According to the official website, Monero is: 'A secure, private, untraceable currency'† Some people may think that this definition could be applied to Bitcoin, but that is not the case when it comes to private and untraceable. Monero is a digital currency that uses a different kind of cryptography to account for these specificities.
The following topics are covered in this presentation:
What is Monero?
There is a common misconception that Bitcoin is completely anonymous digital money. The premise of Bitcoin is that all transactions can be viewed in a ledger called the blockchain. This is useful because it allows anyone to verify that a transaction has taken place, especially for transactions that need to be completely transparent (for example, government and non-profit spending).
Monero is different from Bitcoin as it focuses on the privacy aspect of transactions with a digital currency. Monero uses a different type of technology to make the transactions untraceable and keep the balances hidden. If your bitcoin address is ever shared publicly, anyone will be able to view your balance and every other bitcoin address you've ever traded with. While names are not explicitly listed on the blockchain, if someone decides to share their address publicly, all past and future activity associated with that address will be associated with that person forever. You also don't necessarily have to share your address publicly for someone to find out you own it. In fact, just transacting with other labeled addresses is enough for someone to figure out that an account is owned by you.
While certain organizations that are required to be transparent may want their transaction history to be displayed, the same cannot be said for all individuals and companies. Imagine if someone could see all your bank balances and transactions. You may not want the whole world to know your salary and spending habits. Financial privacy is particularly relevant after the string of security breaches in recent years that have leaked credit card information. You may not necessarily want every store and website you purchase from to store that information. Monero's values protect this personal information and make transaction details private from the outside world by default.
How does Monero work?
Without delving deeply into the technicalities, Monero's way of making transactions untraceable is through a technology called ring signatures† It essentially combines an individual's transactions with others so that it is not clear to the public who owns which addresses. It also hides balances by stealth addresses which are random one-time addresses that cannot be publicly associated with a person.
In Monero, there is also a so-called “spend key” that is used to spend money and a “view key” that the user can share with others to make transaction data selectively transparent to certain people. Optional transparency can be beneficial in situations where an entity needs to be audited or file information for tax purposes. This separation into two different keys allows someone to allow a third party to view transaction data without allowing the viewer to spend all their money. Making a comparison with the existing financial system: the bank credentials needed to access your money is comparable to a spend key, while a copy of your bank statement and transaction data is comparable to a view key.
Who invented Monero?
Monero has a strong core developer team of seven people, five of whom are pseudonymous and two known to the public – Riccardo Spagni and Francisco Cabañas, along with many contributors. Monero is undergoing development updates now scheduled every six months that add new features and security improvements. These scheduled updates force Monero to evolve and keep everyone on the same page that there are consistent updates to the system.