A Beginner’s Guide to Monero (Buying, Trading, Mining)

9

In the wake of Monero’s recent adoption by the Alphabay and Oasis Darknet markets and the subsequent price explosion, Monero is undeniably the market’s preferred choice of “anon coin,” or anonymity-focused cryptocurrency:

tv chart monero
TradingView Monero (market symbol: XMR) chart, priced in US Dollar(-pegged crypto, Tether). Note that (inside) traders were buying XMR before news of its DNM adoption became known and selling it before the exit scam became known… XMR is perfect for insider trading.

99 Bitcoins previously recommended Monero as a reliable option for obscuring the trail of your Bitcoin spending and we stand by that. If you’re thinking of getting involved in Monero, this guide covers the coin’s history, features and future prospects in detail. Later sections are dedicated to the practicalities of trading and mining Monero.

A Quick Comparison of Bitcoin and Monero

 BitcoinMonero
SymbolBTCXMR
Launch Date3rd January 200918th April 2014
Initial CodebaseSatoshi clientfork of Bytecoin
Initial Distributionfair, public, no pre-minefair, public, no pre-mine
Mining SchemeProof of WorkProof of Work
Hashing AlgorithmSHA-256CryptoNight
Average Block Time~10 minutes~2 minutes
Maximum Block Size1 megabytevariable
Block Rewardhalves every ~4 yearsgradual per-block decrease
Total Issuancecapped at 21 million BTC18.4 million XMR over 8 years, subsequent annual inflation <1%
Economy & Ecosystemextensivelimited
Default Privacy Levelpseudonymousanonymous
Client Interfacecommand line & GUI (multiple implementations)command line & experimental GUI (limited implementations)

 

Monero’s slow rise to the top

Following its launch in April 2014, Monero has progressed, slowly and steadily (for most of its history), to claim its place among the major cryptocurrencies:

monero coinmarket
CoinMarketCap ranking for September 20th, 2016 – Monero’s volume is 3rd highest across the board.

Monero has long played the tortoise rather than the hare, at least until XMR jumped up and started sprinting in August of 2016.

As endless competing coins – fuelled more by hype and speculation than any real innovation or utility – fell by the wayside, Monero plodded along. The Monero developers and community focused on perfecting and upgrading their code to ensure reliable anonymity, paying little heed to cosmetic factors. As a result, Monero long remained unnoticed and undervalued by the crowd, over-shadowed by less technically impressive and ethically-unquestionable “anon-coins,” such as Dash. Across forums, social media, image boards and other such venues where coins are routinely pumped, Monero was seldom mentioned and often dismissed as a boring coin with a clunky name, lack of GUI (graphical user interface) wallet and inadequate PR.

Monero is not another “pretty face”

Meanwhile, various cryptocurrency experts were referring to Monero with a degree of respect notably absent from their assessment of (most) other altcoins:

  • Wladimir J. van der Laan, maintainer of Bitcoin Core, cited an aspect of Monero as an example of technical competence.
  • Peter Todd, Bitcoin Core dev and cryptocurrency consultant, tweeted to the effect that he considered Monero “genuine crypto” and preferred over competing, “snake oil” coin, Dash.
  • Nicolas Courtois, an academic cryptographer and computer science lecturer with eight patents and over a hundred papers to his name, mentioned Monero’s foundational technology as being well-regarded among his fellow cryptographers.
  • Andrew Poelstra, notable mathematician, cryptographer, Bitcoin contributor and Blockstream member, discussed Monero’s ring signature technology as it applies to anonymity, characterising it as a “feasible”
  • Theymos, admin of both the BitcoinTalk forum and Reddit’s r/Bitcoin, described Monero as one of only a handful of “technologically interesting [and]useful…” In a separate statement, Theymos described it as “the best altcoin,” with the caveat that its “terrible scaling” will likely result in Monero’s eventual replacement by a Bitcoin sidechain.
  • Risto Pietilä, the Finnish precious metals and cryptocurrency investor renowned for purchasing a 15th century Estonian castle with his Bitcoin profits, announced his intention to incorporate Monero as the first altcoin in his portfolio.

By winning over trusted people through the merits of its code, Monero has gradually acquired a reputation for reliability and competence. This process was aided by measured, thoughtful statements from its more public-facing developer, Riccardo Spagni, and a seemingly deliberate avoidance of hype.

Distinct from the majority of altcoins, Monero (XMR) wasn’t cloned from Satoshi’s ever-evolving Bitcoin codebase. Rather, Monero was introduced (under the original name of BitMonero) as a fork of Bytecoin (BCN). The cryptocurrency Bytecoin was itself a fork, derived from the entirely novel CryptoNote protocol. Although not in use as a cryptocurrency, CryptoNote effectively demonstrated the privacy advantages of a cryptocurrency based upon previously unseen cryptographic methods, such as Ring Signatures.

The reason for Monero’s forking from Bytecoin was due to the latter’s massive pre-mine, which ran to approximately 80% of total supply. Under active development since its launch in Q2 2014, Monero’s current codebase bears little resemblance to that of either Bytecoin or CryptoNote.

Monero’s core value proposition is financial anonymity. Whereas the Bitcoin blockchain may be likened to a transparent public ledger (albeit one in which individual or company names are obscured), Monero’s blockchain is opaque by design. Standard Bitcoin usage will leak sufficient data to link a user’s addresses and track their reception and disbursement of funds.

Even advanced Bitcoin usage, in which third-party anonymizing services such as mixers are employed, is often insufficient to hide one’s trail from blockchain forensic which certain companies and tools provide. Although it does not (yet) offer perfect privacy, Monero’s default level of anonymity likely exceeds that which can be achieved in Bitcoin by the most sophisticated user. These anonymity properties make Monero an excellent choice for Darknet Market (DNM) trade and other privacy-sensitive applications.

Monero’s price surge and bust

The broader market finally recognised Monero’s potential once it hit a couple of Darknet Markets. If you don’t believe such markets are significant, Justin Ranvier’s essay “Only the Black Market Matters” may convince you otherwise… That said, Monero’s acceptance by two such markets isn’t such a big deal in itself; rather it is reflective of a growing trust for Monero among those whose liberty depends upon anonymity.

Subsequent to this news, XMR increased roughly 7X over a month – XMR’s price relocated from its old home in the low single digits to a $15 penthouse suite. Such a move was textbook crypto – surprising, explosive and overdone.

At the time of writing, price has fallen back to below the $7 level on the news that the Oasis Darknet market just pulled an exit scam, likely in addition to running a related XMR pump & dump operation. XMR is heading back to undervalued territory; a level where it presents a tempting buying opportunity.

Getting to Grips with Monero

If you’re entirely new to cryptocurrency, there’s a lot to learn before making any major investment into Monero. Begin with the cryptographic techniques which underpin Bitcoin and study the workings of its blockchain before tackling the Cryptonote white paper and the review thereof by a mathematician sponsored by the Monero team.

Also check out Bytecoin, the first CN implementation, but keep these two facts in mind;

  • BCN’s notoriously unfair launch is Monero’s raison d’être, and
  • the (dark) market momentum is with Monero at this point.

Caution: don’t skip the Bitcoin learning pat, even if your sole interest is Monero. Without reference to Bitcoin, you won’t be able to properly judge the relative strengths and weaknesses of Monero.

Monero’s 3 Major Anonymity Methods

Besides being accessible through darknet networks such as I2P and Tor, Monero integrates several sophisticated cryptographic techniques to achieve an impressive level of overall privacy:

1) Unlinkable Stealth Addresses

Address re-usage is one of the common privacy bugbears of Bitcoin. Receiving multiple payments to a single address allows anyone who knows your address to track its balance and all related incoming and outgoing transactions. What’s worse is that even separate addresses in your wallet may become linked due to the way Bitcoin handles change! For this reason, Bitcoin core developer Luke Dash Jr. said that, “only a fool would use Bitcoin as it is today for darknet.”

No such privacy issues exist in Monero. All destination addresses are obscured within its blockchain, such that only the sender and receiver can identify them. Analysis of the Monero blockchain will never reveal the destination address at which one receives XMR. Instead, only a cryptographic hash of the destination, unique to each and every transaction, is visible. Only the sender or receiver can decode this to reveal the actual address. These obscured addresses are known as “stealth addresses.”

Beyond the obvious privacy benefits, stealth addresses have a number of ramifications, such as making it impossible to determine the current XMR distribution among addresses.

You can verify this yourself by putting a publicized Monero address (which likely contains some XMR) into the Monero block explorer:

monero address
Final-form addresses do not appear within the Monero blockchain…Monero’s extremely long addresses (95 characters!) are made manageable and memorisable through their Open Alias  project.

2) Indistinguishable Separated Transaction Units

If you were to send XMR to an “address,” in reality the encoded stealth address described above, it’d arrive as several discrete payment units. For example, if you were to send 18 XMR it would arrive in whole number units of 10, 5 and 3 XMR, totalling 18 XMR. Each unit would appear on the Monero blockchain as being transferred to it’s a unique and distinct stealth address.

This same process is applied to any change which is returned to the sender and any fees paid to miners. This property makes the task of tracking specific payment amounts vastly more complicated. As an example, an adversary who knows a vendor’s product costs an unusual amount – let’s say precisely 11.88101234 XMR – could conceivably monitor the blockchain (likely via some automated process) for that amount’s appearance and then focus their analytic techniques and resources on related transactions. By sorting all transactions into unremarkable units, the Monero system ensures otherwise-distinctive sums are “lost in the crowd” of un-differentiable whole units.

waldo
The Monero version of “Where’s Waldo?”- imagine that Waldo is a distinctive payment amount en route to a specific address… 

3) Untraceable Ring Signature Payments

There’s definite synergy between the way Monero handles addresses and payment amounts. This 3rd technique, Ring Signatures, is another neat piece of cryptographic engineering which makes it even harder for a Monero user to be identified. Ring Signatures are essentially an advanced, mandatory system for transaction mixing.

In order to understand Ring Signatures, it’s necessary to understand that, as in Bitcoin, a Monero “address” is essentially a specialized form of a cryptographic public key. Funds associated with that “address” may only be moved through the use of its paired private key.

To continue the earlier example: you send 18 XMR to a shop. This transmission then gets sub-divided into 10, 5 and 3 XMR streams, all of which flow to separate, stealth versions of the shop’s Monero address. Here is where Ring Signatures come into play…

From the point of view of an adversarial tracker, the private key which authorised any 10, 5 and 3 XMR sums ever sent across the Monero blockchain, since its 1st (“genesis”) block, becomes a possible signatory to the transaction. The number of possible signatories depends on the “mixing depth” you set; for example a depth of 4 implies that any 3 Monero keys which have been used are also potential signatories to your transaction… And as your transaction is split into units which all possibly derive from this “group signing” pool… Ring signatures ensure that transactions can’t be decisively traced back to specific computer’s IP address (or their Tor or I2P proxy address).

To sum it up – it’s pretty damn hard to identify Monero users

The combination of the above 3 elements makes Monero a veritable maze of mirrors for any adversarial tracker. No definite linkage can be determined, only the fuzzy possibility of linkage. To put it bluntly, the best blockchain forensic techniques which could feasibly be applied to a Monero transaction (or series of transactions) would likely prove inadmissible or at least unconvincing if presented as evidence in a court of law. Even Monero miners are unable to censor transactions. It’s far more likely that some element beyond the scope of Monero’s code would result in de-anonymizing its average user.

However everything has a price…

The above anonymity methods are expensive in terms of data requirements; there’s always a trade-off. Additionally, Monero’s blocksize grows with increasing demand (although a penalty fee is in place to prevent bloat). For this reason, Monero uses more system resources than Bitcoin and most other cryptocurrencies. This may become a serious obstacle to Monero’s future success.

Using Monero with Minimal Effort

Now that you’re aware of Monero’s privacy benefits, you’re probably wondering how to use it. The simplest possible way to send an anonymized Bitcoin payment, with Monero acting as an anonymizing intermediary, is the website XMR.to. For best results, connect to the site via the darknet. Even if the privacy of your Bitcoin wallet is fully compromised, no one will be able to determine the ultimate destination of any payments made via XMR.to.

How to Get the Full Version of Monero

Although web and light versions of Monero exist, the full version is safest and most security. Here’s how to get it:

1) Visit the official site at getmonero.org/downloads.

2) Download the correct version for your system.

3) In order to ensure you have a legitimate version of Monero, it’s strongly recommended that you check the SHA hash of your download against that displayed on the website or hashes.txt file. Here’s how to do that on various operating systems:

Windows

Open a command prompt then navigate to the directory where you downloaded the Monero .zip package. Enter the following command:

certUtil -hashfile Monero.win.[Windows version].[Monero version].zip SHA256

Mac OS X

Navigate to the downloaded package and run:

shasum -a 256 Monero.mac.x64.[Monero version].tar.bz2

Linux

Run the following command:

sha256sum Monero.linux.[Linux version].[Monero version].tar.bz2

How to Use Monero

Monero.exe is the wallet and MoneroD.exe is the daemon which syncs to and interacts with the blockchain.

The first time you run the wallet, it’ll generate a 25 word mnemonic seed, similar to that used by HD Bitcoin wallets such as Electrum. Record the seed and store it safely! The seed is the only way to reclaim your XMR balance if your machine malfunctions or gets damaged or stolen.

After generating the seed, the wallet will output an “initial.address.txt” file in its working directory. This file will contain your Monero address.

Before you paste your XMR address anywhere to receive funds, it’s a good idea to enter “help” into the wallet and experiment with the various commands. The Monero site provides further info on the wallet’s operation and there is a lot to learn.

Where to Buy Monero

Note: some exchanges display the Monero price in terms of BTCXMR instead of the more familiar XMRBTC rate. To avoid manual re-calculation, simply request the following quote from Trading View’s XMR chart interface: “1/XMRBTC”. This will invert the quote, as shown below:

btcxmr-rate
Poloniex’s BTCXMR rate is currently at ~86 while their XMRBTC rate is currently at 0.011…

For seeing Monero’s price against other altcoins, Blockchain Stat is useful.

1) Shapeshift.io

Shapeshift.io offers a quick and simple way to exchange Bitcoin or altcoins for XMR. It doesn’t have the best exchange rates but for buying small amounts, it’s very convenient as no personally-identifying info or email signup is required. To avoid revealing your IP to Shapeshift.io, connect to it via Tor or I2P.

Buying Monero from Shapeshift is a simple matter of selecting your preferred cryptocurrency for payment by clicking the “Deposit” option. Ensure the Receive option is set to Monero, like so:

buy monero

Next, you will be prompted to enter your Monero address (copy and paste it from your initial.address.txt file) and your Bitcoin refund address (in case something goes wrong). If withdrawing to your own Monero wallet, leave the Payment ID field blank. You’ll also have to agree to Shapeshift’s terms.

Note the updating exchange rate displayed at the top and compare it against the current BTCXMR rate. Also highly important are the deposit minimum and deposit maximum amounts of Bitcoin (or crypto of your choice) to send. Stay within that range to avoid problems:

buy monero pt2

That complete, Shapeshift will display your Bitcoin payment address. Shortly after your payment is broadcast over the blockchain, Shapeshift will release your XMR:

buy monero pt3

2) BitSquare

Bitsquare is a decentralised marketplace app for the trading of (crypto) currencies between individuals. It requires no personally-identifying information or email signup and automatically connects via Tor, delivering excellent privacy for your Monero purchase.

The downsides to Bitsquare are its relative complexity (consult the Bitsquare documentation for help with getting started) and the lack of liquidity for XMR trading. It may take you a while to find an XMR seller for your location and preferred payment method.

 

3) Poloniex

Poloniex.com is the biggest market for trading Monero, as well as numerous other altcoins. They tend to have the lowest price and deepest liquidity, albeit with the lowest privacy expectations. You will need to supply an email address to sign up at Poloniex. Connecting via Tor and using a Tor-compatible email account are recommended. As with all online exchanges, withdraw your cryptocurrency to a wallet under your control ASAP.

poloniex

How to Mine Monero

Why buy Monero when you can mine it, right? Well… buying it is a lot quicker, easier and doesn’t require any careful investment in mining hardware or cheap electricity to be profitable.

Monero’s CryptoNight algorithm is designed to maintain the viability of CPU (computer processor) mining although, at this stage, GPU (graphics card) mining is the only method likely to return a profit. As yet, there is no specialised ASIC mining hardware available for Monero.

Calculating Profitability

Before buying any hardware, calculate your potential profits using Coinwarz’ mining calculator. The calculator will automatically retrieve the current XMR/BTC exchange rate, difficulty and block reward. You will have to manually enter the correct details for the other field, such as your GPU’s hashrate, power consumption and cost (assuming you must buy a GPU for mining) and the cost of your electricity per kilowatt hour. Electricity prices are visible on your utility bill.

Unless you have very low power costs, it’s unlikely you’ll make much profit at the current XMR price…

1) Choose a Mining Pool

To smooth out your mining rewards, it’s best to join a pool. Solo-mining is not recommended; unless you own a lot of mining hardware you can expect to wait weeks, months or even years before seeing any reward. There are numerous Monero mining pools, many of which charge no fees.

2) Download Mining Software

For NVidia GPUs, you’ll want to downloaded ccminer-cryptonight.

AMD GPU owners should download Claymore’s CryptoNote GPU Miner v9.6.

3) Enter Your Pool Details and Begin Mining

Monero miners are run from the command line. Follow the mining software’s documentation and run the relevant miner with your pool’s address and miner details to begin mining. You can monitor your earnings from the pool’s website.

For ccminer, the command is as follows:

ccminer -o stratum+tcp://[your chosen pool & its port]-u [your Monero address]-p [your password, as set in the pool]

For Claymore, enter this:

NsGpuCNMiner -o stratum+tcp://[your chosen pool & its port]-u [your Monero address]-p [your password, as set in the pool]

XMR’s Price Next Week: Up / Down / Sideways?

Scams aside, it seems likely that Monero will “bottom out” in the near or medium term, especially in consideration of these price-supportive factors:

  • the current excitement over Monero’s acceptance as “legal” tender on the Darknet. Despite the scam, the precedent for markets acceptance has been made.
  • the coin’s acceptance by cryptocurrency traders, many of whom have taken to Monero as a coin to trade when Bitcoin markets are dull. Popularity as a trading instrument now represents a separate source of demand for XMR.
  • Monero’s 0.10 release, which dropped on the 20th of September. It includes a promising new anonymity feature known as RingCT, developed in collaboration with Bitcoin Core developer Gregory Maxwell. 0.10 also brings some welcome optimisations to the disk space requirements and sync-speed of Monero’s blockchain.

If you’re new to Monero, chances are it’s this latest price action which attracted your attention… That’s ok but don’t get caught up by fear or greed and plough your life savings – or any amount whose loss would seriously impact your life – into Monero. Speak to those with proven expertise in this field and conduct all necessary research before making any economic decisions.

While we can’t possibly tell you where XMR’s price will go from here, we can tell you which factors to watch. In the long term, Monero’s success will hinge on technical and economic development.

Here are three scenarios which will influence the XMR price in future:

  • Anecdotal evidence suggests that although several AlphaBay and Oasis vendors prefer(red) Monero, with some even offering an XMR discount, only a minority of vendors currently accept it. Acceptance by additional markets and vendors – whether darknet or clearnet – would be a price-positive signal, as would the establishment of a direct fiat to / from XMR exchange. Currently Monero is purchased primarily with other cryptocurrencies, the only exception being decentralised exchanges such as BitSquare, where volume tends to be light.
  • It remains to be seen whether Monero can maintain its anonymity edge over Bitcoin in the long-term. Bitcoin maximalists expect Monero to either be eclipsed by or subsumed into Bitcoin, in the form of a sidechain. The Monero developers likely have other ideas.
  • Even if Monero succeeds as an economic instrument while remaining competitive to Bitcoin, there are doubts as to whether it can scale sufficiently to service even the existing level of demand for privacy-sensitive crypto-commerce.

Tip: study market charts from Bitcoin and other cryptocurrencies which have undergone one or more pump & dump / bubble & crash cycle(s). Such charts will hint at possible scenarios for XMR price development. The Mt. Gox P&D chart is not dissimilar, at least on a percentage basis, to the unfolding XMR situation.

Got any other questions or comments about Monero, I’d love to hear them in the comment section below.

Find the best exchange to buy Bitcoins


Steven Hay

I'm a former futures trader. My keen interest in matters financial, economic and political eventually led me to conclude that the current, debt-based fiat system is broken. It was a natural step from there to investing in gold and, in early 2013, Bitcoin. Although I'm not very technical, I've learnt about Bitcoin through study, asking questions, running ecommerce and marketing sites and working as a journalist. I've always loved writing and my current focus is on creating guides which inform others about Bitcoin's advantages.

9 Comments

  1. Monero is the coin of the future. The ONLY thing that keeps Bitcoin up is the fact that it CAN be tracked, and therefore govts. are allowing financial institutions to use it – hence the demand for BTC. If one could buy Monero directly, both BTC and ETH would drop in value.

    • Hey Didit, although it’s convenient there are better options than MinerGate, for example pools which donate to the Monero core team. MG fees are also pretty steep compared to other options. Finally, the consensus seems to be that MinerGate is not entirely trusted due to some possible association with Bytecoin.

    • I can’t say I’ve looked into Zcash very deeply. SIGAINT, the privacy-promoting darknet email service that also runs a Monero node over Tor, have the following to say regarding Zcash:

      “Zcash is operated by an LLC in the USA. Besides the obvious political problems, Zcash doesn’t mix by default, it is opt-in. Also, it may be possible for the maintainers to secretly inflate the currency by hiding inflation into zk-SNARK “pours”.”

      I would suggest raising these concerns with Zcash experts / afficiandos and see if they can answer them to your satisfaction. If not, I’d stick with Monero as the more tried and tested technology for now.

  2. I agree that it would be very foolish today to use Bitcoin for any illicit transactions, but it still happens. All that is needed for BTC to cough up its entire market share of discreet transactions to XMR would be 1 or 2 high profile cases of darknet marketplaces and/or their patrons being tracked down and prosecuted by law enforcement with the help of any of these emerging blockchain tracking services. It’s a crisis waiting to happen.

Leave A Reply