Monero (XMR) is an open-source cryptocurrency created in April 2014 that focuses on privacy, decentralisation and scalability. Unlike many cryptocurrencies that are derivatives of Bitcoin, Monero is based on the CryptoNote protocol and possesses significant algorithmic differences relating to blockchain obfuscation. Monero's modular code architecture has been praised by Wladimir J. van der Laan, a Bitcoin Core maintainer. Monero experienced rapid growth in market capitalization (from US$5M to US$185M) and transaction volume during the year 2016, partly due to adoption by major darknet market AlphaBay at the end of summer 2016. As of 2017, Monero is the 6th most traded cryptocurrency, with a market-cap of over $300,000,000.
Monero was launched on 18 April 2014 originally under the name BitMonero, which is a compound of Bit (as in Bitcoin) and Monero (literally meaning "coin" in Esperanto). Five days later the community opted for the name to be shortened just to Monero. It was launched as the first fork of CryptoNote-based currency Bytecoin, however was released with two major differences. Firstly, the target block time was decreased from 120 to 60 seconds, and secondly, the emission speed was decelerated by 50% (later Monero reverted to 120 seconds block time while keeping the emission schedule by doubling the block reward per new block). In addition, the Monero developers found numerous incidents of poor quality code that were subsequently cleaned and re-constituted.[citation needed
A few weeks after launch, an optimized GPU miner for CryptoNight proof-of-work function was developed.
On 4 September 2014, Monero recovered from an unusual and novel attack executed against the cryptocurrency network.
On 10 January 2017, the privacy of Monero transactions strengthened further with the optional use of Bitcoin Core developer Gregory Maxwell's algorithm Ring Confidential Transactions, starting at block #1220516. A ring signature algorithm introduced an additional layer of confidentiality by not displaying the amounts implicated in a transaction to someone who did not directly take part in it. RingCT transactions are enabled by default, but it is still possible to send a transaction without RingCT until the next hard fork in September 2017. By early February, over 95% of all non-coinbase transactions used the optional RingCT feature.
Monero is an open-source pure proof-of-work cryptocurrency. It runs on Windows, Mac, Linux and FreeBSD.
Its main emission curve will issue about 18.4 million coins to be mined in approximately 8 years. (more precisely 18.132 Million coins by ca. end of May 2022) After that, a constant "tail emission" of 0.6 XMR per 2-minutes block (modified from initially equivalent 0.3 XMR per 1-minute block) will create a sub-1% perpetual inflation (more precisely [see ref. above] starting with 0.87% yearly inflation around May 2022) to prevent the lack of incentives for miners once a currency is not mineable anymore. The emission uses a smoothly decreasing reward with no block halving (any block generates a bit less monero than the previous one, formula: Emission per 2-minutes block = max(0.6, floor((M − A)×2−19)×10−12) XMR, with M = 264 − 1 and A = 1012 times the amount of XMR already emitted). The smallest resolvable currency unit is 10−12 XMR. The proof-of-work algorithm, CryptoNight, is AES-intensive and "memory heavy", which significantly reduces the advantage of GPU over CPU.
The changes in the results of blockchain analysis after implementing the ring signatures. Monero protects privacy in three ways for all transactions on the network: 1) ring signatures hide the sending address, 2) RingCT hides the amount of the transaction (currently enabled by default and mandatory by the end of the 2017), and 3) stealth addresses hide the receiving address of the transaction. A planned fourth way conceals the origin node for transactions in I2P, and the Kovri router that would allow for this is currently in development. The following paragraphs describe these three technologies in more depth.
Monero daemon uses the original CryptoNote protocol except for the initial changes (as the block time and emission speed). The protocol itself is based on "one-time ring signatures" and stealth addresses. The underlying cryptography is essentially Daniel J. Bernstein's library for Ed25519, which is Schnorr signatures on the Twisted Edwards curve. The end result is passive, decentralised mixing based on heavily-tested algorithms.
However, several improvements were suggested by Monero Research Lab which covered the proper use of ring signatures for better privacy. Specifically, the proposals included "a protocol-level network-wide minimum mix-in policy of n = 2 foreign outputs per ring signature", "a nonuniform transaction output selection method for ring generation" and "a torrent-style method of sending Monero output". These changes, which were implemented in version 0.9.0 "Hydrogen Helix", can help protect user's privacy in a CryptoNote-based currency according to the authors.
As a consequence, Monero features an opaque blockchain (with an explicit allowance system called the viewkey), in sharp contrast with transparent blockchain used by any other cryptocurrency not based on CryptoNote. Thus, Monero is said to be "private, optionally transparent". On top of very strong privacy by default, such a system permits net neutrality on the blockchain (miners cannot become censors, since they do not know where the transaction goes or what it contains) while still permitting auditing when desired (for instance, tax audit or public display of the finances of an NGO). Furthermore, Monero is considered by many to offer truly fungible coins.
In April 2017, several research papers criticized the input selection method, arguing that the current method makes it easier to guess the real transaction input than ideal. Community discussions have been in progress through most of 2017 to improve this selection algorithm to better reflect real use.
Monero developers are also working on implementing a C++ I2P router straight in the code. This would complete the privacy chain by also hiding the IP addresses.
"Monero is powered strictly by Proof of Work, but specifically, it employs a mining algorithm that has the potential to be efficiently tasked to billions of existing devices (any modern x86 CPU)." Monero uses the CryptoNight Proof of Work (PoW) algorithm, which is designed for use in ordinary CPUs.
The smart mining feature allows transparent CPU mining on the user's computer, far from the de facto centralization of mining farms and pool mining, pursuing Satoshi Nakamoto's original vision of a true P2P currency. Smart mining is currently available in the CLI wallet for all operating systems, save for MacOS.
Monero has no hardcoded maximum block size, which means that unlike Bitcoin it does not have a 1 MB block size limit preventing scaling. However, a block reward penalty mechanism is built into the protocol to avoid a too excessive block size increase: The new block's size (NBS) is compared to the median size M100 of the last 100 blocks. If NBS>M100, the block reward gets reduced in quadratic dependency of how much NBS exceeds M100. E.g. if NBS is [10%, 50%, 80%, 100%] greater than M100, the nominal block reward gets reduced by [1%, 25%, 64%, 100%]. Generally, blocks greater than 2*M100 are not allowed, and blocks 60kB are always free of any block reward penalties.
Release 0.10.1 added a dynamic fee system using the formula Fee=(R/R0)*(M0/M)*F0. As usage of Monero increases, the per-transaction fees will decrease while the total transaction fees will increase.
The Monero Core Team also released a standard called OpenAlias, which permits much more human-readable addresses and "squares" the Zooko's triangle. OpenAlias can be used for any cryptocurrency and is already implemented in Monero, Bitcoin (in latest Electrum versions) and HyperStake.
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