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Part One: The Business Case
Monero Market Opportunities
Monero wants to become a digital substitute for paper money. Paper money is hard to track and transactions with it can be entirely private. Based on this fact, Monero is targeting the entire global cash market, which accounts for about $ 36.8 trillion of physical money (banknotes, coins, and money deposits in savings or checking accounts); this number can increase up to $ 90.4 trillion if we look at "broad money", which includes any money held in easily accessible accounts.
During the recent economic crisis, the Shadow Economy expanded. The underground economy or the black market is the second largest economy in the world. As predicted by OECD, by 2020 shadow economy will employ two-thirds of the world workers. Try to never keep official records. Cryptocurrencies facilitated a transformation of the black markets; this will further support the wider adoption of the private cryptocurrencies.
However, privacy is not just for criminals. Privacy is one of the fundamental aspects of a project. If your transactions are private they may reveal sensitive business relationship; leak salaries, profit margins, and revenues; they may even enable targeted crime against wealthy people.
Non-private business transactions, and private coins like Monero presents a strong value proposition when it comes to market adoption and strong use cases.
However, Monero is not the only project that recognizes the importance of privacy. Below is a table representing some of its key competitors.
Competition in the Blockchain Space
In general, Bitcoin is not considered a privacy coin. However, if you use coin-mixing protocols that are available on the market, it will be difficult to track your bitcoins. Also with the development of lightning network channels. Bitcoin fungibility is improving. Bitcoin a serious threat to Monero if it was ever able to solve its scalability issues.
Zcash, on the other hand, gives users two types of addresses: regular and shielded, which may sometimes result in information leaks about shielded transactions. In general, if privacy is not required most of the users will not use it.
Dash also provides privacy features as an option. However, with the structure of Dash ecosystem, users should trust masternodes which are not always secure. It is unknown as many people control masternodes, and they appear centralized. Virtual private servers that run from could potentially be compromised.
Monero and its competitors. On average all cryptocurrencies experienced in the transaction number since Jan 2018. However, currently, what differentiates Moni from its closest competitor Zcash is the highest number of transactions per day. This was not the case at the beginning of the year.
The Number of Transactions Comparison
Monero could be connected with its scalability issues. As mentioned above, Bitcoin with its full network effect, may develop similar privacy features and make Monero unnecessary.
Monet is the development of new technology that is expected to be launched in Q1 2019, the so-called Mimblewimble protocol. Currently, two companies – «Beam»And«Grin»Are working on its implementation. As described by Beam:
"Mimblewimble is an elegant solution for building a scalable confidential cryptocurrency which ensures complete confidentiality without bloating the blockchain size. "
Monero is developing at a steady and organic way. However, if you are not able to scale, you will have to migrate to alternative solutions which might be faster, lighter, and as private.
Ecosystem Development
Monero uses CryptoNight proof-of-work algorithm, which is significantly different from the systems used by other PoW based cryptocurrencies. Monero community does not approve ASICs since they facilitate centralization of mining power.
So, Monero's PoW function is difficult to optimize for specialized mining equipment. There are billions of devices that are able to participate in the Monero mining process. People can mine from web browsers, smartphones, and personal computers.
This gives a distinct competitive advantage over its rivals as it is protected from the domination of large corporations with massive ASIC farms. In fact, Monero competitors are criticized for the continued centralization of their networks, and the increasing power of individual miners. This can skew coin mining competition to non-market factors.
Monero is trying to be decentralized at every stage of its development phase. However, this might be a great feature when it comes to ecosystem development.
Monero does not have any marketing or business development department; there is no such thing as a "Monero Foundation." Ecosystem development is catalyzed by different self-starters that are motivated to do something for the project. If anyone wants to participate in the code development or promotion of the Monero, they can fund the project Forum Funding System.
Forum Funding System
During a market downtrend, we are looking forward to seeing you as a member of the community, which cripples development incentives and shrinks the funding pool of the project.
Bitcoin has been built from scratch, and its architecture is different from what Bitcoin has. This adds additional difficulties to overall adoption.
Bitcoin, and so they're very easy to integrate into different exchanges and wallets. Monero runs on a new codebase. This adds additional difficulties to overall adoption.
Monero is to run a full node. Due to Monero privacy features, it is not possible to create a "regular" lightweight wallet. Current Monero lightweight wallets connect to remote which can see your IP address. Monero GUI wallet, you will need 60 GB of space on your computer and might face syncing issues.
Monero. One of the most recent examples is Tari Labs – decentralized assets protocol. This is a centralized organization that received funding from some of the top VC firms.
One of the founders of Tari Labs is Riccardo "fluffypony" Spagni – probably the best-known name behind Monero. Tare is a second layer solution for Monero: its developers want to change the experience of owning, managing, and transferring digital assets (Loyalty Points, Tickets, In-Game Items).
As it was stated by Riccardo Spagni, Tari Labs developers will also enhance aspects of the Monero software stack and ecosystem. They will focus on three main topics:
On-chain scalability. It will decrease the rate at which Monero will be able to maintain a full node in the future.
Second layer solutions. Monero network.
Atomic swaps mechanism. It will allow users to make peer-to-peer transactions with other blockchains without the need for centralized exchange which is essential for users that want to stay private.
Monero adoption is Globee. Monero among other cryptocurrencies. Globee integrates Monero payments options with merchants around the globe. The project raised 4865 XMR (more than $ 400,000 at that time) a year ago through Forum Funding System and was anticipated by the community. Currently, Globee is working with over 8,000 active merchants that accept Monero and other cryptocurrencies. Yet, the project was criticized for the lack of updates and communication, and it is unclear how often XMR is used as a mean of payments within Globes.
From ecosystem perspective it is important to have projects like Globes since they increase user adoption through new merchant integrations and partnerships. Absence of such project or their pure performance can be harmful to overall adoption.
Monero team needs to put more effort into supporting projects that will develop relationships with new merchants and promote XMR as a mean of payments. Having just a few outside teams, working on this function, is not enough.
Meaningful projects are key in ecosystem development of any DLT network. However, privacy coins also on macro level. For example, Japan imposed on ban on XMR, DASH, ZEC, and REP – "Since they are too much anonymity to holders".
This is the case for the Japanese exchange, and the right to market for Monero. Evidence of being serious obstacles in the future.
Community Involvement Comparison
In terms of community involvement, Monero holds up quite well to the competition. However, adoption levels are lower compared to Dash.
Active Addresses Dynamics
Monero does not have a rich list, because it is impossible to extract a single wallet balance without owning a private key or a view key from it. This what differentiates Monero from its competitors. You can use it to pay different merchants without worrying that information
Monero Rich List (!)
With this said, Monero needs to further work on the development of the ecosystem through new merchandising integrations and additional marketing activities, having the right technology in the current market.
Monero Token Economics
XMR is the native currency of Monero blockchain. Its main application within the ecosystem is to be used as a payment instrument. Monero utilizes proof-of-work mechanism and rewards miners with XMR tokens.
Daily mining estimate = ((your hashrate) * (current block reward) * 720) / (network hashrate)
As with most of your other resources (your hashrate), the emission schedule and the total hashr of all other miners (network hashrate).
For example, Intel Core I7 with has power of 500 h / s can produce you 1:24 XMR per year, taking into account that block reward and network hashrate will not change.
In fact the network hashred has been falling during a few months. This happened two to the overall drop of cryptocurrency prices.
Monero Average Hashrate
The drop in in April 2018 was due to the hard fork, confirming the appearance of the ASIC equipment.
fees – current Monero fees are equal to around 0.00014 XMR ($ 0.0067 USD). Fees dropped by almost 90%, after the implementation of new «Bulletproofs»Upgrade. Yet, they are much higher comparing to Zcash. In general, low transactions fees are what making the blockchain such an appealing technology for its users.
Transaction Fees Comparison
Source: bitinfocharts.com
speculation – Monero is traded on many of the popular Cryptoexchanges.
Governance – Monero is governed through the use of XMR tokens. People support different development projects by sending their XMR tokens through Forum Funding System. So, the community decides and pays in XMR for every step of the development process.
UIA – The development of the project will be based on the increase in the number of trading pairs.
Atomic swaps – the swap mechanism will allow for direct swaps between Monero and other cryptocurrencies. XMR on centralized exchanges. Atomic swaps will push the privacy levels even further and increase the user base for Monero.
Community – For full node maintainers mining is optional and there is a copy of the blockchain. Currently, Monero has over 1600 full node maintainers with nodes all around the globe. Most nodes are from the United States (400), Germany (276), and France (204).
Dash has over 5000 masternodes, but their maintainers are incentivized financially to run a node. For Zcash there are no financial incentives but their number of full nodes is substantially lower, 200 unique nodes for the past month.
Having a larger number of active nodes is essential for the protocol. It can also be a sign of community support. However, when full nodes maintainers are not incentivized for their work it can be risky if the project faces unexpected pitfalls in the future.
Monero Active Nodes Distribution
The inflation of XMR tokens is entirely supported by the miners of the network. Current emission is equal to around 16.6 mln XMR coins. Since the start of the project there has not been a pre-mine or ICO.
By the end of May 2022, there will be approximately 18.132 million coins. Then, miners will be rewarded with 0.6 XMR for 2-minute block which translates to less than 1% inflation per year, which makes the supply infinite but comparable to the competition. All of the privacy coins have, on average, a similar total supply. Even though Monero has an infinite supply, we will pass before we see some notable difference.
On the other hand, related to its competition, Monero has one of the lowest levels of current inflation:
Supply and Inflation Comparison
XMR token is also the essential element of botnet mining. These botnets may accumulate large amount of XMR tokens in hands of a few individuals. Cryptocurrency miner botnets. There are millions of machines around the world that have been hijacked by cryptocurrency. At the beginning of the year, only the Smominru botnet infected more than 526,000 Windows servers around the globe and mined nearly 9,000 XMR tokens.
Webs security firm Kaspersky Lab in Q3 2018 even registered a decline in the number of DDoS attacks, the most likely reason being, according to their experts, the "reprofiling" of botnets from DDoS attacks to cryptocurrency mining. They are also reporting that the most common coin among the illegally mined cryptocurrencies is Monero.
Number of unique users attacked by miners in Q1-Q3 2018
Different groups of hackers accumulate substantial amounts of tokens. XMR more than USD, and most likely they are generating pressure on the market.
On the other hand, there is a government risk which adds uncertainty. Will result in delisting from some major exchanges which will decrease the liquidity and lower the price.
In fact, Monero was added to Coinbase custody list in August, en zcash was listed with disabled privacy.
From an investor's standpoint, they provide an essential element of the token economy, since they provide liquidity for the coin.
Despite good technology and low fees, the community may not remain as dedicated. For privacy coins, regulatory uncertainty is still one of the major barriers to wider adoption.
Lead Team
Monero was originally created by user «thankful_for_today». However, right from the beginning, the community did not agree where the project was headed. Soon after, the team of developers forked it away.
The team was formed in a decentralized way and partially is anonymous. We use the gender pronoun 'he' here for convenience.
Riccardo "fluffypony" Spagni – has become the de facto face of Monero, with an academic background in informatics and logistics. Based in South Africa, he spent many years in software development and started his own business in the import / export industry. He got involved in the bitcoin space in 2011 and maintains an active Twitter account.
Francisco "ArticMine" Cabañas – Francisco is based in Canada, and holds a Ph.D. in Physics and brings an extensive business and non-profit experience to the team. He has actively researched and invested in cryptocurrencies since 2011 and focuses on the economic, social, regulatory, and long-term viability aspects of cryptocurrencies.
othe – is based in Germany, he has been involved in crypto since 2011. Currently, he works as an independent consultant for various cryptocurrency projects. He is known for his previous work as a core Vertcoin developer.
smooth – is a software developer, entrepreneur, and investor. He has been involved in several cryptocurrency projects since 2011, including the development of the first multicurrency exchange (initially supporting Bitcoin and Namecoin).
binaryFate – co-founder of the LuckyBit online Bitcoin casino, Cryptosphere Systems, and XMR.to. He got involved in bitcoin space since 2012. He also holds Ph.D. in artificial intelligence.
luigi1111 – He has been actively involved in several cryptocurrencies since 2013. Currently, he is lead maintainer on GUI and site.
NoodleDoodle – is a former Silicon Valley engineer. He started his involvement with cryptocurrencies in 2012 and is currently a seasoned hardware and software developer.
Besides the Core Team, Monero works with a team of developers: since the start of September there were 28 since the project is open-source.
Monero also works with so called Monero Research Lab. Currently, two Ph.D. professors are doing research on different topics that are important for future development. They are also funded through Forum Funding System.
In fact, the Monero team is a team that plays a significant role in the project. However, when work is on the code, there is almost no time for business development. This may explain why Monero was less active in terms of partnerships related to its competition during last year.
Monero with a decentralized government structure has no marketing or business development department, while most of its centralized competitors have people that work on partnerships and promotions on everyday basis.
This can be a strict obstacle to future adoption because it is not enough to simply have the right technology (unless you are Bitcoin). Especially when other companies, such as Dash, for example, are looking for more people to use their currency.
Part Two: The Technology Case
Underlying Technology
Monero utilizes CryptoNight proof-of-work (PoW) Consensus Mechanism Into a Block of Transactions to the Blockchain. CryptoNight was originally implemented by the Bytecoin developers Six months ago Monero team initiated the update to this algorithm to prevent mining manufacturers from developing Monero-compatible ASICs.
Monero allows users to stay entirely private while receiving or sending coins through the blockchain. It does this by using three different technologies: ring signatures, stealth addresses, and confidential transactions.
The three pillars of Monero
Ring Signatures – every transaction contains a ring signature. They are used to mask the sender, hide from where money is going. Ring signatures allow a sender to match their public address with other addresses from the blockchain. It stops a third party from being able to know the true origin of it.
Ring Signatures Probabilities
In cryptography, a ring is a type of digital signature that can be performed by any member of a group of users. Therefore, actual signer and non-signers in this ring are all considered to be equal and valid.
Stealth Addresses – one-time address used to mask the receiver and hide where the transaction is going. Every time someone sends Monero, their wallet generates to one-time-use address that gets transmitted to the blockchain. Only the receiving wallet will recognize that this address is associated with it.
Five different people could be send XMR to the same address. Five random stealth addresses.
Confidential Transactions (CT) – hide the amount being transacted. Using technology called Bulletproofs to Monero transaction can not prove that it is actually being transacted.
CTs encore the inputs and outputs of the transaction of the Pedersen Commitments which the network can still verify. A Pedersen Commitment is a special equation in which the sum of the inputs is multiplied by a number on one side and the sum of the outputs is multiplied by the same number on the other side. These numbers are called blinding factors. Pedersen commitments allow the network to verify the sum of the transaction.
Monero developers are also working on implementing Kovri I2P Router Project which aims to integrate I2P technology into Monero to ensure every transaction on Monero is private and anonymous. The I2P network provides strong privacy protections for communication over the Internet. Anonymous connections are achieved by encrypting the user's traffic and sending it through a volunteer-run network of computers distributed around the world.
While Monero aims to provide full confidentiality for its users, a reports was published claiming that 80% of its transactions are linkable.
Interestingly, one of the authors of the report was Andrew Miller, the chairman of the Zcash Foundation, and Monero's scheduled hardfork.
Monet's dominant position in the privacy currency space.
Monero gave a clear response to this paper, that was the most vulnerable in the paper was published.
So, at present time there is no reason to believe that Monero transactions are linkable. However, there are still some of the side effects of privacy that make the blockchain less scalable. For example, ring signatures can never be pruned from the blockchain because you can never tell if they've truly been spent.
"Key images and ring keys are stored separately in the non-prunable area of transactions. Indeed, these components are essential for detecting double-spending attacks and can not be pruned away. "
The total Monero blockchain is currently 63.75 GB with an average of 3k-5k transactions per day. In the same time, Bitcoin blockchain is currently 226.78GB with an average of 200к-300k transactions. Monero nodes. Monero nodes. At some point, blockchain will get too big, and it will be too expensive to run a node.
The Monero team recognizes this problem. The last Bulletproofs update in October 2018 substantially decreased the size of Monero transactions, lowering it from 18.5 kb to 3kb (to appear Bitcoin transaction size 250 bytes). This means that the network will require less storage space and space.
Moreover, in conversation with, Francisco Cabanas, one of the Monero 's core team members said he would be an issue for Monero in the long run, two to the rapid pace of technological change.
Monero has variable TPS two to the fact that, that block size is not fixed.
Scalability Comparison
Monero does provide a high degree of privacy. However, as for today, privacy comes with a fast-paced environment.
Monero Roadmap
Monero is an open source projects and the future team are proposed by community members.
Monero has a publicly available Road map for 2018 and the future. However, the roadmap is more general and just the direction to where the project is going without giving much of details.
The're also a section on Github, that shows the current research topics the developers work on. In general, the number of commits, stays constant, which is a positive sign of work.
Github Activity
In the last quarter of 2018, we've seen the implementation of Bulletproofs. The team still plans to implement Kovri integration, but it will be postponed until 2019.
Monero Roadmap
Monero plans to implement second-layer solutions for speed and scalability; most likely this solution will be implemented by Tari developers.
However, the dates are unclear so it is difficult to summarize the progress of the team. In the FAQ they explain that, as with Monero, the roadmap should be supported by the Core Team.
This opens up a debate on sustainability of different leadership structures. Either way, for Monero, the current roadmap is rather confusing and generates concern, especially with the increasing competition in the space.
Part Three: The Investment Case
XMR Token Performance
Monero (XMR), the 12th largest cryptocurrency by market capitalization. With a market capitalization above $ 1bln. However, the recent decrease in the value of Bitcoin has significantly affected the value of all the ALTs and XMRs. Monero has been down around 86% since the January ATH.
The price comparison chart for Monero and its competitors displays a similar set of shapes.
Monero / Bitcoin / Dash / Zcash Price Comparison
Average daily volume accounts for about $ 12 mln. while exchange volume has receded from January highs, Monero remains a top 30 crypto-asset by volume. Still there is a larger drop in volume comparing to Zcash and Dash.
Volume Comparison
The vast majority of XMR trading is represented by XMR / BTC and XMR / USDT markets, with over 60% in BTC volume. Monero is trading on all major markets. Monero trading volume comes from large respected exchanges.
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