Mastering Monero

Chapter 1 - Introduction to cryptocurrencies & Monero

Introduction to cryptocurrencies & Monero

Maria is purchasing a car from George, and in this chapter we'll consider three different ways that she could pay him: traditional banks, transparent cryptocurrencies (e.g. Bitcoin), and Monero.

1.1 Payment through banks

Key Takeaways

  • This system is built entirely on trust.
    • Trust that transactions are legitimate.
    • Trust that ledger is kept honestly.

1.1 Payment through banks

Key Takeaways

  • Maria and George's money are essentially IOUs.
    • Maria and George have no way to audit the bank.
    • Does the bank have their full amount on hand, or just a fractional reserve?

1.1 Payment through banks

Key Takeaways

  • IOUs can be very bad during economic disruption.
    • Negligence (the bank makes a mistake).
    • Financial Issues (the bank overextends their assets or goes out of business).
    • Malice and Corruption (the bank or a rogue employee steals your money).
    • Hostile Third Parties (the bank is robbed or a hacker thieves electronic funds).

1.1 Payment through banks

The Alternative: Blockchain

An analogy comparing blockchains to automobiles.

Note: This is probably one of the best ways I've seen of describing blockchains to uninitiated users.

1.2 Introduction to blockchains

The term blockchain refers to a particular method for securing records in a database that all network users share. It is groundbreaking for being a trustless system, where individuals retain full autonomy over their funds, there is no central authority, and each participant can easily verify and audit the system.

1.2 Introduction to blockchains

1.2.1 What is a blockchain?

  • Blockchains are trustless systems
    • Method for securing records in a database
    • Anyone in the world can be a network maintainer (Note: of a public blockchain)
    • Each participant keeps others honest by verifying the ledger
    • Blockchains are immutable

1.2 Introduction to blockchains

1.2.2 Blockchain benefits

  • Simplicity and speed - Transactions verify in seconds or minutes as opposed to days or weeks.
  • No-third party risk - Maria and George control their own money instead of trusting a network of banks.
  • Pseudo-anonymity - Cryptocurrency ledgers do not record real names.

1.2 Introduction to blockchains

1.2.3 Blockchain drawbacks

  • Pseudo-anonymity is not anonymity
    • Governments, corporations, and nefarious actors can connect you to an address, e.g.:
      • A person IRL that you transact with.
      • A cryptocurrency exchange you purchase from (who follows KYC laws).
      • A government who obtains info from above-mentioned exchange.
      • If you post your address publicly on the internet so people can send you money.

1.2 Introduction to blockchains

1.2.3 Blockchain drawbacks

  • Pseudo-anonymity is not anonymity
    • If your address is identified:
      • You could become a target if people see how much money you have.
      • Your money could lose it's value if people see what you have been doing with it —
      • — or if people see what the person before you did with the money ( fungibility ).

1.2 Introduction to blockchains

1.2.3 Blockchain drawbacks

  • Pseudo-anonymity is not anonymity
    • Corporations can track your spending habits and
      • offer you different prices
      • try to sell you things and be generally creepy
      • or get hacked like EquiFax, resulting in a lot of your personal data being in the wrong hands.

1.3 Introducing Monero

Key Takeaways

  • Monero (Singular) / Moneroj (Plural)
    • Esperanto for "coin"
    • Plural pronounced "moh - neh - roy". It seems the `j` has a `y` sound in Esperanto.

1.3 Introducing Monero

Key Takeaways

  • Monero is focused on privacy and censorship resistance.
    • Parties can interact without revealing sender, recipient, or transaction amounts.
    • Nobody can view anyone else's account balance.
    • Privacy is enforced by default.
    • Monero has a decentralized ledger that all participants can download and verify.

1.3 Introducing Monero

1.3.1 Principles of Monero

  • Network Decentralization
  • Financial Security
  • Financial Privacy
  • Fungibility

1.3 Introducing Monero

1.3.2 Real-life “use cases” for Monero

Monero helps to prevent:

  • Price Manipulation
  • Financial Surveillance
  • Supply Chain Privacy
  • Discrimination
  • Criminal Acts from Lack of Wallet Privacy
  • Tainted Coins

1.3 Introducing Monero

1.3.3 Monero: open-source decentralized community and software

  • Decentralized network
  • Distributed development team
  • Open-source
  • Transparency:

1.3 Introducing Monero

1.3.4 History of Monero

  • Nicolas van Saberhagen published the CryptoNote protocol
  • Somebody else used CryptoNote to create ByteCoin
  • `thankful_for_today` felt that ByteCoin wasn't decentralized because of a premine
  • `thankful_for_today` took the CryptoNote protocol and created the community project "BitMonero"
  • The community shortened the name to "Monero"

1.3 Introducing Monero

1.3.5 Ethical discussion

  • Monero can be appealing to criminals (the same way fiat cash is).
  • Monero mining is designed to be easier than BitCoin.
    • Therefore, a hacker could exploit this by creating software or websites that mine Monero on a person's computer without their consent.
    • Monero has a Malware Response Workgroup that provides education, tools, and live support to help combat this.