What is Monero?
Monero is a popular privacy coin and one of the first of its kind launched in 2014. Learn about Monero, how it works, and how to buy Monero in our guide.
What is Monero (XMR)?
Monero is a digital currency known for providing a high level of anonymity to its users and their transactions. Like Bitcoin, Monero operates as a decentralized peer-to-peer cryptocurrency.
However, Monero is distinctively more focused on privacy, making it a popular choice for those seeking greater confidentiality in their financial dealings.
Launched in April 2014, Monero was created as a grassroots initiative without any pre-mine or venture capital funding. It originated as a fork of Bytecoin, a process that occurs when an existing cryptocurrency is split into two to create a new version, often to address shortcomings in the original design. Monero's development was announced by a user known as "thankful_for_today" on a Bitcoin Forum, though internal disagreements led to a split among the developers, with the current version of Monero being the one that gained popularity.
Monero employs a proof-of-work algorithm designed to be friendly to standard processors and resistant to specialized mining hardware like ASICs (Application-Specific Integrated Circuits). This approach aims to keep the network more decentralized and accessible to a wider range of participants.
Read next: What are the different types of cryptocurrency?
How does Monero work?
Monero operates as a privacy-focused cryptocurrency that ensures the anonymity of users and their transactions through several advanced cryptographic techniques. Unlike Bitcoin, where transactions are publicly visible and traceable, Monero obscures details about the sender, the receiver, and the transaction amount by default. Some key features include:
Stealth Addresses: When funds are sent to a recipient in Monero, the transaction is not linked to their public address. Instead, Monero generates a unique one-time destination address for each transaction. This means that the public ledger (the blockchain) does not show the recipient's actual address, making it impossible for observers to determine how much money has been received or whether multiple transactions have been sent to the same person.
Ring Signatures: Monero uses a cryptographic technique called ring signatures to provide untraceability. When a transaction is made, Monero mixes the sender's funds with those of several other users, making it unclear which user's funds were actually spent. This transaction mixing ensures that even if someone knows you own certain Monero, they cannot determine when you spend it or to whom you send it.
RingCT (Ring Confidential Transactions): RingCT further enhances privacy by hiding the amounts involved in transactions. Observers can verify that transactions are legitimate, but they cannot see the exact amounts being transferred. This prevents any possibility of analyzing the blockchain to infer transaction details based on the amounts.
Unlinkability and Untraceability: In Monero, transactions are designed to be unlinkable and untraceable. This means that even if someone knew your public address, they would not be able to link it to any specific transactions. Additionally, if you receive funds multiple times, those transactions cannot be linked together as being sent to the same person.
Blockchain Scanning: To detect incoming transactions, Monero users scan the blockchain using a secret view key. This key allows the recipient to identify transactions addressed to them, without revealing this information to anyone else.
Ring Signatures and Transaction Mixing: Monero's system includes a concept known as the "mixin" level, which determines how many other users' funds are included in a transaction mix. This ensures that all transactions are effectively disguised among many potential transactions, making it impossible to trace the origin of funds.
I2P Integration (Invisible Internet Project): Monero is also working on integrating I2P, a network layer that hides your internet traffic to prevent passive network monitoring. This means that not only are your transactions anonymous, but it also becomes difficult for anyone to even know you are using Monero.
Monero’s approach to privacy has made it one of the most secure and anonymous cryptocurrencies, though this has also led to scrutiny and regulation in certain regions due to concerns about its potential misuse. Despite these challenges, Monero remains a leading privacy-focused cryptocurrency, continuously advancing its technology to ensure users' confidentiality.
Read next: Can the IRS track crypto?
What’s the future of Monero?
Given its unique features, Monero remains a popular investment for investors who value privacy and anonymity above all else. However given the increasing regulation around crypto from governments around the world it may face legal challenges in the future.
Where to buy Monero?
You can buy Monero on popular centralized exchanges like:
How to buy Monero
Here’s a step-by-step guide on how to buy Monero (XMR) securely:
Choose a Reputable Exchange: Look for exchanges known for security, liquidity, low fees, and good customer support. Kraken and MEXC are popular options that support Monero trading.
Create and Validate Your Account: Complete the verification process by providing personal information and verifying your identity through KYC (Know Your Customer) procedures. Once verified, deposit fiat currency or another cryptocurrency into your exchange account.
Purchase Monero: Choose a payment method: credit/debit card (quick but higher fees) or bank transfer (lower fees but slower). Follow the exchange’s process to buy Monero using your chosen payment method.
Read next: Best Crypto Exchanges
Why did Binance remove Monero?
In January 2024, Binance unexpectedly announced the delisting of four cryptocurrencies, including Monero (XMR). This caused Monero's price to drop by 33%, but it quickly rebounded, gaining 11.1% by the end of the day. Some Monero users were frustrated by withdrawal suspensions on Binance, suspecting manipulation. Binance set a withdrawal deadline of May 20, 2024, with deposits closing earlier on February 21, 2024.
Monero taxes
Despite its anonymous nature, the IRS and other tax offices still expect you to pay tax on your Monero gains and income. You can learn more about how cryptocurrencies are taxed in our crypto tax guides.
