[Disclaimer: I own Monero, Bitcoin and several altcoins including privacy coins. This is not investment advice and is provided for information only. This considers the economic case for Monero and is not a recommendation to buy. Do your own research and consult a financial advisor.]
The short answer is yes, Monero is a good investment.
Monero shares many similarities with Bitcoin. It is digital money that uses a decentralised peer-to-peer ledger.
However, there are two key features where it is arguably an improvement on Bitcoin:
- It is private by default
- It does not have a hard cap. Instead it has an infinite block reward of 0.6 XMR per block, known as the tail emission. This will continue to provide an incentive for miners to secure the network.
By investing in Monero you are betting that either it supersedes Bitcoin or exists alongside Bitcoin as a complimentary alternative.
Digital privacy is likely to become more and more important to people as they push back against the influence of Big Tech and potential government overreach.
In this environment, Monero will shine.
What is Monero?
Monero is a Proof of Work cryptocurrency that emerged in 2014.
Its key value proposition is that it is private by default. The sender, the receiver and the amount of Monero sent in each transaction are hidden.
This is unlike Bitcoin, where the blockchain is completely transparent. At best Bitcoin can be described as pseudonymous, as addresses can easily be linked back to real world identities.
Privacy matters for its own sake but also because it has an effect on a coin’s fungibility.
Fungibility refers to the concept that one unit is equal to every other unit and there is no preference or premium for this particular XMR over another XMR. 1 XMR = 1 XMR.
An example of something that is non-fungible is a house. Even if two houses are built to identical specifications there will always be small differences which may make one preferable to another.
For money to work properly it needs to be fungible.
Bitcoin’s lack of privacy threatens its true fungibility. The reason for this is that the transparency of the blockchain means the history of each and every Bitcoin is immutably recorded for all to see.
Therefore, it is likely that freshly mined and untainted Bitcoin could command a premium over Bitcoin that have a long history and might have been used for illicit activity at some point.
A transparent blockchain sounds amazing for holding a government to account. But it is not so appealing for the privacy of citizens and for the fungibility of the coins.
Monero’s second value proposition is the tail emission.
18.4 million Monero were available to mine as an initial supply. These Monero were all mined by May 2022. At that point the only new Monero that could be brought into existence were through the tail emission of 0.6 XMR per block.
At first glance, this may seem to put it at a disadvantage compared to Bitcoin. After all, for hard money supporters, a hard cap seems to be the better option. 21 million Bitcoin seems better than infinite Monero.
But let me explain.
Bitcoin’s hard cap may not be an issue, but it is a big risk. The network needs miners to keep it secure and without miners the network will fail. The current Bitcoin block reward is the economic incentive that miners need to provide computing power to the network.
Once the entire supply of Bitcoin is mined, the only thing that will incentivise miners is transaction fees, as there will be no more block reward.
It is hoped that this will suffice as an incentive. But only time will tell.
Monero on the other hand, will always have a block reward of 0.6 XMR and this will always provide an incentive to miners.
While this means the supply of Monero is potentially infinite, this new supply is released at a fixed and predictable rate. The inflation rate is built into the code and is not decided politically or by a committee. Supply cannot increase any faster even with increased demand.
Over time the inflation of 0.6 XMR per block will diminish as a percentage relative to existing supply and therefore the inflation rate of Monero will trend towards zero.
Predictable inflation by code is still hard money.
And there is merit to the argument that a tail emission is more optimal for a cryptocurrency than a hard cap due to network security.
How Does Monero Work?
Monero has three key technologies that work together to provide privacy:
- Stealth addresses
- Ring signatures
- Ring CT
Stealth addresses provide privacy to the receiver. The receiver gives his or her Monero wallet address to the sender and the sender then sends some Monero to that address.
When this happens a one-time proxy address, the stealth address, will be created for the receiver.
They will receive their Monero, but the blockchain will record the transaction as going to the one time proxy address. Therefore only the sender and the receiver know where the payment was sent.
Ring signatures give privacy to the sender. A ring signature is a mechanism where the sender is grouped along with a number of other decoys. This group is known as a ring.
The decoys are past senders who are pulled from the blockchain. When the transaction is sent a signature is provided but it is impossible to determine which member of the ring was the one to do so.
Ring CT or Ring Confidential Transaction provides privacy to the transaction amount.
To be honest, I don’t quite understand exactly how the technology works, but it works similar to ring signatures in a process called Multilayered Linkable Spontaneous Adhoc Group Signatures.
If you want to try and understand it properly, here is the paper written by the creator of Ring CT.
Is Monero Really Untraceable?
Monero is currently untraceable.
But privacy is a cat and mouse game. Monero needs to constantly evolve and enhance its privacy to stay one step ahead of those who try to crack it.
This is one of the investment risks. Should privacy be sacrificed, Monero’s key value proposition would disappear.
The IRS is in fact so interested in cracking Monero that they have offered a $625,000 reward to anybody who can do so.
Should You Buy Monero?
I see Monero as a good investment for two reasons:
- Privacy is worth supporting
- It is undervalued compared to Bitcoin
If you are just in cryptocurrency to make a quick buck then the investment case for Monero is that it is undervalued compared to Bitcoin and that once the market has a greater appreciation of the need for privacy then Monero will take off.
It’s that simple.
However, if you are in cryptocurrency because you support the separation of money and state or because you believe in the right to financial privacy, then you have another reason to support Monero.
A crypto ecosystem without privacy coins does not offer the same future as one with privacy coins.
For all of Bitcoin’s benefits, and there are many, a transparent and easily surveilled blockchain has severe limitations on freedom.
Supporting Monero means supporting private, digital hard money and is essentially a form of activism.
You don’t have to involved in illicit activity to support the concept of financial privacy.
As I saw someone post on Twitter recently, “I support Monero for the same reason I have curtains.”
I see four potential risk scenarios to Monero:
- Bitcoin achieves privacy
- Monero gets blacklisted or banned by exchanges or governments
- Monero gets pushed out by a superior privacy coin
- Monero gets cracked
The first three are plausible scenarios. Personally I feel like they can all be refuted, but you will have to make up your own mind.
Bitcoin is not private by default, as Monero is. Bitcoin’s privacy features are additional and it will never be able to achieve the same level of privacy as Monero.
Monero getting blacklisted or banned would likely affect its price negatively in the short term. Although it is possible that the publicity it receives might actually do the opposite. I think that a ban on Monero would be short lived and counter productive just as alcohol prohibition was. Monero can be banned but that does not mean it can be stopped.
In theory, Monero could get pushed out by another privacy coin such as Pirate Chain. But just as Bitcoin benefits from first mover advantage and retains its superiority because of the size of the network, so does Monero is the privacy sphere. It was the first and is the largest of the privacy coins with the most well-established network.
The fourth reason, Monero’s privacy being cracked, is the one that would concern me the most and seems like the most likely reason it might fail.
Do your own due diligence here.
Monero is a proof of work cryptocurrency whose value proposition is that it is private by default.
It also has a tail emission, which means there is a small but predictable supply of new Monero added forever. This provides an incentive for miners to secure the network.
Monero is undervalued compared to Bitcoin and the market is not currently pricing in the potential for Bitcoin to be weakened due to its transparency and lack of true fungibility.
Monero is a good investment because it might flip Bitcoin. Or more likely, it will exist alongside it, as a significant and complimentary player.
Monero Logo by Get Monero
Monero Supply Schedule by u/Amichateur