Text Link

What is Monero (XMR) and How does it Work?

Privacy is priceless. More and more individuals are starting to see the importance of their personal and financial privacy. In the current banking system, privacy is almost non-existent. Third parties can always access transaction records and personal information.


anks, corporations, and even governments are also known that have their records compromised from time to time. In 2014, the launch of Monero gave people a place to conduct private and safe transactions. It put the people back in control of their own privacy and funds.

According to the official Monero website:

"Monero is the leading cryptocurrency with a focus on private and censorship-resistant transactions."

What is Monero?

Monero is an open-source decentralized cryptocurrency that is completely secure, private, and untraceable. Unlike other cryptocurrency blockchains that are immutable yet transparent, Monero's blockchain was built to be opaque.

Transactions made on the Monero blockchain have their details cloaked using cryptography. Sender/receiver identity and transaction amount stay anonymous by shielding the addresses used by participants.

Monero was developed by a team of 30 core developers with contributions from over 500 developers. Monero's Research Lab and the Monero community are constantly pushing the limits and boundaries to find better privacy and security possibilities.

Monero Basics

1. Total privacy - Privacy is the main focus of Monero. All transactions done with Monero are hidden and untraceable.

2. Scalable - The Monero system is scalable. Developers designed a system for Monero that allows the network to handle more transactions when it is needed.

3. Multiple keys - Instead of just private and public keys for most other cryptocurrencies, Monero adds extra layers of keys to help the network hide who used Monero to transact.

4. Fungible - Because Monero is untraceable, it is fungible. There are no identifying marks on Monero to know how and when it was previously used. Many times, unknown tainted coins get sent around, and receivers may fear future issues. This won't happen with Monero.

5. No ASIC - As will be explained later, to mine Monero, it does not require an ASIC (Application Specific Integrated Circuit). This means it is less likely to become dominated by a few key miners.

How does Monero (XMR) work?

Monero uses a peer-to-peer consensus network called a blockchain to record transactions. As mentioned earlier, most cryptocurrency blockchains are transparent. Bitcoin's blockchain, for example, can be accessed by anyone using a block explorer. Although real names are not recorded on Bitcoin's blockchain, wallet addresses and transaction amounts are, and all though tedious, all bitcoin transactions can be traced.

While Monero's blockchain is public, Monero uses 3 mechanisms to conceal and keep the user's identity anonymous.

Ring Signatures + Ring Confidential Transactions + Stealth Addresses  = Anonymity.

The ring signature technology utilized by Monero protects user’s privacy in the input side of a transaction. In other words, it masks the sender and the origin of a transaction.

It is a type of digital signature where a group of possible senders is fused together to produce a unique signature that authorizes a transaction. The digital signature is made of up the actual sender and multiple non-senders to form a ring. The non-senders are decoys pulled from past transactions on the blockchain.

All the group of possible senders is equal and valid so the actual sender remains unknown.

To avoid double-spending, a key image is made part of every ring signature transaction. There is only one Key Image for every output on the blockchain so miners can verify that no outputs are spent twice. Key Image is also protected by cryptography so no one can know which actual sender in the ring signature created the key.

Ring Confidential Transaction (RingCT) was added in January 2017 to improve the Ring Signature Protocol. It increased the privacy of both the sender and receiver by hiding the transaction amount.

Before the implementation of RingCT, Monero required transaction amounts to be divided into denominations. Dividng into denominations ensures there will always be enough non-senders to form a Ring Signature for that specific amount. However, the outside party was able to see the amounts that were being transacted.

The Ring Confidential Transaction only allows the sender and the receiver to know the transaction amount. Instead of dividing into denominations, RingCT requires the sender to commit to a certain amount to send that is more than the amount that needs to be sent. A part of the amount will be returned back to the sender, and only the correct amount will be sent to the receiver. This is able to hide the total transaction amount.

To make sure the transaction is not fraudulent, the sum of the transaction’s input must equal the sum of its output.

Stealth addresses hide the identity of the receiver. Monero transactions are unlinkable. This means, no one can know which wallets were used to send and receive money.

A Monero account consists of a private view key, a private spend key, and a Public Address. The spend key is used to send payments, the view key is used to display incoming transactions, and the Public Address is for receiving payments. The account also comes with 2 public keys, the public view key, and the public send key.

The sender uses the receiver's public view key and the public spend key to generate a unique one-time public key. This one-time public key generates a one-time public address called “stealth address.”

The sent fund does not directly go into the receiver's wallet. It is instead logged onto the blockchain. The receiver will need to scan the Monero blockchain with his/her private view keys to detect the funds. To retrieve the funds, the receiver must calculate a one-time private key to correspond to a one-time public key.

This way, the sender's and receiver's wallet addresses will never be publically linked to any transaction.

Monero Mining

Monero (XMR) relies on proof-of-work mining to achieve distributed consensus. Like most other cryptocurrencies, mining can be done through solo mining with hardware, or by joining a mining pool. Each transaction verified is awarded XMR. The amount of Monero is infinite, meaning there is no max supply limit. Each block verified on the Monero blockchain is rewarded with 4.99 XMR plus a small transaction fee of 0.06573 XMR.

No special hardware is required to mine Monero. Unlike bitcoin who requires an ASIC (Application Specific Integrated Circuit), Monero can be mined on any computer. Of course, the more powerful the hardware, the better.

There is a better chance of verifying transactions with a mining pool. Monero miners need software to connect with a Monero mining pool. It is always easier when powerful hardware are combined together. Joining a mining pool also means there will be a fee, and rewards are split.

Monero's official site does offer detailed information (https://web.getmonero.org/get-started/mining/) in regards to hardware parts, hash rates, mining pools, and mining software. Please note Monero does not endorse any of the listed particular products.

Monero mining profitability depends on hashing power, power consumption, cost per kWh, and/or pool fee and the initial cost of the hardware.

How to buy Monero (XMR)

Monero can be bought on a number of cryptocurrency exchanges. To buy, simply create an account with the exchange of your choosing.  Some exchanges may require KYC (know your customer) for security purposes, and some restrictions may apply. Depending on your location, XMR can be purchased with bank wires, credit cards, and/or other cryptocurrencies. Check out our application to find the best exchange for you.

Monero can also be bought through OTC or some other individuals. Please do proper research before setting up meetings in person.

Monero Wallets

With all other digital assets, we recommend never storing them on an exchange. There was a delay when it came to hardware wallets for Monero. Because of Monero's highly private nature, it was more complicated to build.

The popular hardware wallets are now all equipped to hold Monero safely. The best Monero wallet would have to be hardware wallets. They are the safest option when it comes to holding any type of crypto. Software wallets like Desktop, iOS, and Android wallets can also be reliable. Just remember to never use public Wifi when accessing these wallets, and keep personal details safe.

Future of Monero

Moreno is considered to be the most advanced anonymous digital currency. The Kovri Project, currently in development (https://gitlab.com/kovri-project/kovri/), will help add increase security and anonymity to Monero by encrypting transactions via I2P Invisible Internet Project nodes. When complete, the Korvi Project written in C++ will disguise transactor's IP address and provide further protection against network monitoring. It will work as a hidden network, similar to Tor.

Monero's future is unclear at the moment. Great things are coming for Monero, but increased crypto regulation around the world may hinder its growth.

Marina L

Dog mom of two and nugget enthusiast. Reddit and video game addict. Co - founder of Vyntex Developments.

Related Guides

Explore Guides

Bitcoin 101

Bitcoin is a decentralized cryptocurrency. Learn about Bitcoin and how it works. Our guides will teach you Bitcoin basics, how it's mined, and how you can incorporate Bitcoin in your life.


Blockchain 101

Blockchain technology is changing the world. Our guides will teach you what blockchain is and how it works. Learn about the different types of blockchain and how we benefit from it.


Crypto 101

Cryptocurrency is also called altcoin and digital currency. Learn about the different types of cryptocurrencies, and how they work. Our guides will explain each cryptocurrency in-depth.