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Monero Digital Asset Report: XMR Token Review and Investment Grade

Monero Digital Asset Report: Introduction

Monero is a decentralized open-source cryptocurrency that focuses primarily on privacy and fungibility. The project aims to become electronic cash for a connected world. A key feature for Monero is enforced privacy by default, which makes it one of the best privacy coins available on the current market.

Monero has strong community support and is popular among users who don’t want to share their transactions data with the entire world.

However, privacy in the architecture of Monero blockchain comes with several drawbacks. Large transaction sizes and non prunable blockchain make the project less scalable, which is holding the currency back from widespread adoption.

In addition to that, we see new competition arriving in the market with the improvements of Bitcoin privacy features, through the lightning network, and the development of Mimblewimble coins, which will be as private as Monero but much more scalable.

With that said, Monero needs to focus on improving scalability; otherwise, it will lose market share to either new coins with better solutions or to old ones (like to a Bitcoin) which have a higher network effect.


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  market of global cash, 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. Black markets use mostly cash and try to never keep official records. Cryptocurrencies facilitate a transformation of the black markets; this will further support wider adoption of the private cryptocurrencies.

However, privacy is not just for criminals. Privacy is one of the crucial aspects of any project that is aiming to become a mean of payments, a currency of the world. If your transactions are not private they may reveal sensitive business relationship; leak salaries, profit margins, and revenues; they may even enable targeted crime against wealthy people.

Non private blockchains are not suitable for some common real-world business transactions, and private coins like Monero present 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

Monero 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 increasingly difficult to trace your bitcoins. Also with the development of lightning network channels Bitcoin fungibility is improving. The assortment of privacy features would make 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, which will make shielded transaction suspect on their own.

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 how many people control masternodes, and they appear centralized. Virtual private servers that they run from could potentially be compromised.

The chart below shows the number of transactions of Monero and its competitors. On average all cryptocurrencies experienced a decline in the transaction number since Jan 2018. However, currently, what differentiates Monero from its closest competitor Zcash, is the higher number of transactions per day. This was not the case at the beginning of the year.

The Number of Transactions Comparison

The biggest threat to Monero might be connected with its scalability issues. As mentioned above, Bitcoin with its extensive network effect, may develop similar privacy features and make Monero unnecessary.

The other threat to Monero 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.”

From a market opportunity perspective, with almost no competition in the privacy sector, Monero is developing at a steady and organic way. However, if it is not able to scale, sometime in the near future, its users will migrate to alternative solutions which might be faster, lighter, and as private.


Ecosystem Development

Monero utilizes 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 Monero a distinct competitive advantage over its rivals since its network is protected from the domination of large corporations with massive ASIC farms. In fact, Monero competitors are criticized for continued centralization of their networks, and the increasing power of individual miners. This can skew coin mining competition to non-market factors and lead to different attacks on network.

Monero is trying to be decentralized at every stage of its development phase. However, this might not be such 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 by themselves or submit a proposal via the Forum Funding System.

Forum Funding System

During a market downtrend, such as we have right now, we expect to see a decrease in the level of activity in the community, which cripples development incentives and shrinks the funding pool of the project.

Monero was one of the first coins built from scratch, and its architecture is different from what Bitcoin has. This adds additional difficulties to overall adoption.

Many of the earlier cryptocurrencies are based on Bitcoin, and so they’re very easy to integrate into different exchanges and wallets. Monero runs on a completely new protocol from a completely new codebase, so it’s a lot harder to write the code for it. This adds additional difficulties to overall adoption.

If you want to be fully secured, the best way to use 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 nodes which can see your IP address. You can use an online wallet, but if you want to download Monero GUI wallet, you will need 60 GB of space on your computer and might face syncing issues.

There are a few projects that are developing on top of 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. Tari 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 blockchain is growing to make it easier for an average user to maintain a full node in the future.

Second layer solutions. They will also make the blockchain more scalable and will allow users to create and trade digital assets on top of Monero network.

Atomic swaps mechanism. It will allow users to make peer-to-peer transactions with other blockchains without the need of centralized exchange which is essential for users that want to stay private.

The other project that is working on facilitating Monero adoption is Globee. This is a payments processor that accepts 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 Globee.

From ecosystem perspective it is important to have projects like Globee 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 in 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 sufficient.

Meaningful projects are key in ecosystem development of any DLT network. However, privacy coins also face difficulties on a macro level. For example, Japan imposed a ban on XMR, DASH, ZEC, and REP – “since they are giving too much anonymity to holders”.

The ban resulted in the delisting of all of these coins from Japanese exchanges, and as of right now, that market is closed for Monero. Increased attention from different authorities towards privacy coins could prove to be serious obstacles in the future.


Community Involvement Comparison

Monero community 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

Due to its privacy features Monero does not have a rich list, because it is impossible to extract a single wallet’s 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 on your account balance and previous transactions will be used against you.

Monero Rich List (!)

With this said, Monero needs to further work on the development of its ecosystem through new merchants integrations and additional marketing activities, having the right technology may not be enough to compete in the current market.


Monero Token Economics

XMR is the native currency of Monero blockchain. Its main application within the ecosystem is to serve as a payments 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 PoW algorithms your reward depends on the hashpower of your equipment (your hashrate), emission schedule (current block reward) and the total hashrate 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 hashrate has been falling during pas a few month. This happened due to the overall drop of cryptocurrency prices.

Monero average hashrate

Monero Average Hashrate

On the other hand, the drop in in April 2018 was due to the hard fork, confirming appearance of ASIC equipment for Monero prior to that date.

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 is what making the blockchain such an appealing technology for its users.

Transaction Fees Comparison


Speculation – Monero is traded on many of the popular crypto-exchanges.

Governance – Monero is governed through the use of XMR tokens. People support different development projects (for example salaries for core code developers) 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 Tari project will allow users to issue new assets on top of monero which also suppose to increase the number of trading pairs for monero and drive demand for the token.

Atomic swaps – the development of  atomic swap mechanism will allow for direct swaps between Monero and other cryptocurrencies. This is important feature for Monero, since its users have to partially give up their privacy when depositing 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 isn’t a reward for just relaying transactions or keeping an up-to-date copy of the blockchain. Currently, Monero has over 1600 full node maintainers with nodes all around the globe. Most nodes are run 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 to work in a distributed manner. 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 per 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, decades will pass before we see some notable difference.

On the other hand, relative to its competition, Monero has one of the lowest levels of current inflation:

Monero supply and inflation comparison

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. There are millions of machines around the world that have been hijacked by cryptocurrency miner botnets. 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 all 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. It is questionable that they value XMR more than USD, and most likely they are generating selling pressure on the market.

On the other hand, there is a government risk which adds uncertainty. Strict regulations of privacy coins may 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, but it is still unknown how they plan to list it, since Zcash was listed with disabled privacy features.

From an investor’s standpoint, exchanges are 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, if we see strong pressure from the government. 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.

Current leadership structure employed by Monero project is designed so the lead team does not act as a centralized point of failure. Therefore it is stated that the Core Team does not equal Monero, and if someone is not able to be active, they are expected to step down from their position and the remaining members select another person to replace them.

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 successful 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 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 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 currently is 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 developers that committed to the project although the number of developers varies, 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 almost entirely represented by developers who play a significant role in the project. However, when developers work on the code, there is almost no time for business development. This may explain why Monero was less active in terms of partnerships relative 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 become a severe obstacle to future adoption because in the current market it is not enough to simply have the right technology (unless you are Bitcoin) – projects have to promote themselves and fight for market share. Especially when other companies, such as Dash, for example, are seeking to monopolize the market by building infrastructure and making it more convenient for people to use its currency.


Part Two: The Technology Case

Underlying Technology

Monero utilizes CryptoNight proof-of-work (PoW) consensus mechanism wherein miners are being rewarded for solving a mathematical puzzle in order to add a block of transactions to the blockchain. CryptoNight was originally implemented by the Bytecoin developers and it is designed to be suitable for ordinary PC users. 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 utilizing three different technologies: ring signatures, stealth addresses, and confidential transactions.

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 combine their public address with other addresses from the blockchain. When a transaction uses many different addresses, it stops a third party from being able to know the true origin of it.

Ring Signatures Probabilities

Ring signatures probablities

In cryptography, a ring signature is a type of digital signature that can be performed by any member of a group of users that each have keys. 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 a 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 all send XMR to the same address, but the construction of stealth addresses is such that none of the five people could tell that any of the other five people sent XMR to the same address. All they would see are five outputs to five random stealth addresses.

Confidential Transactions (CT) – hide the amount being transacted. Using technology called Bulletproofs a Monero transaction can prove that it is a valid amount (not more than in the wallet or less than zero) without actually giving away how much is being transacted.

CTs encode the inputs and outputs of the transaction by way of Pedersen Commitments which the network can still verify. A Pedersen Commitment is a special equation in which the sum of the inputs of the transaction 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 that the sum of the transaction inputs equals the sum of its outputs without actually knowing the amount.

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 (by using end-to-end encryption) 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 report was published claiming that 80% of its transactions are linkable.

Interestingly, one of the authors of the report was Andrew Miller, the chairman of Zcash Foundation, and the report was published an hour before Monero’s scheduled hardfork.

Such questionable behavior from a key rival could indicate fear of Monero’s dominant position in the privacy currency space.

Monero gave a clear response to this paper saying that that the largest vulnerability in the paper was noted over two years before, was mitigated over a year before, and was nearly completely resolved before the first version of the paper was published.

So, at present time there is no reason to believe that Monero transactions are linkable. However, there are still some some 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-spend attacks and cannot 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-300к transactions. If we ever see a similar number of transactions on Monero blockchain without scalability solutions, the regular users will not be able to maintain Monero nodes. At some point, blockchain will get too big, and it will be just too expensive to run a node.

The Monero team recognizes this problems and work is being done in this direction. The last Bulletproofs update in October 2018 substantially decreased the size of Monero transactions, lowering it from 18.5 kb to 3kb (to compare Bitcoin transaction size 250 bytes). This means that the network will require less storage space and space saving might also enable further scalability mechanisms.  

Moreover, in conversation with, Francisco Cabanas, one of the Monero’s Core team members he said that scaling will not be an issue for Monero in the long run, due to the dynamic block size limit and also due to the rapid pace of technological change.

It is also interesting to note that in terms of throughput Monero has variable TPS due to the fact that, that block size is not fixed.

Scalability Comparison

Monero scalability comparison

Monero does provide a high degree of privacy. However, as for today, privacy comes at a cost of scalability, and having dynamic block size may not be enough to battle stiff competition in a such fast-paced environment.


Monero Roadmap

Monero is an open source projects so the future developments are proposed by community members and not necessarily by the core team.  

Monero has a publicly available roadmap for 2018 and the future. However, the roadmap is more general and represents just the direction to  where the project is going without giving much of details.

The’re also a section on Github,  that shows current research topics the developers work on. In general, the number of commits, stays relatively constant, which is a positive sign of continues 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 roadmap 1

Monero roadpmap 2

As for the future, 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 summarise the progress of the team. In the FAQ section of the site they explain that, as with Monero, the roadmap should not be forced by the Core Team, rather their goal is to help, guide, and direct the project.

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. It has been one of the best performers during the summer bear market with a market capitalization above $1bln. However, the recent decrease in the value of Bitcoin has significantly affected the value of all ALTs and XMR was not an exception. 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.

Monero Dash Zcash Bitcoin volume comparison

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 with over 20 different trading pairs. Comparing to its competitors most of Monero trading volume comes from large respected exchanges.

Recent XMR volatility (30-day) numbers remain close to its competitors, with an overall spike in volatility during the second half of November.

30-Day Volatility Comparison

Giving the fact the displayed cryptocurrencies so highly correlated, the market is still showing low levels of adoption and poor understanding of the technology behind different cryptocurrencies. This decreases barriers to entry for new projects – which can increase competition in the privacy coins market.


Monero Chart

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