It offers fungible digital money that works like cash, in the sense that when transacting, you can limit the number of people who are aware of what's going on, even down to the individual sender alone. Information concerning the source, destination and amount of a payment is obfuscated by default. It's a step ahead of cash actually.
Monero achieves this through the use of ring signatures, stealth addresses and zero-knowledge cryptographic techniques that allow the entire network to reach consensus about the state of the money supply and balances of accounts, without actually revealing the individual transactions that form that state of consensus. It's a beautiful innovation that I hope to study in more detail some time in the near future.
Perverted transparency
Going back to economics, using Monero as a currency led me to notice a few things. In the traditional financial system, there is an expectation of transparency on the users of a currency, but very little of the same for the entities managing the money supply. In simple terms, they see all I have and do, but I don't see what they do or have. I call this perverted transparency and it results in an imbalance of power, where oppressive governments can control people's lives through currency manipulation, gatekeeping and so on.
Privacy is not a crime
A distinction exists between criminal acts and privacy, the former only enabled or exacerbated through the latter. I can speak for myself on reasons why I use Monero and they are quite simple. To avoid bad occurrences that come with having my financial activity disclosed to people with bad intentions toward me. I don't want to worry about someone tracking my wallet balance when I make a payment and everything else that can come from that.
The Bulletproofs update
Let's get to the technical stuff. The main inspiration behind this blog post was the improved usability Monero now offers, because of the last month's update to its software, named Bulletproofs.
A new zero-knowledge proof
Monero and other privacy oriented cryptocurrencies offer confidential transactions. These are transactions that do not reveal the amounts being used. To authenticate these transactions and maintain integrity of the money supply, zero-knowledge proofs are used; which are mathematical methods of proving that something is true without knowing all the values involved. The specific type of zero-knowledge proof that's used in confidential transactions is called a range proof, which serves to prove that outputs and inputs in transactions are within a certain range, bringing the network to consensus that no new money was created out of nothing or no one spent money they didn't have.
Smaller transactions
Range proofs had a side effect: larger transactions. Range proofs scale linearly, so a regular two-output transaction had a size of about 13 kilobytes, which is large when compared to Bitcoin's normal transaction size of around 500 bytes. Bulletproofs are an advancement in cryptography. Scaling logarithmically, Bulletproofs are a better way to handle range proofs.
Their implementation resulted in transactions of smaller sizes (about an 80% reduction). This has a lot of impact on various aspects of the Monero project. Most importantly, it reduces the rate at which the blockchain grows, improving its capacity.
Blockchain systems are like bets on the technological capabilities of the future, to an extent relying on Moore's Law to stay sustainable. Having a reduced rate of growth is good for Monero's odds of staying within technological capabilities of today. It also means that new miners or those who have reset for some reason, will spend less time synching their nodes with the blockchain.
Less fees
A direct and economical impact of Bulletproofs is that the reduced transaction size will also result in reduced transaction fees, because fees are correlated to the size of transactions. On average, fees have been reduced by more than 80% and I can attest to the same. I used to do fewer Monero transactions in the past and paid about a dollar or more sometimes. Now all the transactions I've performed since the upgrade have cost me fractions of a cent each. It is a big difference in the dynamics of how this currency can be used.
Rise to new use cases and future growth
With lower fees, comes the possibility of doing microtransactions or frequent and smaller transactions. Prior to this upgrade, a 2nd layer protocol like Lightning Network was the first thing that came to mind when thinking of reducing fees and enabling microtransactions. Now that end has been achieved to a great extent by Bulletproofs. Of course, Lightning Network or other 2nd layer scaling solutions can still be implemented for the blockchain to handle large amounts of transactions.
I am personally pleased with the Monero dev community's work in keeping the blockchain ahead of its challenges.
Keep up with Monero's development
To stay up-to-date on Monero's development, you can visit the links below:
Monero project website: it has a great explainer video, lots of resources to get started mining or using Monero and links to their blogs
Reddit: find out what the community is discussing