This is the third edition of the Hivergent Scorecard, where we give you the important highlights on a popular cryptocurrency that you may not know about. If you missed the first two articles on Stellar and NEM, you can check them out here and here. This week, we will be diving into Monero, one of the major blockchains focusing on privacy in transactions.
The Hivergent Scorecard:
- Name of the Blockchain: Monero
- Year Founded: 2014
- Name of Managing Organization: Monero Core Team/Monero Research Lab
- Organization Status: Community Driven
- Important Founders: Riccardo “fluffypony” Spagni (See full team located here)
- Key Partners: Darknet Markets (Unofficial and not Condoned)
- Blockchain Most Similar To**: Bytecoin
** This last point is highly subjective, as viewing the blockchain from various perspectives can make it compete or even complement many blockchains in the ecosystem. However, this metric can give you an idea of how other blockchains compare to one another, allowing you to better understand how major cryptocurrencies compare.
The Hivergent Highlights
A Privacy Focused Cryptocurrency for All
Bitcoin was originally called anonymous because Bitcoin addresses don’t have any identifying information associated with a user. The term used today is ‘pseudo-nonomous’, transactions associated with an account are logged forever. If an address gets associated with a person, their entire transaction history can be traced.
Monero started as a project to solve this ‘traceability’ problem. Monero as a blockchain has several major technological innovations that allow for total anonymity in transactions:
- The source of transactions on the blockchain are nearly impossible to identify. By using a property known as ‘ring signatures’, it’s not possible to accurately link the source of a transaction to any one address.
- Using another innovation called ‘RingCT’, it is not possible to know the amount being sent in a particular transaction.
- Using a stealth address, users on the Monero blockchain create a one time address for each transaction, obscuring the sending address in each transaction.
Because of these three features, transactions on the blockchain are nearly impossible to trace, allowing for secure and private transactions for all users.
True Fungibility in Cryptocurrency
When analyzing assets, there is a concept known as fungibility, which is a measure of how interchangeable objects are to one another. For example, the US dollar is a rather fungible form of currency, as one dollar is generally exchangeable from any other dollar in circulation. Other assets, like cars, are not very fungible. One car, which has had one set of owners and circumstances, will have a completely different state than another car, even if the make, model, and year are identical.
For most cryptocurrencies, like Bitcoin or Ethereum, the assets are less fungible then one would suspect. While it’s true that if you buy one BTC from another person, it usually does not matter what transactions happened before it was in your wallet. But because the Bitcoin blockchain is immutable and all transactions are available, this history of your BTC can be analyzed.
Why does this matter? Because some BTC in the ecosystem have been stolen because of hacks and nefarious actions. And those specific BTC can be tracked and marked allowing exchanges like Coinbase and Bittrex to ban their use. If you happen to be in possession of a token that was involved in one of these hacks, your account can be permanently blacklist.
Monero is one of the only cryptocurrencies that provides true fungibility in cryptocurrency as a default feature. Because transaction histories cannot be tracked, every asset is treated the same across the network. This is not dissimilar to how we treat almost every fiat currency in the world, making a strong argument for how cryptocurrencies should be handled as well.
Community Driven Development, for Better or Worse
Unlike the Bitcoin and Ethereum (but similar to NEM), Monero does not have a managing organization. It did not launch with an ICO and does not have any outside funding. It is the tenth largest cryptocurrency in the world despite being bootstrapped. There is a team of developers, known as the Monero Core Team, that is led by a developer named Riccardo Spagni, more commonly known as “fluffypony” online.
Spagni is an important part of the Monero community, largely attributed with helping transform the original Monero codebase, which was buggy and disorderly, into the much cleaner and usable codebase that exists today. This is consistent with other founders of popular blockchains, where one ‘super’ user works to move the entire code base forward through incredible persistence.
Even though the community driven atmosphere works for Monero, it does have its drawbacks. For instance, recently Spagni announced that Monero was coming out with a huge announcement soon and was going to impact what Monero was capable of. Suddenly, the price of Monero spiked in value, speculated to be caused by Spagni’s announced. Soon after, Spagni announced that he had ‘trolled’ the community, largely as a protest against speculative investors in the larger cryptocurrency community. This revelation was a point of significant controversy, as the community debated whether such an action from a significant member of the community was appropriate.
Successor to Bitcoin’s Silk Road
While there are positive uses for a privacy focused blockchain, Monero has gotten another reputation in the industry: being the go-to cryptocurrencies for darknet markets. A darknet market is a ‘secret’ marketplace that can only be accessed via the Tor network, a decentralized network which purposely obfuscates IP addresses, making users untraceable. In 2011, Silk Road, the first such darknet market, was launched and used the Bitcoin network as their means of transacting.
In 2013, after an extensive investigation by the US Government, Silk Road was shut down and many users were prosecuted, in part because of Bitcoin’s immutable ledger, which kept a record of all transactions from a particular account. Once a user was linked to a Bitcoin address, it was easy to prove how the money was being spent. After this take-down, Bitcoin was not considered a safe option for darknet merchants.
Unrelated to this set of events, Monero was developing its privacy focused blockchain and was successful in creating a viable cryptocurrency. Because of this, new darknet markets began adopting Monero as a medium of exchange, as transaction can’t be tracked via the blockchain. While there are undoubtedly positive use cases of wanting to hide transactions (by individuals, businesses and government entities), its fair to say that the reason Monero is rising in value is because of darknet markets.
Why Does Monero Matter?
Despite some of the negative associations due to darknet markets, Monero is trying to solve a radically different problem than most blockchains. Amont the top 25 cryptocurrencies, there is only one other competitor, ByteCoin, that is focusing on improved privacy like Monero.
Technologies that have focused on better privacy have always improved society. Despite its prevalence in darknet markets, Monero provides better privacy for everyone on the network, it is not an optional feature. Whether it’s used for military communication or protecting your financial information online, privacy is an important aspect of operating in today’s world. Because of this, projects like Monero are ultimately going to be beneficial to society in the long run.
More Resources for Further Reading
This guide was not designed to be a technical overview, but a jumping off point into the unique things about Monero. If you have further questions, here are some resources I recommend:
- LONG List of Great Monero Articles (Great Resource for Beginners)
- Monero Road Map
- Monero Wiki Article
- Monero Welcome Post from reddit.com/r/monero
- Monero and Darknet Markets
- Community Backlash of Spongi’s (aka Fluffypony’s) Troll
- Understanding Ring Signatures, an important features in Monero’s Architecture