8 August 2020

Monero is a cryptocurrency well-known for its privacy protections. But some investors may wonder exactly how Monero protects privacy when compared to Bitcoin. They may also wonder if there are other advantages to Monero beyond privacy.

This article will explain what Monero is, how it works, and where investors can buy Monero if they are interested.

History of Monero

Monero was created in 2012 by a group of seven developers: David Latapie, Riccardo “fluffypony” Spagni, smooth, othe, NoodleDoodle, TacoTime, and eizh (the last five names are pseudonyms of persons who have not revealed their true identities). It was based on a protocol originally called “CryptoNote.” The CryptoNote whitepaper is often referred to as the “Monero whitepaper.”

The first coin based on the cryptonote protocol was Bytecoin. However, this coin was forked soon after its creation, and the new coin on the forked chain was called “Monero.” It has kept this name ever since. [1]

Perceived problems with Bitcoin

Monero’s developers believe Bitcoin has flaws, and that Monero is needed in order to promote “healthy competition” to overcome them. [2] To understand Monero, it is crucial to understand these perceived flaws of Bitcoin.

Traceable Transactions

In the Bitcoin network, the sender of a transaction can be identified by looking up the transaction hash on a blockchain explorer such as blockchain.com/explorer. This will show the transaction inputs (the unspent bitcoin denominations sitting at the address), which can be used to determine the address of the sender.  Although the real identity behind the address may not be known, careful scrutiny of multiple transactions in and out of this address may reveal private information about the sender.

Linkable Transactions

Every Bitcoin transaction contains an output address. By watching this address on the blockchain, a spy may be able to determine personal information about the transaction’s recipient.

Scaling is Difficult

The Bitcoin software imposes a block size limit on the network. This is intended to prevent a malicious node from overwhelming the network with a giant block that would be impossible to process in a reasonable amount of time. While this size limit does help protect the network from crashing, it has the unfortunate consequence of making the network become too slow as the number of transactions increase.

ASIC Miners Have Advantages Over Non-ASIC Miners

Influence on the Bitcoin network was supposed to be based on the principle of “one CPU, one vote.” But early in its history, computer manufacturers developed Application-Specific Integrated Circuits (ASICs) that allowed certain computers to have much greater influence over the network than other computers. The Monero developers see this as a violation of the philosophy behind Bitcoin.

Monero’s Solutions

To solve these problems, Monero has ring signatures, stealth addresses, dynamic block size, and ASIC resistant cryptography. [3]

i) Ring signatures prevent traceability

In Monero, a transaction does not show only the inputs of the sender. Instead, it also pulls random inputs of the same values from the blockchain and places them in the “input” field of the transaction. This makes it difficult for a spy to determine which address is the real address of the sender and which are bogus inputs meant to confuse him.

The number of phony inputs is determined by the sender based on transaction fees. The higher the fee the sender is willing to spend, the more phony inputs can be added. To prevent double-spending, the sender is required to calculate a number called the “key image.” This number is unique for every transaction. If the sender tries to spend the same inputs twice, this same key image will be sent to the nodes twice, resulting in a double-spend error and the rejection of the transaction.

ii) Stealth addresses prevent linkability

In Monero, each user has two public keys and two private keys. When a person sends a transaction, the two public keys of the recipient are used to compute a stealth address. This is the address the Monero is sent to. The recipient then uses his private spend key to scan the blockchain for the transaction. When the transaction is found, the recipient can use both private keys to calculate a new one-time private key that will unlock the Monero at this address.

iii) Block size is dynamic, allowing scalability

Unlike with Bitcoin, Monero has no fixed block size. Instead, the maximum size of a new block is double the median size of the previous 100 blocks. This allows for a maximum size at any particular point in time, but also allows the size to grow as the network does.

In addition, miners who create blocks greater than the median size of the last 100 blocks have a block-reward penalty imposed on them. The amount of Monero they are rewarded with declines the larger the block gets. This allows a miner to produce a larger block if the transaction senders are willing to pay a fee in order to compensate him for the smaller block reward. But it prevents malicious miners from creating blocks that are abnormally large just to slow the network down. This dynamic block size allows Monero to keep its speeds high even as its user-base grows.

Designed to be ASIC-Resistant

Monero has several features designed to prevent ASIC mining computers from dominating the network. Instead of using Bitcoin’s SHA-256 hash algorithm, Monero uses a different hash function called Cryptonight. Cryptonight requires 2MB of free memory to work and was designed to take advantage of the AES-NI instruction set in normal, everyday PCs. This makes it extremely difficult to design an ASIC mining computer that could outperform an ordinary one. [4]

The Future of Monero

In the future, Monero developers intend to form an alliance with Kovri and I2P nodes. This will allow Internet traffic on the Monero network to be further obfuscated by hiding the IP addresses of participants. [5]

Where to buy Monero

Investors who are interested in Monero can find it at the following exchanges:

Monero’s price has risen from $2.13 in 2014 to $542 in January, 2018, before falling back to $112 in November, 2018. [6] Because of its privacy features, users who desire more anonymity than Bitcoin can provide have flocked to it. These features may continue to make Monero popular in the future.


[1] What is Monero? Most Comprehensive Guide, https://blockgeeks.com/guides/monero/ Accessed November 6, 2018

[2] Saberhagen, Nicolas van, CryptoNote v 2.0https://whitepaperdatabase.com/monero-xmr-whitepaper/  pgs. 1-4. Published October 17, 2013. Accessed November 6, 2018

[3] Ibid. pgs. 4-14

[4] User36303, Is Monero Amenable to ASIC Mining? Published July 20, 2016. Accessed November 6, 2018

[5] What is Monero? Most Comprehensive Guide, https://blockgeeks.com/guides/monero/ Accessed November 6, 2018

[6] Monero Price Chart, https://www.coingecko.com/en/price_charts/monero/usd, Accessed November 6, 2018

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