At the end of 2016, Monero (quotation XMR) is the fifth largest cryptocurrency in the world, with a market capitalization of $133 million, while Bitcoin, the largest cryptocurrency, has a market capitalization of $14.4 billion.
Today, Bitcoin is up more than 5,000% to $763 billion, while Monero has grown just over 3,200% to $4.2 billion over the same time frame – and has dropped to a digit. 33 in cryptocurrency ranking. Although it has had good growth over the past six years, Monero is no longer a leading cryptocurrency. Is it ready to bounce, or is it set to continue underperforming the best blockchains? Let’s dig deeper.
What is Monero?
Launched in 2014, Monero is a blockchain network designed to increase privacy and anonymity. Most transactions using other cryptocurrencies can be traced back to a unique digital address (a code that identifies the sender or recipient of the cryptocurrency), which gives clues to online activity and the identity of its owner. Monero solves this problem by hiding this data and other transaction details such as the number of coins being sent or received.
Unlike Bitcoin, where every coin has a serial number, every XMR (original Monero token) is exchangeable, meaning they are completely identical and interchangeable with each other. The network also gives each transaction reasonable deniability through ring signatures, an encryption technique that creates multiple bait for actions on the network.
It also uses stealth addresses, which are one-time encryption addresses that are deleted after every transaction.
Despite using a possibly outdated Proof of Work (PoW) consensus mechanism in which miners update the blockchain by solving computational puzzles, Monero has some pretty impressive specs. The network can handle about 1,000 transactions per second, compared to five transactions for Bitcoin and 15 transactions for Ethereum. This speed makes it optimized if it is used as an anonymous method for storing and transmitting value over the Internet. However, unlike some newer blockchains, Monero does not support decentralized applications, which are self-executing programs that use smart contracts to provide services on the blockchain.
Privacy coins like Monero have many legitimate use cases, but their association with cybercrime is an obstacle to their mainstream adoption. According to CNBC, Monero is increasingly being used for payment in ransomware attacks (to be fair, Bitcoin is used for this as well). This has resulted in them being less liquid than other cryptocurrencies because some exchanges have chosen not to support them for fear of attracting unwanted regulatory attention.
These concerns are not unjustified. Forbes reported that in September 2021, the IRS offered to pay up to $625,000 to anyone who could help provide support (likely through hacking) in investigations involving Monero and other privacy-focused coins.
Is Monero to buy?
On paper, Monero is an excellent cryptocurrency. It has a unique and well-defined use case, great technical specs, and an early advantage, which in theory should give it some advantage in terms of name recognition and adoption. But despite its merits, the assets have failed to maintain the dominance they once enjoyed in the industry.
Regulatory focus on privacy coins will be a headwind in the long run. And while Monero deserves a place in a diversified cryptocurrency portfolio, this challenge makes it unlikely that it will achieve sustainable growth in the market.