Docs - cryptocurrency usage
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---
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layout: post
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title: Cryptocurrency
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subtitle: Introduction to Cryptocurrency terminology
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tags: [introduction,cryptocurrency,terminology]
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gh-badge: [star, fork, follow]
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---## 3 Monero Cryptocurrency
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Monero is an open-source cryptocurrency that is developed under the Monero project to create a decentralized and anonymous currency. Its main goal is to make the user the one who has complete control over funds.
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Meaning that every single digital transaction and the exact number of coins in users wallet cannot be traced back to the user without sharing the view key of the transaction [2]. Main distinctive points compared to other cryptocurrencies are:
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- The blockchain is public, but a large part of it is encrypted.
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- The sender of the transaction is hidden by using Ring Signatures
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explained in the Chapter 3.5.2.
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- The exact amount of transferred coins is encrypted using RingCT
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as described in the Chapter 3.5.3.
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- Transaction history and receiving party is hidden by the usage
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of stealth addresses that are referenced in the Chapter 3.5.1.
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### 3.1 Origin and the main focus
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Monero (XMR) started its way by forking from Bytecoin, which was proof-of-concept cryptocurrency that used as first of its kind protocol called CryptoNote. CryptoNote was published by the start of the year 2014 [3].
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Although Bytecoin had a promising protocol aimed at privacy, there was a problem with premine, meaning that cryptocurrency at the time of publishing had already 82% of the coins already emitted [4]. That was the reason why people interested in anonymous cryptocurrencies decided to create a Bytecoin fork under the name of
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BitMonero [5].
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Next important moment was when a significant part of the developers decided to abandon the project in favor of creating a new fork named Monero in 06.23.2014. By this action, Monero cryptocurrency was created with publicly known blockchain from the start, strictly defined goals and motivated team of developers [6].
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3. Monero Cryptocurrency
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### 3.2 Monero market cap
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As Monero is often mentioned for its privacy features, decentralization
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in mind and fungibility as main asset, the Table 3.1 puts Monero in
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the direct comparison against the Top 5 cryptocurrencies.
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To compare different cryptocurrency projects, market capitaliza-
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tion (market cap) is often used as a way of ranking [7]. It indicates
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the relative size of cryptocurrency by the formula:
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Market Cap = Circulating Supply * Price
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**Privacy** in cryptocurrency is a feature that assures that amount of
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coin user owns, sends or receives cannot be seen on the blockchain.
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**Decentralization** in cryptocurrency network all nodes are equals.
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That means that no supernode can override how transactions are being
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processed as well as there is no single entity in control.
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**Fungibility** means that every coin ever emitted has the same value
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as the others and cannot be traced back; thus there cannot be coin
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blacklist.
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### 3.4 Development cycle
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Monero development cycle is based on planned network updates that
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occur every six months. By this developers want to encourage work on
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the project with regular updates in contrast to other cryptocurrencies
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that don’t want any new hard forks in the future as it brings the danger
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of splitting the coin into several versions [23].
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```
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03.03.2014 ······• Bytecoin - published on GitHub.
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```
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#### 04.17.2014 ······•
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```
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ByteCoin fork - the creation of BitMonero
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cryptocurrency.
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```
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#### 07.23.2014 ······•
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```
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BitMonero Fork - the creation of Monero
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cryptocurrency.
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```
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#### 03.22.2016 ······•
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```
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Monero v2 - ring size change, block time set to 120
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seconds.
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```
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```
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09.21.2016 ······• Monero v3 - transactions are split into smaller
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amounts.
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```
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```
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01.05.2017 ······•
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Monero v4 - the concurrent run of normal and
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RingCT transactions.
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```
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#### 04.15.2017 ······•
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```
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Monero v5 - block size update and fee algorithm
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adjustments.
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```
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#### 09.16.2017 ······•
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```
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Monero v6 - RingCT forced on the network with
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ring size set to 5.
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```
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#### 04.06.2018 ······•
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```
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Monero v7 - change of CryptoNight mining
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algorithm to prevent ASIC on the network, ring size
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set to set to 7.
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```
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```
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10.11.2018 ······•
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Monero v8 - enabled Bulletproofs for reduced
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transaction sizes, global ring size set to 11.
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```
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#### 02.25.2019 ······•
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```
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Monero v9 - new PoW based on Cryptonight-R, new
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block weight algorithm.
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```
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```
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Figure 3.1: Monero development timeline.
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```
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Updates are meant to improve and enhance the previously es-
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tablished codebase as well as fixing already existing bugs that are
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continuously being resolved. Known problems in Monero history
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were:
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- **Spam attack**
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**-** Was aimed to oversaturate the Monero network by sending
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minimal transactions and leveraging low transaction fee of
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0.005 XMR. Immediate fix was established by raising the
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fee to 0.1 XMR. This problem led to the implementation of
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dynamic transaction fee based on the chosen transaction
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priority [24].
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- **Split chain attack**
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**-** The successful exploit of Merkle root calculation vulnerabil-
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ity led to the creation of two blocks of the same height and
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hash, but with two different transactions on the end of the
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block [25]. By this, two separate Monero chains were cre-
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ated. The exploit could be applied to all CryptoNote based
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cryptocurrencies. In the case of Monero, all transactions
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were stopped on exchanges until next day, when the fix was
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issued [26].
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- **Transaction analysis in Monero blockchain**
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**-** Research published in 2017 uncovered past and present
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problems in anonymity with Monero transaction system.
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The most significant discovery was that a substantial por-
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tion of transactions used a Ring Signature of zero which
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caused traceability of the amount of coin in the transaction
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output on the blockchain [27].
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**-** This issue was resolved by Monero team already in 2016
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with Monero v2, where Ring Signature was set to set to
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3 [28]. Soon after the paper was released, Monero got its
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v6 update with enforced use of RingCT technology for all
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transaction outputs [29].
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3. Monero Cryptocurrency
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### 3.5 Transactions in Monero network
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Monero uses a distributed peer-to-peer consensus network to record
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transaction outputs in a blockchain. It means that balance is not stored
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in a wallet, but is represented by control over outputs of transactions
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accessible with wallet keys [30].
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By that when a user A wants to send funds to a user B, the trans-
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action happens in the way of transformation of controlled outputs in
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one wallet to a new output that belongs to the other wallet. As this is
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only a principle of how coins are transferred between wallets, Monero
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uses additional technology to make transactions private.
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#### 3.5.1 Monero wallet and stealth addresses
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Monero wallet seed is 95 characters long string that consists of public
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view and spend key. To send funds from one wallet to another, a
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one-time public key is created, that contains senders public view and
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spend key as well as randomized data.
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This one-time public key is also referred to as a stealth address
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and is generated and recorded as part of the transaction to set the
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controller of the output of the transaction [31].
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Stealth address is visible on the blockchain, by this receiving party
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can scan the blockchain to find exact transaction using their private
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view key. After locating transaction output, wallet software is then
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able to calculate one-time private key that aligns with the one-time
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public key and can spend this output using private spend key [32].
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By this, no one from outside can link nor wallet addresses nor
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people involved in a particular transaction by scanning the blockchain
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as there is no association with receivers address.
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To prove that funds were sent from one wallet to another, the sender
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has to disclose transactions ID, receivers address and transactions key.
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#### 3.5.2 Ring Signatures
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Ring Signatures present a way to create a distinctive signature that
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authorizes a transaction. The digital signature of the transaction is
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compiled from the signer together with past outputs of transactions
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(decoys) to form a ring where all members are equal and valid. By
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that, the outside party cannot identify the exact signer as it is not clear
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which input was signed by one time spend key [33].
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To prevent double spend, a cryptographic key image is derived
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from the spent output and is part of the Ring Signature. As each key
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image is unique, miners can verify that there is no other transaction
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with the same key image, thus preventing the double-spending attack
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[13].
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#### 3.5.3 RingCT
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So far, senders anonymity is ensured by Ring Signatures, receivers
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anonymity relies on stealth addresses, but the amount of Monero
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transferred would be still visible on the blockchain. To hide transaction
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amounts, Ring Confidential Transactions are implemented [34].
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As one output cannot be spent twice, the sender has to spend entire
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output in the transaction. That typically results in a transaction having
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two outputs, one for the receiver and one for the original wallet, where
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the excess amount of coins is returned.
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To prevent manipulation during a transaction, the total input amount
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must equal the output amount of coins in each transaction. As one
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could exploit this by committing to value less than zero, range proofs
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are there to ensure cryptographic evidence of amounts used in trans-
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actions is greater than zero and falls into the valid transaction amount
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range.
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To confirm the transaction, the sender reveals the masked amount
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of coins being sent in the transaction to the network that is later verified
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by miners [35].
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By that, amounts transferred between wallets in the form of outputs
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of transactions are hidden, and the network can still confirm that
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transaction is valid.
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#### 3.5.4 Kovri
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Kovri is a C++ implementation of the Internet Invisible Project (I2P)
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anonymous network, that under heavy development process in the
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Monero project. It aims to offer secure network transmissions where a
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users IP cannot be associated with a particular transaction ID [36].
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