How to Trade Monero

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Why You Should Care About Monero

Monero is one of the most interesting cryptocurrencies in existence today. There are currencies like Ethereum and NEO(guides here) that focus on smart contracts. Tokens like Ripple (guide here) focus on making transactions as seamless as possible. Monero is focused on giving its users as much privacy as possible.

Monero utilizes innovative tools like the ring signature in order to protect its users. This focus on anonymity has caused Monero to become increasingly popular over the last few years. Before deciding whether you should join the trend it’s important to understand how Monero works and what makes it so special.

Let’s start at the beginning by answering the question, What is Monero all about?

A Brief History of Monero

All cryptocurrencies provide some level of anonymity but some are better at it than others. Monero (esperanto for coin) launched in 2013. It was designed to provide the most privacy possible for its users.

The cryptocurrency saw a huge boost in its value in 2016 when it was accepted as a form of payment by the darknet market Alphabay. Since then Monero has seen major improvements to its ring signature and has maintained its popularity.

What is Monero?

Monero is one of the most popular cryptocurrencies in the world because of its ability to provide anonymity compared to say, Bitcoin. Whenever a transaction takes place using Bitcoin the recipient has to divulge their public address to the sender. This allows the sender a window into the recipient’s wallet and they can see how many Bitcoins you own. On top of this, all Bitcoin transactions are recorded in the blockchain which is essentially a public ledger. This means that if someone really wants to, they can figure out exactly how you’re spending your money.

This is where Monero is different. If you send funds to someone using Monero you are not able to view the recipient’s holdings. The coins you send are instead routed through a randomly created address used only for that transaction. The Monero ledger only records the one-time address and doesn’t link the sender or the recipient.

As an extra layer of security Monero also uses the Ring signature. This scrambles the transaction of two parties with other users transactions. The original transaction is then randomly moved along the list of transactions in the blockchain, making it nearly impossible to decipher where it originated.

The ring signature also decrypts the amount of XMR sent. It splits each transaction into multiple smaller amounts and treats each value as a separate transaction. These are then mixed in with other transactions, making it almost impossible to identify the original operation. It should be noted that this is different than the private send technique used by Dash. 

Monero does allow its users to give others a view into their account. If they share their view key then another user can view the account holdings without being able to spend any funds. This is useful for someone who wants to give the authorities access to their account in order to audit their assets.

Monero’s focus on anonymity has gained it some notoriety due to its popularity on the darkweb. That being said it is also used by many people with entirely legitimate intentions. It helps users avoid having their purchases tracked by advertising companies. It also helps to protect individuals who might not want their spending habits to be known by less permissive governments.

How is Monero Made?

Monero is mined in much the same way as other cryptocurrencies. Unlike banks or governments, which physically print currency, Monero is made by its community.

The technology behind Monero is called a blockchain. This acts as a general ledger that tracks every transaction ever made. This allows the Monero network to verify the balances in individual users wallets. To process these transactions users, or “miners” use their computer to process new blocks. They are then rewarded with Monero. This helps to regulate the number of coins on the network and also incentivizes users to mine new Monero.

Reasons You Might Trade Monero

XMR is an interesting concept that has attracted a somewhat dubious reputation. The blockchain built by Monero is designed to protect the privacy of any user while still allowing authorities to be able to audit and view the funds if the user allows it. Sadly this level of anonymity has attracted criminal elements. Monero is a popular choice among traders on the darkweb and the currency has become associated with the seedy underbelly of the internet.

This association hasn’t been all bad for Monero. When the now-defunct darknet market AlphaBay began accepting XMR payments in August 2016 Monero saw a huge boost in its value. Monero is also being adopted as a way to shield cryptocurrency earnings from taxation. As governments continue to crack down on cryptocurrencies they could push more users to adopt privacy-focused coins like Monero.

What Drives the Price of Monero?

Monero shares some similarities with other cryptocurrencies. Its price tends to follow Bitcoin and if you see BTC take on a bearish or bullish aspect then you should expect Monero to follow suit. Its value is also partially dictated by media attention as with other cryptocurrencies. Like other cryptocurrencies, Monero is quite volatile. As such, you should expect quite dramatic ups and downs.

Monero’s primary price drivers are availability and usability, most notably on the darkweb. When Monero was adopted as a payment method by the darknet market Alphabay it saw a huge spike in value. If another underground trading center adopts Monero then you should expect to see a similar rise as criminals scramble to acquire currency they can trade in.

The value of Monero also gets a boost when accepted by conventional cryptocurrency exchanges. When Bithump announced it was listing Monero the currency jumped above $100 as users began to trade in the altcoin. Bithump’s move gave Monero the opportunity to break into the South Korean markets which was a huge boon.

Unlike other cryptocurrencies, Monero is less susceptible to the effects of regulations and attempts to enforce tax codes. Due to the use of ring signatures, it is very difficult to prove who actually owns a Monero token. This means that certain token holders may seek to use Monero to protect their profits from taxation or to prevent states from seizing their funds should cryptocurrencies be made illegal.

The key price drivers for Monero will always be availability and regulation. If you see either that Monero is soon to be approved on a major exchange or that the United States or the European Union are about to tighten cryptocurrency regulation, that’s the best time to buy.

What is the Price Outlook for Monero, and What Do Experts Say on Prices?

Monero has consistently increased in value and the outlook for its price in the medium-long term is good. This is especially true as people become more concerned about their privacy and states begin to look at ways to curtail the growth of cryptocurrencies.

You will probably see short-term volatility with gains in the long term.

While Monero might well become a thorn in the side of the taxman, experts generally take a positive view of its privacy-enhancing potential. When questioned on the matter both Manfred Karrer and Anthony Di Lorio said that they believe Monero will play an increasingly important role over the next few years.

This is a view taken by a number of experts, such as encryption and cryptocurrency specialist Peter Todd. He argues that Bitcoin can inadvertently expose unwanted financial information to people who might abuse it. For example, If you pay your rent in Bitcoin, your landlord might be able to figure out how much money you earn and decide to raise your rent based on this. Monero helps to mitigate these problems and this means that its growth is likely to continue.

Some experts have argued that links to the darkweb are causing irreparable damage to the reputation of cryptocurrencies in general. Specifically that these seedy links play into the hands of establishment critics seeking to curtail Monero, Bitcoin and others. Big banks like Nordea are already using such links to try to encourage lawmakers to legislate against cryptocurrency.   

Despite Monero’s potential utility for money laundering, its developers have designed the currency for the privacy of ordinary users. Many experts within the cryptocurrency community are supportive of Monero’s aims and it is likely that XMR will continue to do well regardless of criticism from the banking sector. In fact, establishment critics may even inadvertently help Monero’s cause.

 

Saul Bowden Author

Saul is our resident cryptocurrency expert. He spends his days searching for the next Bitcoin. A longtime advocate of blockchain technology, Saul believes that cryptocurrency represents so much more than an excellent investment, it represents the future of finance.

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