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Privacy and Monero (XMR): A Quick Guide

DISCLAIMER: None of the following is intended to be investment advice. This is only meant to be a description of what has worked well for…

Privacy and Monero (XMR): A Quick Guide

DISCLAIMER: None of the following is intended to be investment advice. This is only meant to be a description of what has worked well for me so far, and my own opinions. Also, full disclosure, my links to Coinbase and Binance, etc., include referrals. It actually benefits you to use them because we will both get an extra $10 worth of BTC for free if you deposit at least $100 to Coinbase. Thanks in advance if you follow the links when you make your accounts — and even if you don’t, I hope this guide helps you out!

This guide will teach you how to buy XMR from square one (i.e., all you have is fiat money, no cryptos). It will also work for most other cryptocurrencies, but as I’m interested in XMR right now, I am going to write a quick foreword about it and then we’ll get right into the meat of the guide.

A Little About XMR — Why Buy?

There is a massive subset of people who are new to the crypto-space entirely but have only heard of Bitcoin. Then they go online and they search around and figure out there are actually many, many cryptocurrencies out there with many different use cases. Monero is pretty easy to describe: it’s a privacy coin. Indeed, one could easily make the argument that it is the king of the privacy coins. Certainly this is true with regards to market capitalization. 

This article is a long time coming — and will eventually be followed up with something that goes far more heavily into the technical differences amongst the various privacy coins. For now, though, this is intended to be an overview of Monero. 

Why is XMR so important to me, though? Simple:

This is the tweet that first encouraged me to start writing about cryptocurrencies (originally on Medium, but now here). I knew this tweet would generate a lot of hype. More importantly, I knew that he was right — there are many reasons why functioning privacy coins should succeed in the long term.

To get into these reasons, we need to talk about where Bitcoin got its start. Those of us who have been around for awhile remember when the Bitcoin community consisted mostly of a batch of grizzled nerds, anarchists, and libertarians. These people were largely skeptical of governments, financial institutions, and so on — after all, Bitcoin rose from the ashes of the 2008 housing crisis that was caused by both of those groups.

Bitcoin was assumed to be totally anonymous back then, and people treated it as such— indeed, it was used for a lot of illicit drug deals over the internet. In retrospect, this seems pretty silly — when we’re talking about the blockchain, we’re talking about an immutable ledger that is available to everyone. In the case of Bitcoin, this comes along with a lot of extra data that — with a great deal of effort and investigation — can be used to gather information about senders and receivers. Of course, when Bitcoin was far more obscure, this was less of a concern.

Enter the Silk Road

The Silk Road was an illicit online marketplace which operated over the Tor network from 2011 to 2013. This has been described as a “darknet market” — it was part of the dark web and therefore inaccessible to regular internet users unless they knew how to use Tor hidden services. The purpose of this marketplace was mainly to buy and sell illegal drugs, and it was eventually shut down with its founder Ross Ulbricht sentenced to life in prison. Many have suggested this was an obscene miscarriage of justice, but all of that is very outside of the scope of this article.

I bring up the Silk Road because it was arguably the first major use case of Bitcoin. Now, I’m not suggesting that it’s a good thing that cryptocurrency is often associated with illegal activities by the media. Historically speaking, however, it is a fact — the siren song of “private money” brought many to the cryptocurrency table.

There are also many non-illicit reasons why one would desire privacy. Personally, I would prefer a world where it’s not possible to use my credit card statements to figure out everything about my life. Governments and financial institutions would, naturally, prefer the opposite. If I think about it for too long, everything to do with modern banking seems sort of Orwellian to me.

I understand if that last line seems like a little much, but just think about it for a moment. In the modern world you are being surveilled almost every minute of every day. Your internet searches are in an NSA database somewhere, CCTV watches you when you’re outside of your house, and the history of everything you’ve ever bought (and where you bought it) is freely available to banks, the government, and any enterprising hacker who’s up to the task of gaining access. If blockchain technology can reduce any of these issues, I’m for it.

Economics and Governments

Would it surprise you to know that some countries have implemented negative interests? We’re not talking about third world, countries, either; examples include Japan, Switzerland, Sweden, and Denmark. When some faceless — often unelected! — bureaucrats make it possible for a bank to charge you money for the privilege of holding your money, it’s time to come up with an alternative.

Of course, this is an argument for cryptocurrency as a whole, not privacy coins. However, bear in mind that some particularly corrupt governments — once they realize they’re being stopped from constantly robbing their own citizens via seigniorage — could try to ban cryptocurrency.

Seigniorage: profit made by a government by issuing currency, especially the difference between the face value of coins and their production costs.

As I’ve written before, however, I don’t believe cryptocurrency bans are likely to occur outside of certain backwards countries. Unfortunately, some of these backward countries are very large; India, for instance, recently shut down the bank accounts of anyone dealing with Bitcoin (mostly exchanges). It’s monstrous, but there are ways around this sort of thing, and privacy coins will absolutely play a part in helping citizens of countries with corrupt governments to bypass restrictions without ending up in prison next to Ross Ulbricht.

So what does all this have to do with Monero?

As I’ve said, Monero is currently the most successful privacy coin. Unlike Bitcoin, Monero provides for the following privacy-centric features:

  • Sender obfuscation. Even the people you send Monero to have no idea that it came from you.
  • Address and payment detail obsfucation. Unlike Bitcoin, it is not possible to track down, for instance, the number of payments sent to an address. Likewise, transaction amounts are obfuscated to third parties.
  • Mandatory “untraceability.” Through a cryptographic technique known as a ring signature, users of the Monero network appear — to outside observers — to be using others’ funds in their own transactions constantly. Without getting into the technicalities of how this works, this ultimately means that it’s not possible to pry into the origin of particular coins.

I’ve already listed many of the benefits of this obfuscation, but there is one more that is extremely important with regards to my last point. With Bitcoin, it is easily possible to discover the history of particular coins; one could perhaps mark a batch of coins as having been previously stolen, for instance. At first this might seem like a great idea — after all, it would help to track down thieves, right? Unfortunately, this can lead to exchanges and other services “blacklisting” coins that have ever been used for illicit purpose (or any purpose they don’t like). This means that if a customer pays you in stolen Bitcoins, Coinbase or another busybody middleman might decide to shut down your account. With Monero, this sort of coin history simply does not exist, so the problem doesn’t exist. This concept is known as “intrinsic fungibility” - each portion of Monero is indistinguishable and therefore truly equal to any other.

These privacy features are not the only difference between Monero and Bitcoin. Perhaps the biggest difference is that Monero is militantly ASIC resistant in its philosophy and implementation. What this means is that it can be mined like Bitcoin, but it’s not possible to create specialized machines or microchips (“application-specific integrated circuits”) to mine it at tremendous hashrates. Monero is meant to be mined through the GPU, which arguably makes it a lot more accessible to regular people and more decentralized. Indeed, people have built JavaScript miners (Coinhive, etc.) that allow people accessing your websites to mine coins for you! This is an interesting and controversial alternative to trying to monetize one’s site with ads.

Price Comparison

I could go on, but I believe I’ve laid out a good case and overview for Monero. With that said, let’s do a quick price comparison. Monero is already doing quite well for itself — at the time of this writing it is ranked #12 among cryptocurrencies by market capitalization and is priced at $134.17/XMR. However, this is no ERC-20 utility token we’re talking about here. This is a coin with its own blockchain that is well-established and is markedly superior to Bitcoin when it comes to privacy.

Thus, Monero is one of the few cryptocurrencies that could realistically take a shot at the king — or at least steal some of his market capitalization. At current prices, if Monero were have the same market cap as Bitcoin, it would be worth over $8,500 — many times more than the current price! The similarity of this number to Bitcoin’s current price — about $8,200 — may surprise you. The reason is because Monero has nearly the same number of coins in circulation as Bitcoin at this time. Now, I don’t necessarily believe that Monero will displace Bitcoin, but I do believe there is a long-term place for a privacy coin in the crypto market space. Monero is already well-positioned to be the winning privacy coin.

Now that you understand the basics of Monero, let’s learn how to buy some!

Buying XMR: Basic Strategy

To date I’ve had no problems with the following basic strategy:

  1. Create and sign into a Coinbase account. I recommend Coinbase because they are the most straightforward exchange.
  2. Purchase some ETH. At the time of this writing, this currency transfers the fastest and cheapest out of anything Coinbase offers. Litecoin competes here, but will cause hiccups later in the process — more on that later.
  3. Create and sign in to a Binance account. I recommend Binance because they have been reliable and convenient for me and they offer many different lesser-known cryptocurrencies with trading pairs on both ETH and BTC. An added bonus is that you can withdraw up to 2 BTC/day worth of funds with no verification at all.
  4. Move your ETH to Binance. Once it has confirmed, you can now easily use the ETH/XMR trading pair to buy as much or as little Monero as you want. More on trading pairs later.
  5. Send your coins from Binance to a safe XMR wallet for long term storage if you intend to hold for awhile. This is not strictly necessary but it is considered a safer option than keeping ANY coin on ANY exchange long term. Unfortunately, my preferred wallet Coinomi does not currently support Monero (although this is supposedly in the works). The good news is that it’s now possible to store XMR on a Ledger Nano S — and Trezor may also be an option in the future.

Now, if you’re a power user or someone with some existing familiarity with cryptocurrency, you can probably stop here. The rest of this guide is just going to be a more in-depth description of the preceding steps. If you’re completely new to cryptocurrencies, you might be a little lost — that’s fine! You won’t be by the time you finish this guide. I’ll go step by step:

Starting Out On Coinbase

This is arguably the most trusted exchange currently on the market. You can think of them as the PayPal of the cryptocurrency world, with all the good and bad connotations that come along with that. There are some countries where this is not the case! For example, in Canada, one would probably want to use QuadrigaCX instead. Unfortunately, that’s outside the scope of this guide, but I do have a country-by-country guide which may help you if Coinbase doesn’t work in your area.

All you have to do here is go to Coinbase’s website and create an account. Security is incredibly important here — remember, in cryptocurrencies you are your own bank and so it is absolutely crucial that you follow good security practices. This means your password should be strong — and it should be a password you aren’t using anywhere else (including other exchanges). Google has a pretty good guide with some tips on choosing strong passwords. Keeping security in mind, it would also behoove you to turn on two-factor authentication once your account is created.

Once you are up and running there are a number of options when it comes to actually paying for coins via Coinbase. It is possible to link your bank account to Coinbase but actually transferring coins out of Coinbase will be impossible for a few days while the funds are clearing. This is obviously not ideal if you want to move quickly, as you would now have to wait several days to move your coins to an exchange where you can trade them for XMR (or any other coin).

Instead, I would recommend you link a credit or debit card to Coinbase. This will allow you to purchase some amount of coins immediately, and then immediately send them off wherever you want — your wallet, another exchange, etc. At the time of this writing Coinbase offers three coins: Bitcoin (BTC), Ethereum (ETH), and Litecoin (LTC).

What to Buy First?

In my opinion if you intend to buy lesser-known coins like XMR, ETH is the best choice to buy here. Why? Well, with regards to LTC, the reason is clear: other exchanges like Binance offer direct trading pairs for BTC and ETH, but not LTC or any other currency. What this means is that you could directly exchange your ETH for XMR, or your BTC for XMR, but you’d have to perform another step if you wanted to trade your LTC for XMR (and that means more fees!). Obviously we don’t want to waste even one cent if we can avoid it, so LTC is out.

With regards to BTC, at the time of this writing there have been a lot of rumblings about high transaction fees, slow transaction times, etc. Exchanges often overpay these fees as well, and that means that you are again risking missing out on more money than you need to.

ETH is therefore currently the best choice for our purposes by default — fastest transaction speed, lowest transaction cost. So, to review: create a Coinbase account, link your credit or debit card, and purchase ETH.

I Bought ETH: What Now?

Now is the time for you to make your Binance account. Follow the link and create an account using a strong password (this should be different than the one you used for Coinbase!). There are other places where you may be able to buy XMR (Changelly, Kraken, EtherDelta, HitBTC, etc.). I cannot directly recommend most of these exchanges as I don’t have much experience with them at this point — however, I can say that I have used HitBTC and KuCoin and they have worked well for me. This guide focuses on Binance because my experience there has been 100% positive — I have transferred coins in and out of their system many times with no problems.

Once your account is made, you should set up two-factor authentication here via Google Authenticator. It’s safer, and you will need it to transfer coins out of Binance anyway. More on this later.

After your Binance account is made, click “Funds” at the top right, then “Deposits Withdrawals” beneath it. Find Ethereum in the list and click the “Deposit” button on the far right. You should end up with something that looks like this:

Depositing To Binance

Unlike the picture, there will be an “ETH Deposit Address” listed in the box at the bottom left. This is a very long series of letters and numbers, and is the fundamental basis of most if not all cryptocurrencies. An “address” is simply the destination for funds — think of it like the account and routing numbers at the bottom of your checks. For many cryptocurrencies such as Bitcoin it is possible to have multiple “receiving addresses” which point towards the same wallet.

The address listed here is Binance’s “receiving address” for your Ethereum. To the right of it is a “copy address” button — use it to put the address into your copy/paste buffer. Then, in your Coinbase account, navigate to the Accounts tab and then to your ETH Wallet. Paste in your address. You should double check that the pasted address is the same one you saw on the deposits page in Binance — you can never be too sure when it comes to security! Once you’re sure you’re sending to the right place, input the amount of ETH you’d like to send (if you just want to buy some XMR, you should send all of it) and click “Send.”

Optional Trick: Using GDAX To Save Money On Fees

GDAX, or “The Global Digital Asset Exchange,” is the actual exchange which backs Coinbase. You can use it to save a lot of money on fees if you’re willing to spend a few extra minutes getting verified. Follow this link and click “DEPOSIT.” Click “Coinbase Account” at the top and deposit all your ETH from Coinbase into GDAX.

Once you’ve done this, you can click “WITHDRAW” in GDAX and send your funds from GDAX to Binance. Fees are significantly reduced with this method!

I Sent ETH to Binance — Now What?

Once you click Send, you will need to wait a little while. Without getting too technical about it, exchanges want to be as secure as possible. Thus, when you make a deposit, they wait for multiple “confirmations” from the network before allowing you access to your funds. You can view the progress in your Binance account by clicking Funds and then History. Do not be alarmed if nothing shows up at first! There are many reasons there might be a slight delay. In general you should see the transaction show up within a few minutes, with the current number of “confirmations” next to the number of required “confirmations” next to it. Be patient — your XMR is nearly in hand!

Once you have the required number of confirmations, it’s time to trade your ETH to XMR. This is blessedly simple. In the front page of Binance, click “ETH Markets.” Search for “XMR/ETH” in this list, and click it. Now you are on the trading page. In the bottom left under “Buy XMR”, click “100%” below the “Amount” field.

Time to buy XMR!

This indicates to Binance that you’d like to trade all of your ETH for a commensurate amount of XMR for no more than the price listed above. The price field is automatically listed based on the current market. If you like, you can change it to a different price, but like any market it’s not guaranteed that someone will buy at the price you’d like. Your order will remain open until it’s been fully filled or you cancel it. There are several options here such as Stop-Limit orders, etc., but this is outside the scope of this guide. In this case, you are simply placing a “Limit” order for some XMR.

I Placed My Order! Am I Done?

If you want to be done now, you can be — but there are more steps if you want to be security-conscious. You may want to check under the “Orders” and “Order History” tabs that the order went through — if you placed a Limit order at the default price, it probably did. Once you have your XMR in your Binance account, you can see them under “Funds” → “Deposits Withdrawals.” You can click “Hide 0 Balances” at the top to clean up the screen of coins you don’t own, and you can see an estimate of the overall converted BTC and USD value of your account at the top right.

For maximum security, I wouldn’t leave your coins in the exchange. I like and trust Binance, but ANY site can be hacked or experience downtime — even massively established trusted sites like PayPal. You want to have full control of your coins.

How Do I Move My Coins to a Private Wallet?

In Binance, go into the “Deposits & Withdrawals” tab, then click “Withdrawal” to the far right of the “XMR” row. By now it should be clear what you’re looking at — fields that let you input the address to send the coins to, and how many coins to send. For your convenience, there is a “Max” button to the right of the Amount field. Note that once you click “Submit,” you will need to use your two-factor authentication via Google Authenticator, an Android app. I recommend you do not use your actual day-to-day phone for this purpose. These days you can get an inexpensive Android phone for around 30 dollars — this is an investment worth making for security purposes. You can keep the battery removed from the phone when you’re not using it, and connect it to a network only for cryptocurrency purposes. As a bonus, if you’d like, you can use this phone for the Coinomi wallet (although at the time of this writing you cannot use Coinomi to store XMR!)

So, as for which wallet to send it to, remember that Monero is coin on its own blockchain. Thus it has its own wallet software, which you can find on the official Monero site. I’ve reviewed enough wallet software that Monero’s desktop wallet doesn’t really stick out much — it’s also simple and straightforward enough to use that it doesn’t really require a full tutorial. Just download the correct version for your operating system, create a new wallet, write down your seed phrase in order to create a backup, and you’re good to go. All you have to do to get your coins from Binance to your wallet at this point is click “Receive,” and use the address at the top as I described earlier. Voila: your XMR is safe and sound!

Be advised that the information here only scratches the surface on Monero and cryptocurrencies in general. I recommend you read as much as possible. Cryptocurrencies are the future, and if you’re reading this guide you are already lightyears ahead of the curve.

Come back soon because more content like this is always coming! If my work helped you or gave you something to think about, share it with others:

Sharing helps more people find my articles, and I’d love to be able to assist as many people as possible with cryptocurrencies. Also, if you have any ideas for future articles or specific questions, I’d love to hear them. Comments section coming soon! One last thing: if you’d like to chat with me in real time, check out my Patreon - I am running a public Discord for the discussion of cryptocurrency, and if you subscribe to my Patreon you can get a special role there!

Best of luck, and happy trading!
Malcolm Rose

Posted: Jul 30, 2018

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