Monero vs. Bitcoin: Which is the True King of Privacy?
in Monero (XMR)
Want to learn about Monero vs. Bitcoin? Here's the complete comparison!
Bitcoin and Monero are two of the most popular cryptocurrencies today.
Bitcoin (BTC) is the original cryptocurrency that started an entire movement. The fact that someone or some group (no one knows if pseudonymous creator Satoshi Nakamoto was an individual or group) that isn't a government can start their own global currency is an incredibly revolutionary idea. So revolutionary that Bitcoin led to the creation of nearly 5,000 other cryptocurrencies as of writing.
One of these other crypto assets that resulted from Bitcoin is Monero (XMR). Launched in 2014 as "Bitmonero" (Bit from Bitcoin and Monero from Esperanto word for coin), Monero was born with the aim of focusing on user privacy. While Bitcoin offers more privacy than something like your credit card, it isn't fully anonymous.
Although you don't have to provide your name or other identifying information in order to use Bitcoin, as you would with a credit card, all Bitcoin addresses and their transaction histories are publicly recorded on the Bitcoin blockchain (full record of transactions). Therefore, if someone can tie your real world identity to a Bitcoin address, you lose anonymity.
On the other hand, Monero balances and transaction histories are completely private.
On top of privacy, the Monero vs. Bitcoin comparison includes other factors like fungibility, transaction speed, transaction fees, scalability, mining algorithm, network effect, supply, and price.
Monero vs. Bitcoin: Privacy
It's worth exploring Bitcoin and Monero’s privacy features in more detail.
One of the features that gives Monero its privacy is the stealth address.
Stealth addresses are random one-time addresses that can't be linked to a previously published or shared standard address. In other words, sending multiple Monero transactions to the same standard Monero address will appear on the blockchain as going to different addresses. Although you can retrieve any Monero sent to your stealth address, these funds cannot be linked to you in any way whatsoever. Only you and the sender can know where the Monero was actually sent.
Ring Confidential Transactions (RingCT)
Another Monero feature that gives it its strong privacy is Ring Confidential Transactions (RingCT), which is a combination of two privacy innovations: ring signatures and confidential transactions.
With regular cryptographic signatures, such as in the case of Bitcoin, you sign off on transactions with your Bitcoin address' private key, which proves your ownership of the Bitcoin that's about to be spent in a transaction. Ring signatures also prove ownership of funds but add another layer of complexity.
Completely random funds that act as "decoys" are mixed into the same transaction, and it's not revealed as to which funds have been signed off on. Thus, it's extremely difficult, if not impossible, to know which funds were actually signed off on and spent. 10 "decoys" are added to each transaction, which makes Monero extremely hard to track.
Confidential transactions is what lets Monero transaction amounts stay hidden. Using a cryptographic algorithm called a Pedersen Commitment, anyone can know that Monero transactions equal out on the sending and receiving ends of the transaction, which means that no Monero was double-spent or created out of nowhere. However, while a Pedersen Commitment allows for this check, it does not allow anyone to know how much Monero actually changed hands except for the sender and receiver in the transaction.
Kovri is another Monero privacy feature that is under active development.
Kovri would use technology similar to the Tor Browser, a browser that hides a user's location and Internet usage from prying eyes:
“In an onion network, messages are encapsulated in layers of encryption, analogous to layers of an onion. The encrypted data is transmitted through a series of network nodes called onion routers, each of which “peels” away a single layer, uncovering the data’s next destination. When the final layer is decrypted, the message arrives at its destination. The sender remains anonymous because each intermediary knows only the location of the immediately preceding and following nodes.” (Source: Wikipedia's entry for Onion routing)
In a nutshell, the same way the Tor Browser uses onion routing to conceal Internet users' locations and usage habits, Kovri would use similar technology to conceal Monero users' locations and the fact that you even use Monero at all. Although some Monero users already take precautions to stay ultra private, Kovri would turn this on by default, enhancing the privacy of the overall network.
Bitcoin Privacy Features: (Optional) Stealth Addresses, ZeroLink
While Monero is known for its strong privacy, that's not to say that Bitcoin doesn't have any privacy features of its own, as developers have come up with some solutions that work on top of the Bitcoin protocol.
For example, some Bitcoin-only wallets, such as Samourai Wallet, offer optional stealth addresses.
Aside from optional stealth addresses, another feature that Bitcoin users can use is ZeroLink, which, like Monero's ring signatures, essentially mixes coins, obfuscating the source of the coins and making it hard to know who owns what. Unlike traditional Bitcoin mixers or tumblers, which require users to trust the operators of the mixer or tumbler, ZeroLink lets users mix their coins without having to trust a third party.
Additionally, ZeroLink can be used with more participants at once (up to 100 in Bitcoin-only Wasabi Wallet, which offers ZeroLink). This is in contrast to Monero's ring signatures, which mix XMR with ten "decoys". In this sense, ZeroLink might be better than ring signatures, since mixing with more people can make your funds harder to track.
Nevertheless, one glaring disadvantage of ZeroLink is that it doesn’t hide transaction amounts. All Bitcoin transactions, as well as the amounts and addresses involved, are publicly recorded on the blockchain. All amounts in a ZeroLink mix must also be equal, which means that this technology is limited to mixing as opposed to payments.
While Bitcoin does have privacy features that its users can take advantage of, the features aren't built into the protocol and are optional. On the other hand, Monero's privacy features are built in and always on.
Monero vs. Bitcoin: Fungibility
One of the main reasons privacy is important for Monero and Bitcoin is that without privacy, money cannot be fungible. Fungibility means one unit of money is interchangeable with any other unit of money.
Imagine that a political dissident fighting against the oppressive government in your country came to eat at your restaurant. You have no idea that this person is wanted by the government and accept BTC as payment for his meal. Later on, you learn that the BTC you received are not spendable anywhere because they have been blacklisted by the government.
This kind of scenario proves that Bitcoin lacks fungibility, or that 1 BTC = 1 BTC no matter what, since all transactions are public and BTC associated with unwanted activity can be tracked and blacklisted. Even if you yourself did not participate in any activity that would “taint” some Bitcoin, you could unknowingly receive “tainted” BTC from someone else to later find out that they are useless due to their “tainted” nature.
In the real world, a dollar bill is a dollar bill. Even though there's a good chance that your dollar was used for something illicit, since 80% of dollar bills have traces of cocaine, merchants will accept your money because they know that they can use it elsewhere without anyone questioning its legitimacy.
Monero solves this fungibility issue by automatically applying privacy to every single transaction. Even if Monero in your possession was used for something illicit in the past, no one can know that since Monero transactions are private. It's source or transaction history cannot be easily tracked.
For better or for worse, Monero is widely accepted on illegal darknet markets, and its fungibility is a primary reason for that. Unlike Bitcoin which travels through the darknet and can be blacklisted by exchanges who won't let users sell it for government currencies like the dollar, illicit Monero cannot be blacklisted and shows up in the system just the same as Monero from something as innocent as Monero from a children's charity. This property of Monero has made it one of the few altcoins (crypto that isn't Bitcoin) with a use case beyond speculative trading.
Monero vs. Bitcoin: Transaction Speed
A Monero transaction takes about 2 minutes to confirm. Nevertheless, a Monero transaction isn't considered fully confirmed until the network confirms the transaction 10 times. Therefore, a Monero transaction takes about 20 minutes to be considered fully confirmed and the funds unlocked for spending.
On the other hand, Bitcoin transactions take about 10 minutes to confirm and funds can be spent after 1 confirmation. So while Monero transaction speeds are faster, Bitcoin has the upper hand here based on the average time it takes for a transaction to complete with spendable funds.
Monero vs. Bitcoin: Transaction Fees
Until recently, Monero and Bitcoin transaction fees were relatively comparable (with Bitcoin fees being a bit higher).
However, in late 2018, Monero adopted a new technology called bulletproofs, which increased privacy but also decreased transaction size. This means that more transactions can fit into a Monero block (grouping of transactions), making it less competitive (don't have to pay as much transaction fees) for your transaction to get confirmed.
As a result of bulletproofs, Monero's average transaction fees decreased by about 97 percent from ~60 cents to ~2 cents.
As of writing, the average Bitcoin transaction fee is about 39 cents, which means that Bitcoin and Monero would've been similar before Monero implemented bulletproofs. However, thanks to bulletproofs, Monero has the advantage when it comes to transaction fees.
Monero vs. Bitcoin: Scalability
Scalability, or the ability to handle lots of transactions, is another factor we can use to compare Monero against Bitcoin.
Crypto needs to be able to handle lots of transactions, like major payment networks such as Visa, if it is to ever become mainstream. Unfortunately, both Monero and Bitcoin struggled to handle lots of usage in late 2017, when the cryptocurrency space was getting a lot of media attention and mainstream usage.
Average transaction fees shot up for both cryptocurrencies, showing that cryptocurrency was not yet ready for everyday use. While the transaction fees might have been comparable or less than those of wire transfers, they were still much higher than no or low-fee payment methods like credit/debit cards, Paypal, and Venmo.
Nevertheless, we have to give Bitcoin the upper hand on this one since Monero has only ever had to deal with around a few thousand to several thousand transactions per day. Meanwhile, Bitcoin regularly handles hundreds of thousands of transactions per day. Considering that Monero ran into scalability issues with such little transaction volume means that it isn't yet ready to compete with major payment networks.
Monero vs. Bitcoin: Mining Algorithm
Monero and Bitcoin are both "proof-of-work mining" systems. Individuals known as "miners" validate network transactions through a process known as mining. Miners race to solve a mathematical equation with their mining devices (e.g. a computer or specialized mining device). Whoever solves the equation first is rewarded with newly minted XMR or BTC and adds a new block to the blockchain.
Monero and Bitcoin use different mining algorithms. Bitcoin's mining algorithm, SHA-256, is able to run on devices known as application-specific integrated circuits (ASICs). ASICs are expensive devices that are created just to mine Bitcoin. Trying to mine Bitcoin with something like your personal computer is pointless these days, since you face tough competition from ASIC miners.
Of course, this situation is great for people who are able to afford ASICs. However, ASICs are expensive and energy-intensive, which has led Bitcoin mining to become centralized in countries with cheap electricity. This makes it hard for everyday people to accumulate Bitcoin via mining.
Monero uses a mining algorithm called RandomX. RandomX is ASIC-resistant and people who choose to mine Monero with ASICs don't gain a big advantage over users who use more ordinary equipment. This makes the mining process in Monero more equitable than that of Bitcoin. Moreover, it's easier for users to get their first taste of Monero without necessarily having to buy it outright, as with Bitcoin.
Monero vs. Bitcoin: Network Effect
Although Monero beats Bitcoin on things like privacy, fungibility, transaction fees, and mining algorithm, Bitcoin definitely beats Monero when it comes to the "network effect", or amount of people using Bitcoin vs. Monero.
As mentioned, there are way more Bitcoin transactions on a daily basis. While Monero has a few thousand transactions per day, Bitcoin has hundreds of thousands of transactions per day. Therefore, while Monero's technical features might be more impressive in many regards, that is of less relevance if only a few people are using the network.
On top of daily usage, Bitcoin also has Monero beat on other indicators of network size like merchant adoption, exchange support, trading volume, and financial products like derivatives.
Monero vs. Bitcoin: Supply
Another area in which Bitcoin is more preferable to Monero is its total supply. One of the defining characteristics of Bitcoin is that its maximum supply is fixed at 21 million BTC. This gives Bitcoin "scarcity", similar to gold. Scarce or low supply assets can be worth lots of money if demand for the asset is high. This has been the case with BTC as we'll discuss in the next section.
On the other hand, Monero does not have a maximum supply but will inflate or increase in supply slower and slower as time goes on.
Monero vs. Bitcoin: Price
Perhaps due to its fixed supply as well as other factors, Bitcoin also has an advantage over Monero when it comes to price. As of writing, 1 Bitcoin is $7,244.14 and 1 Monero is $53.42. While a higher price might be perceived as a negative in terms of potential room for growth, Bitcoin has historically performed better than Monero in terms of price.
If you purchased Monero when it was at its earliest known price, your return on investment (ROI) would've been 2,059.19%. This is of course nothing to sneeze at. Nevertheless, if you did the same with Bitcoin your ROI would've been 24,147.12% - basically unheard of in the world of investing. In fact, CNN named Bitcoin the best investment of the last decade (2010s).
Monero vs Bitcoin is a tough comparison to make. Bitcoin, the original cryptocurrency, is still considered the "king of crypto", and its market capitalization towers above those of other crypto assets. On the other hand, Monero is formidable because of its strong privacy features.
Monero beats Bitcoin on privacy, fungibility, transaction fees, and mining algorithm.
Bitcoin beats Monero when it comes to transaction speed, scalability, network effect, supply, and price.
Therefore, it's hard to pick a clear winner when comparing these two crypto assets. It's likely that they'll both play an important role in the crypto ecosystem for years to come.
If you're looking to get started with either one, Exodus features both a Monero wallet and Bitcoin wallet that are highly-reviewed, easy to use, and support multiple platforms like desktop, mobile, and hardware.
Information provided is for informational purposes only and should not be considered financial advice. Investing in crypto assets is speculative and carries a high degree of risk; you may lose some or all of the money that is invested. Past performance is not indicative of future results.