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A Beginner's Guide To Monero(XMR)

BitForex Editor
Nov 25, 2020

It is no news that public blockchains are transparent, and for any blockchain to work in a decentralized environment, all of its transactions must be capable of being verified independently by any peer. Looking closely into Bitcoin or Ethereum, one can easily see how public their databases are. While such infrastructure provides numerous benefits, it, however, doesn't guarantee anonymity or privacy. These cryptocurrencies might be useful for numerous applications; however, for those looking for financial confidentiality, then privacy coins are a more suitable option. One of the few private cryptocurrencies in existence is Monero.

What is Monero(XMR)?

Monero is a unique cryptocurrency that is not based on the Bitcoin code. This private digital currency is not only secure but also untraceable. More importantly, it is open source and can be accessed by anyone and everyone. Monero based its principles on being untraceable and unlinkable, which means a person cannot determine the destination or source of funds as well as being able to make a connection between transactions done on the Monero platform.

 Monero grants its users absolute control over their funds, which makes it inaccessible to prying eyes seeking to obtain information relating to user's accounts or transactions. It removes worries associated with multiday holding periods as well as fraudulent chargebacks. There is also an absence of capital control as users are in control of their money, as earlier stated.

Monero vs. Bitcoin – What's The Difference

Monero and Bitcoin share certain similarities as digital currencies; however, they also have distinct differences and features in various aspects that are unique to both cryptocurrencies. These areas of differences include;

1. Fungibility

Fungibility is based on the interchangeability of a good with one that similar to its kind. A good example is a gold, which is seen as fungible because a certain amount of it can be swapped with that of someone else, and it would still be functionally identical. This also applies to cash as a five-dollar bill can be exchanged for another. An example of an item that isn't fungible in this case is the "Mona Lisa," which is a unique piece of art with not another of its kind in existence. It is safe to say there isn't any other unit like it.

Fungibility in numerous digital currencies is somewhat challenging to determine. Some individuals are of the opinion that Bitcoin is non-fungible as every output is unique. Due to the transparency of Bitcoins blockchain, details of transactions like amount cannot be tracked. With Bitcoin, there have been cases of coins being confiscated or denied due to their tainted history. Now, even if users don't know about past or previous transactions, chain surveillance can easily blacklist coins and make them unusable as a currency, which has greatly attributed to the reason why some refer to bitcoin as a non-fungible asset.

In some areas, it is believed that such practice could affect some features which make public ledger cryptocurrencies preferred by users. Monero, on the other hand, avoids all these shortcomings from the onset as individuals are unable to determine where funds are coming from as well as going. Monero's extra privacy comes at a cost as transactions are much larger, which means that there are significant issues to be resolved before the system can successfully scale to accommodate the masses. Fascinatingly, Monero's strong fungibility has earned it certain notoriety as it is the preferred cryptocurrency for cybercriminals who are into dark web transactions, crypto-jacking amongst others.

2. Blocks and Mining

Monero, similar to Bitcoin, also makes use of proof of work. Like all CryptoNote based protocols, it is created to be ASIC-resistant. This is to avoid the dominance of mining pools executing high performance, specialized mining hardware. Monero's proof of work algorithm seeks to ensure the system is fair, weakening GPU's effectiveness and favoring CPU mining. Its logic is based on mining been better distributed as consumer-grade PC's remain competitive.

 Monero does not have a fixed cap regarding block size; it, however, has a dynamic block, which means that block can expand to take in increased demand. If there is a reduction in demand, then the permitted size will lessen. The size can be calculated based on the median size of the previous hundred blocks. In this case, miners are capable of producing blocks that surpass the limit, but they, however, get a reduced reward as a penalty.

3. Hark Forks

This is another interesting difference between Monero and Bitcoin. In a way, Bitcoin is somewhat opposed to forks, and this can be seen in the tremendous amount of time it takes to discuss simple upgrades before they are implemented. However, the reason for this is that Bitcoin developers, at times, need to be conservative so as to make sure the system stays decentralized, stable as well as secure.

Forks are often seen as protocol upgrade mechanisms plus; they are essentials, especially in adding new features and resolving critical bugs. However, with Bitcoins, users choose to avoid them as they tend to cause division and also serve as a possible threat to decentralization. Hard forks usually arise in Bitcoin when a group seeks to create a new cryptocurrency from the existing network; besides that, they are mainly used for solving urgent vulnerabilities.

Frequent hard forks in Monero are very much part of the system as it aims to ensure that the software can efficiently roll out security upgrades as well as easily adapt to changes. Hard forks in Monero don't usually carry negatives connotations, but that is not to say that they are foolproof as constant hard forks can attribute to the rise in the risk of vulnerability going undiscovered as well as also pushing non-upgraded users of the network.

Monero Development

Monero's development, which is similar to Bitcoin, is open to all as anyone can pitch in their ideas to the documentation and source code. The community takes the decision on the features to amend, remove, and also add. The project has over 500 contributors, and the core development team includes developers such as Francisco Cabanas, Riccardo Spagni, amongst other experienced developers. Apart from sponsorships, the CCS, also known as Community Crowdfunding System, serves the purpose of funding development.

Monero (XMR) has been a preferred choice for people looking for strong privacy assurances over the years. It boasts of a dedicated and experienced community of developers who are committed to expanding the confidentiality of transactions made by its users. Also, it implements new upgrades that are aimed at furthering its goal of providing untraceable and unlinkable cryptocurrency.

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