Monero turns 5. What does the future look like for privacy coins?
Monero was launched on April 18, 2014. Reminiscent of Satoshi Nakamoto, most of the developers involved in the Monero project have elected to stay pseudonymous. Only two of the developers currently involved with the project have gone public. They are outspoken lead developer Riccardo ‘fluffypony’ Spagni and Francisco ‘articmine’ Cabanas.
The history of Monero
Monero (XMR) started as a hard fork of the Bytecoin (BNC) project, one of the earliest privacy-focused cryptocurrency projects. The Bytecoin project was launched with a pre-mine, with developers allegedly keeping over 80 percent of the tokens for themselves. In order to create a fairer privacy coin that wouldn’t be tarnished with accusations of a pre-mine, another group of developers forked the Bytecoin blockchain to create Monero.
Monero is based on the CryptoNight proof-of-work hash algorithm, used by the CryptoNote protocol. Released with a whitepaper in 2013, CryptoNote was the brainchild of Nicolas van Saberhagen. Saberhagen had concerns over the lack of transactional privacy and confidentiality within the Bitcoin network.
The Bitcoin blockchain was the first successful solution to enable decentralized digital peer-to-peer payments with no central authority. However, due to its public blockchain, Bitcoin transactions are pseudonymous, and not truly anonymous or confidential. Many in the crypto asset community believe that a successful decentralized cryptocurrency needs private transactions for it to be viable in the long term. In the CryptoNote whitepaper, Saberhagen states, “Privacy and anonymity are the most important aspects of electronic cash. Peer-to-peer payments seek to be concealed from a third party’s view, a distinct difference when compared with traditional banking.”
The CryptoNote protocol and the principles outlined by Saberhagen form the foundations for a number of coins, including Bytecoin, Monero, Forknote, Boolberry, DashCoin, and DigitalNote.
*Untraceable, unlinkable, and analysis resistant *
Monero is classified as a privacy coin due to its untraceable, unlinkable, private, and analysis resistant transactions. Through a combination of innovative privacy-focused protocols like ring signatures, ring confidential transactions, and stealth addresses, Monero provides a high level of transactional privacy to its users.
The Monero blockchain is an obfuscated ledger, meaning it is not possible to view the data related to transactions executed over its network. The protocol aims to ensure that details such as amount transferred, the address of origin and the address of the recipient are not accessible to anyone. To achieve consensus, Monero utilizes CryptoNight, a proof-of-work algorithm designed for use within the CryptoNote codebase.
The architecture and features of Monero are different from public blockchains such as Bitcoin. Many believe the emergence of privacy-centric coins is the next logical step in the evolution of cryptocurrencies because of the concept of fungibility.
The case for privacy
Fungibility refers to the interchangeability of a good or asset with other individual goods or assets of the same type. For a currency to be successful, it needs to be fungible, otherwise, there is the potential for a loss of confidence in the currency.
Unfortunately, there are concerns that Bitcoin, and other crypto assets, do not possess strong fungibility at present. Because transactions made on public blockchains can be viewed by anyone, it’s possible for governments to use professional chain analysis companies, who can trace coins involved in illegal activity, such as darknet markets, theft, and ransomware. This leads to the tainted coin problem. As a result, there is a growing market for newly mined coins with no past history.
Speaking on Episode 93 of Laura Shin’s Unchained podcast, Riccardo Spagni characterized the need for transactional privacy as a human right. “My interest in Monero is ideological. I have a belief in privacy as a basic human right. And I was interested in this technology that could advance that, that could enable people’s privacy especially those who were in places and situations where their privacy was taken away from them.”
Two sides of a coin
Regulators are still grappling with the unique nature of private cryptocurrencies. Privacy coins give individual citizens the ability to transact outside of state control. Monero has been linked to a number of illegal activities, including mining malware, money laundering, and dark web purchases. As a result, some regulators are looking to legislate against Monero and other anonymous cryptocurrencies such as Zcash and Dash.
France is attempting to institute legislation that will ban anonymous cryptocurrencies. South Korea has banned anonymous cryptocurrency trades and Japanese regulators have moved against Monero, Zcash, and Dash.
If governments do attempt to ban Monero and privacy coins, enforcement will be a challenge. The nature of decentralized privacy-focused cryptocurrencies is that they are accessible to anyone with access to the internet and designed to be hard to trace. For individuals motivated to do business in a secure and private way, the use of privacy coins will be hard to stop.
For now, Monero continues to enjoy strong grassroots support and it has gained substantially in value since its launch. It is supported by a large number of global crypto exchanges. However, this could change in the future should unfavorable legislation push back against the adoption of privacy-focused cryptocurrencies.
OhNoCrypto via https://www.ohnocrypto.com/ @Alex Lielacher, @Khareem Sudlow
