Big brother knows what you bought last summer. That’s because if you’ve used any of the major cryptocurrencies, your transactions have most likely been tracked and logged forever. However, there are cryptocurrencies out there that are private by design and, while they are a dying breed, they are as important now as they have ever been. Today I’m going to do a long-awaited update on Monero and it’s one you don’t want to miss.
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Monero’s a cryptocurrency that was built from the ground up to be 100% anonymous. This is in stark contrast to cryptocurrencies like Bitcoin and Ethereum, which have transparent and publicly viewable blockchains. Anyone can crack open a blockchain explorer and see exactly what is going on. In fact, the public nature of their blockchains makes them the antithesis of anonymous by most objective measures. Cash and gold are more anonymous than publicly trackable cryptocurrencies. That’s unless, of course, you’re using a cryptocurrency like Monero, which exists on a blockchain that is completely hidden. You can crack open the Monero blockchain explorer right now and you won’t be able to see any information about the amount of a transaction or anything about the sender or recipient. What this also means is that Monero’s currency XMR is completely fungible. Each and every coin is indistinguishable from the rest because there’s no transaction history. That’s an important point.
So how the heck is Monero able to remain private and still verify the authenticity of transactions? Well, it’s all thanks to some pretty bleeding edge cryptography. For starters, when it comes to those anonymous addresses, Monero uses what are called stealth addresses. They are as cool as they sound. Basically, they allow for the creation of unique one-time public addresses on behalf of the recipient. Every single transaction will have a unique public address that cannot be linked to one receiving party.
However, and here’s the really cool part, it still allows you to publish only one inward address while having all your transactions sent to unique addresses on the blockchain. Now if that sounds complicated, then you ain’t seen nothing yet. That’s because Monero also employs what are called ring signatures. This is a mechanism that’s designed to obscure the individual signing the inward transaction and hence receiving the funds. Essentially, Monero transactions are signed with a ring of random other potential signers, which ensures that transaction outputs are untraceable.
The final piece of the puzzle is that which hides the amount of the transaction itself and that’s ring confidential transactions, or RingCT. It’s been termed an improved version of ring signatures, ‘multi-layered and linkable, a spontaneous anonymous group signature’.
Anyhow, the point is that Monero’s privacy and anonymity are thanks to insane levels of highly complex tech. The tech that has been constantly evolving since Monero was first launched back in 2014, which of course makes it one of the OG cryptocurrencies. A cryptocurrency that doesn’t have a centralized DEV team controlling it but more a global collection of very smart open source developers who’ve been honing its tech for years as cypherpunks with no real promise of monetary reward. It is pretty noble, if you ask me. Okay, so that’s a bit of an overview of Monero. However, a lot has happened in the year since I last covered the project, so it’s well worth diving into some of these updates.
In March of last year, it was revealed that Greyscale, the issuer of numerous cryptocurrency trusts, was actively considering one for Monero. This news was confirmed by filings from earlier in the year which showed that Greyscale had registered a Delaware trust for a Monero variant.
This was considered bullish news at the time, and that’s because, as many of you all know, buyers of Greyscale’s funds are mostly institutions. If Grayscale were considering listing a fund like this, then it could indicate strong institutional interest.
Now, sadly, no fund has yet been launched but it’s still being considered according to Greyscale’s website. Then in July, it was discovered that there was a bug in Monero’s decoy algorithm quick terminology. The ‘mixin’ refers to the number of decoy transactions that are used in a ring signature. These decoy signatures are used to obscure the true signer as I mentioned earlier.
According to a tweet from the official Monero account, the bug occurred when a user spent their funds within 20 minutes of them being received. This bug would give ‘a good probability that the output for a new transaction could be identified as the true transaction’.
However, the bug did not reveal anything about the transactions or their amounts. To avoid the bug being an issue, all that was required of the users was to wait an hour or more before spending newly received Monero. It’s not ideal, if I’m honest, but definitely not catastrophic. A hard fork of Monero was not deemed necessary.
Moving on in August, it was announced that the long-awaited Monero atomic swaps were live on the main net. This was something that had been worked on by a number of dev teams for over a year and, one of the most promising of these was the solution being developed by the folks over at the commit network.
For those who don’t know, atomic swaps give users the ability to convert bitcoin into Monero all on chain. There’s no need for a centralized exchange to broker the transaction. At about that time, CipherTrace revealed that it had developed some tools that were able to offer governments enhanced tracking abilities for Monero. For those unfamiliar with CipherTrace, it’s a blockchain tracking company.
While this may have alarmed some users, many were skeptical because there was no real disclosure of what the technology was or how it worked. It’s quite likely that the tools referred to were the patents that CipherTrace had filed a few months earlier, titled ‘ techniques and probabilistic methods for tracing Monero’. From my reading of it, given that these are probabilistic, it implies that the tools are able to give a best guess as to the flow of funds but not establish a conclusive link.
Not long after this, Monero tracking was in the spotlight again thanks to leaked slides from Chanalysis, another blockchain tracking company. This was a presentation given to Italian regulators back in September: ‘Of the cases that chanalysis worked on in collaboration with law enforcement, we were able to provide usable leads in approximately 65% of cases involving Monero.’ Of course, this statement doesn’t claim to have broken any sort of encryption on the Monero blockchain. According to Justin Ehrenhofer, a member of the Monero Space Work Group, ‘usable leads is very non-specific and can mean a wide variety of things’.
Moreover, there are other questions about whether the term “cases” could be quite broad. It could include people who merely use Monero but were caught thanks to being tracked while using other cryptocurrencies.
On to the next update though, and that came back in October when yours truly set up a Monero mining rig to take advantage of the free electricity in our office. The funny story turns out that electricity wasn’t free. It was only billed once every six months.
Anyways, once I mined this Monero and cried about the bill we got, I would have had a hard time converting it into pounds because one of my most reliable XMR on and off ramps delisted it for U.K. clients in November as Kraken disclosed that it would be removing XMR for all users in this country. While this action frustrated some of those Monero users here, the CEO of Kraken, Jesse Powell explained that it was not really his choice in response to a Reddit post. He said that this was because of the fact that Kraken had recently acquired a company called Crypto Facilities that granted the exchange an FCA license. There was a chance that this could not have been renewed given the listing of XMR. He said, “We have to pick our battles and look out for the broader business in the country.” It’s unfortunate but understandable. You can’t really blame Jesse for taking this step.
Regulators have constantly been battling against privacy-enhancing cryptocurrencies, and reports like CipherTrace’s recent trends in ransomware don’t paint them in the most flattering light. The report claimed that there was growing use of Monero among Ransomware Groups in 2021. Similar arguments were made by Chanalysis in its 2022 Crypto Crime report. That report highlighted the extensive use of Monero in ransomware cryptojacking and darknet markets.
What’s interesting, though, is that the same report shows that the vast majority of criminals still prefer Bitcoin as their currency of choice. This does show that Monero is perhaps being a bit unfairly targeted. Some news were good and some bad, which is pretty well mirrored in XMR’s price action over the period, so let’s jump into that, shall we?
XMR Price Action
At the time of my last Monero update, XMR was trading at about $234. I said I was incredibly bullish on its potential, and within less than six weeks, it had reached a new all-time high of over $517. Of course, this was at a time of general bullishness in the market as the combined crypto market cap was breaking its own all-time highs.
Then came a shakeout of epic proportions. This was across the board and, of course, impacted the likes of Monero, causing it to tumble all the way down to 200 in less than a week. Ouch.
However, as the rest of the crypto market managed to recover and chase new all-time highs, Monero lagged behind. I can only assume that this was as a result of the continual flood that was being spread combined with those exchange listings. When you remove liquidity from the market, this will impact the price of the asset. Fewer avenues to trade it means less price discovery and less certainty around its future. This culminated in Monero reaching a yearly low of 140 in late January of this year. However, the tide began to turn in late February, when XMR began a sustained recovery that lasted. Through March and April, eventually breaking through $280 in mid-April.
There is the general awareness that Bitcoin and Ethereum are not the cryptocurrencies that many thought they were, at least in terms of privacy and anonymity. This is especially true today in the age of sanctions, where exchanges, regulators, and blockchain tracking companies can easily monitor the movements of most coins and tokens. Perhaps as a result, the past three months have seen positive price action for a number of privacy coins. According to Coin Telegraph’s article by Justin Ehrenhofer, the Monero dev referred to earlier claims that the price surge we saw about a month ago was as a result of more family funds and individuals holding Monero as a hedge against the recent geopolitical turmoil. This could have spurred the earlier price action we saw in March.
However, something that’s arguably more responsible for the price run-up in the past two weeks is the ‘Monerun’. This was an attempt by the Monero faithful to initiate a run on the exchanges. They all went to withdraw their coins at the same time and observe what happened.
The rationale behind this was the suspicion that exchanges were running fractional reserves of their Monero balances. They didn’t really hold all of the Monero that they were claiming to. Of course, given the nature of the private blockchain, no one could prove whether or not these exchanges had said reserves, so the community wanted to make a point. Whether they got what they wanted is up for debate. But what the Monero did do was pump up the price of XMR. Not only did people try to buy XMR in order to withdraw it. Of course, there was also the chance that those same exchanges may have been attempting to buy it on the open market as well. That’s, of course, if you believe that they didn’t hold all of it in the reserves as claimed. Of course, we’ll never know because well, it’s Monero, which brings us to the question. I’m sure many of you are asking where XMR is likely headed. Well, that depends on a number of events over the next few months.
First up, June will see the start of Monero tail emission. Now this is the point at which block rewards will fall to a rate of 0.6 XMR per block and remain there in perpetuity. The goal of this is to make Monero a more attractive blockchain to mine, as miners don’t have to worry about block rewards going to zero. This is something bitcoin miners do have to worry about.
Mining rewards aside, one of the most important upcoming events is a protocol upgrade that was just agreed upon a few weeks ago. This is going to take place on the 16th of July. It will be version 15 of Monero and it will hard fork at this block height. There are numerous upgrades that will come with this hard fork. Let me run through just a few of them.
Firstly, we’ll have an increase in the number of mixins used in a standard transaction. As I mentioned earlier, these are the number of decoys that are used in the ring signature transactions. The more mix-ins there are, the more obfuscated it is. The ring size will increase from the current 11 up to 16, which will further increase privacy. It’ll also lessen the impact of that decoy bug that was discovered last year.
Another upgrade Monero is adding is Bulletproofs+. For those who don’t know, in 2020, Monero was one of the first cryptocurrencies to implement Bulletproofs, which replaced the previous range of proofs. There was a dramatic increase in efficiency on the network as transactions were much lighter and the network much more scalable. Well, bulletproofs + takes things to the next level. It ensures smaller proof sizes and allows for faster transaction confirmations. This leads to faster proof generation and faster verification with the aggregation of multiple proofs. This will result in even lighter transactions and a faster generation of wallets. Estimates of the reduction in the size of transactions are about 5%. Lighter transactions will mean a more scalable chain with lower fees and faster transactions. What you’ll have is an upgrade that could make Monero more private and more usable, something that could really aid in that adoption and further reinforce the narrative of anonymous digital cash.
Moreover, if these upgrades go as planned, then Monero will hard fork again to a second-generation protocol called Seraphis and a new addressing scheme called Jamtis sometime in 2023–24. And now these changes are likely to be so extensive that they’ve been referred to as ‘Monero 2.0’, so these coming upgrades could have a positive price impact on Monero as more people start buying in anticipation. Moreover, if the upgrades go through, utility and transactional demand are both likely to pick up thanks to how much more usable Monero will be.
Of course, this still doesn’t address the challenge that we face when it comes to exchange support and liquidity. It’s likely that more centralized exchanges are likely to de-list Monero. It’s not up to them. Regulators and global agencies have declared war on privacy coins.
Of course, it’s not all bad news, and that’s because of these other solutions that will allow Monero to be traded cross-chain in a trustless and permissionless manner. For example, we have those atomic swaps that I talked about earlier. I’ll admit that these are pretty technical and definitely not for beginners. However, there are graphical DEX front-end tools being developed that should address this. If the Monero DEVs can build a cryptocurrency disadvanced at the protocol level, a simplistic and secure swap feature shouldn’t be beyond them then.
On top of this, there could be another opportunity for cross-chain liquidity, and that’s with the help of another really exciting project called ThorChain. It has already integrated a number of cryptocurrencies. However, one that I’m really looking forward to is, of course, that Monero integration. This will come with the integration of Haven, another privacy-focused cryptocurrency, and you can actually see the work that’s been done on the Thor chain’s Monero multisig implementation. I do so love open source now. It seems likely that this integration could be the next big thing that drops after that hard fork, and I, for one, cannot wait.
Although I do have a few closing thoughts, privacy coins are one of the last bastions of financial anonymity we have in an increasingly surveillance-heavy world. For many people, anonymity is freedom; the freedom to use money without worrying about who might be watching. As one of the largest and oldest privacy coins, Monero has become public enemy number one among politicians, regulators, and the mainstream media. They would all like to see it brought down or compromised.
Unfortunately, a perception has been created that one’s mere use of a privacy coin is tantamount to criminality. We all know the tired mantra: if you have nothing to hide, then why worry? Of course, these philosophical imperatives won’t change the trajectory of the current narrative. It’s going to become that much more burdensome for an exchange to offer Monero when the regulators start tightening the screws.
However, the hope is that by the time that comes, there are already effective solutions for trustless decentralized exchange, whether they be directly through bitcoin Monero atomic swaps or whether it be through a cross-chain liquidity protocol like ThorChain. I hope that these solutions are able to provide Monero with the liquidity it needs in order to thrive beyond this, though I’m also looking forward to those upgrades. If it all goes to plan, this could be a boon for the price of XMR.
However, I will also caution that there are a lot of risks. If we do enter a sustained bear market in the next few months, no amount of hardcore tech can sustain crypto prices. There’s also the risk that the upgrade doesn’t go to plan or that one of those blockchain tracking firms is finally able to crack the Monero protocol. All of these are tail risks that need to be built into your expected value calculations. All I can say for certain is that it’s going to be an interesting next few months.
So what are your views on Monero? Do you have other private coins that you prefer?
[This article is a transcription of a video made by Coin Bureau]
Original video: https://youtu.be/7-aTYyEVlNk ]