Bitcoin, created in 2009, gave the world digital cash. It was the first decentralized cryptocurrency. The ability to transact large sums of money across the globe, without the need to use middlemen, and without needing to ask permission is truly groundbreaking. With 35% market dominance (at the time of writing this article) and a $283 billion market cap, Bitcoin has been leading the cryptocurrency industry for years now.
Bitcoin has definitely proven its grounds, but for all its advantages over existing fiat currencies (USD, EUR, GBP, etc), Bitcoin now only seems to serve a limited set of use cases. It is not very private, it’s becoming harder to upgrade and add new features to the protocol making it resistant to new technologies and innovations. Also, transactions are generally slow and becoming expensive.
Then came Monero – a secure, private, untraceable currency. It has an adaptive block size, its own codebase and only you control and are responsible for your funds, your accounts and transactions are kept private from prying eyes. Monero ticks most the permissionless digital cash boxes and even its developers are mainly anonymous. As you can see, Monero is not simply another Bitcoin clone. But is it all too good to be true?
In this article, we’ll take a deeper look at Monero’s features that have helped it become increasingly popular over the last few years (Monero is currently the 11th largest cryptocurrency in the market, with a total capitalization of over $7.5 billion.)
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Why Bitcoin Lacks Privacy and What Monero Can Do About It?
Bitcoin is pseudonymous rather than truly anonymous, which means that users can transact without providing their identities. Bitcoin doesn’t use real world identities as banks do. Instead, it uses addresses to make transactions possible between wallets. The problem is that the addresses, along with the transaction information, all get stored on a public ledger known as the blockchain, so people might be able to link your identity to a transaction over time. Users can make transactions without attaching their personal identity. However, it is now widely known that the Bitcoin blockchain is being data mined by blockchain analysis companies, which are able to de-anonymize Bitcoin transactions with a high degree of accuracy.
On the other hand, Monero has privacy turned on as a default setting. Untraceable transactions and anonymity are baked into the protocol, and nobody can know how much value you hold, who you’ve transacted with in the past or even how much value you’re sending in a particular transaction or how many transactions you’ve actually done with a particular address.
As a side effect of anonymous and untraceable transactions, Monero is considered by most in the cryptocurrency community as a truly fungible coin and much more fungible than Bitcoin. Fungibility is an important function of currency and it simply means that you can’t tell apart one coin from the next. Bitcoins are subject to being tainted because they may be used in criminal activity such as having been used in a drug deal on the ‘Silk Road’, or having been a payoff to ransomware hackers, a TOR browser based online wholesale and retail drug market. For example, if funds are stolen, or a particular exchange has been hacked, the stolen or hacked Bitcoins can be tracked and subsequently rejected by merchants or trading platforms. This means that Bitcoins are not necessarily interchangeable and it can make a percentage of Bitcoins unspendable, which is not ideal for a digital representation of cash. Monero’s inherent untraceability helps preserve your privacy and makes this a non-issue. It also provides peace of mind, because you don’t need to worry about how your Monero was used prior to it coming into your possession.
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How Does Monero Achieve Privacy?
Monero uses three different privacy algorithms to secure transactions – ring signatures, Ring Confidential transactions (RingCT), and stealth addresses.
Ring signatures, which is the technology Monero’s privacy is based on, hide information about the sender, using a technique where a group of users sign the transaction. By using ring signatures, it becomes impossible to tell who the actual sender was.
RingCT (Ring Confidential transactions), which was activated on the Monero network on January 9, 2016, allows users to hide transaction amounts. By using this technique, Anna can send Bill some Monero, and the only people that will ever know the amount sent will be Anna and Bill. The transaction is visible on the blockchain. However, there is no way to determine the amount transacted.
Lastly, Monero uses stealth addresses which are completely anonymous and untraceable and they add privacy to the receiver of a transaction. Stealth addresses use something called ‘spend keys’ to obscure the receiver’s address. A sender has to generate a spend key address for the receiver and send Monero through this address. A ‘view key’ is then used by the receiver to scan the blockchain to find the funds sent to them. Both the spend key and view key are used to build your Monero address, and this method means that while a transaction is recorded on the blockchain, only the sender and the receiver can determine where the payment was actually sent.
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Monero vs. Bitcoin: Other Key Differences
|Launch Date||April 18th, 2014||January 3rd, 2009|
|Max Total Coins||~18,300,000||21,000,000|
|Average Block Time||~2 Minutes||~10 Minutes|
Monero was launched in April of 2014, so it is understandable that it still has some catching up to do compared to Bitcoin which was launched in 2009. This is reflected in the two coin’s market cap differences, with Bitcoin sitting in the first and Monero sitting in 9th place at the time of writing.
Note: Bitcoin has surpassed the market cap of General Electric, which was once the largest company in the world and is currently level with Coca-Cola Co. Bitcoin’s market cap is also bigger than the likes of Hungary, Kuwait, and Qatar.
Bitcoin is the first example of a cryptocurrency and it had a lot more time to build out its network. It has changed the way ownership and transfer of value can happen and it won’t be giving up its first mover advantage that easily. Monero’s market cap boasts a whopping 800+ million, but the market cap comparison does not reflect the fact that Monero has a different use case than Bitcoin, a use case built around its privacy. Monero is the truly private cryptocurrency and is now establishing itself as the ‘coin of choice’ for people that want privacy in their transactions or that want to use Dark Markets. Monero replaced Bitcoin as the dominant Dark Market currency when users realized that Monero took privacy a few steps further than Bitcoin ever could.
It’s important to note that Monero is not a one-trick-pony either. Privacy aside, Monero brings quite some new things to the table and its developers have been addressing some key problems that Bitcoin has found challenging.
Hard forks have proved dangerous in Bitcoin as they will leave people who chose the losing side of the fork feeling disenfranchised and they might make Bitcoins permanently lose their value. When it comes to upgrading the protocol, for Monero a hard fork just means new features and bug fixing, making upgrading a breeze. Monero has a policy of hard forking every 6 months and all users are given fair warning and are expected to upgrade their software.
Monero has a dynamic block size, meaning Monero’s blocks can adapt depending on the needs of the network, unlike Bitcoin’s hard capped limited block size. This flexibility is definitely a major perk, and with dynamic block sizes, you also get dynamic fees. Bitcoin blocks are mined every 10 minutes while Monero’s blocks are mined every 2 minutes, and for transactions to be confirmed – a clear advantage for retail like scenarios.
Miner centralization, due to the use of ASIC chips during the mining process, is an issue that is here to stay in Bitcoin. Short of a contentious fork to change the PoW algorithm, it looks like mining centralization is a problem that Bitcoin has not been able to avoid. Monero uses mining algorithms that are ASIC resistant. This means that it can be mined using standard CPUs and GPUs, which helps increase decentralisation and build a bigger community of miners.
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How Has Market Received Monero?
Monero took the crown in 2016, where it had growth of 2,760% and was the best performing crypto for the year. Monero is more accepted than other alternative currencies and has a growing legion of fans. Many were originally Bitcoiners that became frustrated with Bitcoin’s inability to solve its own problems and move into the future. Privacy oriented coins became all the more appealing as data analysis firms started de-anonymizing Bitcoin users.
Eager to grow their community and see their currency gain use, a team of Monero enthusiasts based in Hong Kong have launched an alternative version of LocalBitcoins.com, called LocalMonero.co where buyers can find local sellers for one-on-one trades.
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Since its inception and despite early setbacks and engineering challenges, Monero has forged ahead and carved its own path in cryptocurrency privacy innovation. When compared to Bitcoin, it clearly leads the way in terms of anonymity and untraceability. But Monero is not alone in the privacy niche, and hot on its heels are other privacy focused coins, like Verge, PIVX , Zcash and Dash among others.
But competition is good in the cryptocurrency space. It allows a coin to adopt new and innovative techniques and implement improvements and upgrades that other developers have found to be successful. Monero devs have shown that this is something they consider to be very important and they have stated that they will implement anything that helps contribute to the Monero ecosystem as long as there are no negative effects.
Bitcoin has gone through its own upgrade recently with the activation of SegWit on the Bitcoin network, a software upgrade that fixes transaction malleability, and promises faster transactions and greater scalability of the network. SegWit provided the oldest blockchain with some much needed new capabilities and allowed for second layer innovations to be built on top of Bitcoin’s protocol layer. The SegWit upgrade was activated in August and was hotly contested for a couple of years. This had the effect of stalling innovations like the Confidential Transactions which offer enhancements in user privacy, and Lightning Network for fast, cheap, and secure transactions. With SegWit now activated, these innovations and potentially other off-chain scaling solutions like Drivechains can be deployed. It’s important to note that any increased anonymity and privacy in Bitcoin transactions can erode some of the gains that privacy coins like Monero have made.
Other innovations are also in the pipeline, like the experimental blockchain network MimbleWimbe and Atomic swaps, which can make cross-chain transactions possible. This means that you can send someone Monero, and they get the value in Bitcoin – or vice versa. So perhaps instead of directly competing to eat each other’s lunch, such developments can foster a sense of blockchains cooperating. With that in mind, it is probably less about choosing a winner between Monero and Bitcoin to see which currency would ultimate dominate the finance world, and more about both coins growing independently and serving distinct use cases and markets.
Monero’s clear efforts in being distinctly different from Bitcoin are already paying off as it is clearly the king in the privacy niche, and if governments come down hard on cryptos, a lot more people will move into Monero.