Monero (XMR) is a cryptocurrency designed for increased anonymity and privacy of users. At the same time, Monero’s mining algorithm is designed to simplify efficient currency mining on traditional hardware, unlike Bitcoin, for example.
Monero was introduced as a cryptocurrency in 2014. From the outset, the aim was to strengthen the system with regard to the anonymity of users and the protection of their privacy. In this sense, Monero’s blockchain is less transparent than that of older systems; amounts and user identities can be handled in a way that cannot be viewed by third parties but can also be disclosed on request.
How Monero works
From a technical point of view, Monero resembles the classic Bitcoin design: A blockchain with a block time of 2 minutes is checked and continued by maintainers or miners through a proof of work. In detail there are however some substantial differences to the well-known model.
The hash algorithm used by Monero is called CryptoNight (a word game with the identical word Kryptonite from the Superman universe). CryptoNight differs from more common algorithms like SHA by the fact that it is less computational but more memory intensive. This means that Monero Mining is easily and efficiently possible on conventional computers, as they are used in many households, while the use of specialized systems (farms of graphics cards or even specialized mining hardware) offers comparatively little advantages at best. The effect desired by the developers is obviously the equality of the user community and the avoidance of oligopoly formation, i.e. the accumulation of large amounts of currency in the hands of a few.
Another focus of Monero, as already mentioned, is increased anonymity. This happens in several ways: For example, transactions can be made additionally anonymous by the system grouping them together and the individual user only appearing as a member of this group, while the transaction itself can only be assigned to the group as such. The individual transaction is “hidden” in the transactions of the group. An extension of this function called RingCT also allows the amount of a transaction to be hidden. This prevents traffic analysis and data mining in general. (For example: Repeated instructions of particularly high amounts or other unusual patterns are in themselves suspicious, even if details of the users are not known.) In the meantime, however, successful crypto analyses have been carried out on Monero protocols, which have proven to be vulnerable on a case-by-case basis. Whether this leads to fundamental problems will have to be seen in the course of time.
All in all, this design leads to an invisible blockchain with which the participants can interact without giving outsiders an insight into the processes. This means the task of the transparent blockchain principle introduced by Bitcoin, which gives all participants access to all past transactions. However, Monero also provides the option of making your own transactions visible with a separate key, if desired.
The amounts paid out in Monero’s mining operations will be continuously reduced from block to block until a total amount of 18,132,000 XMR has been mined. This is expected to be the case in 2022. From that date, the amount to be emitted per block will be 0.6 XMR. No final total amount of XMR is fixed, and in the long run, Monero’s total volume will exceed that of cryptocurrencies with a final amount target (such as Bitcoin).