1. What is Monero?
Monero is an open-source digital currency, and much like Bitcoin, can be used to purchase various goods and services over the internet. However, the main differences between Monero and Bitcoin are the issues of: privacy, scalability and fungibility.
Every Bitcoin user has a public address, and when a user partakes in a transaction, the funds associated with that address are recorded on the blockchain. Anyone will be able see that ownership of those funds have been transferred to another party or vice versa.
However with Monero, despite all users having a public address, user funds are not associated with that address. Therefore, when a user partakes in a transaction, what is recorded on the blockchain is not the user’s public address, but their stealth address. Only the recipient of the funds will have the ‘secret view key’ to scan the blockchain and locate the stealth address that contains the received funds. In addition to this, the cryptocurrency also utilizes ‘ring signatures’ to allow for transaction mixing. Transaction mixing is when a sender randomly chooses a user to appear in the transaction as a possible source of the funds being sent.
Monero utilizes a dynamic block size limit that changes based on transaction volume. Periods of higher transaction volume results in the expansion of the block size limit, whereas, periods of low transaction volume results in a smaller block size limit. The upsides to this are lower transaction fees, as well as faster transaction times.
Fungibility is characteristic of a commodity or good whose individual units are interchangeable. For example, the US dollar is fungible, i.e. one US dollar is the same as another US dollar. Monero fulfils the criteria for fungibility, as each token is untraceable due to its use of stealth addresses and ring signatures.