The Surprising Truth About How People Spend Monero [Token Investigation 43/50]

Is It All Going Towards Sex & Drugs? 🤔

Monero is the most popular privacy-focused cryptocurrency in the world. As of the time of this writing (Jan 11th, 2018), it is one of only 14 cryptocurrencies to have a market capitalization of more than $5 billion.

The basic idea of Monero is so simple that it doesn’t require a whole lot of explanation.

All transactions on Monero have the following characteristics:

(1) The sender is anonymous
(2) the recipient is anonymous, and
(3) the amount transacted is anonymous.

The only thing that the outside world can see is that a transaction happened. That means that each transaction on the Monero blockchain is private, just like if two people exchanged cash privately.

Enough experts have verified the technology that I believe it is safe. The details of anonymizing blockchain transactions go way over my head - I’m usually willing to dig into that kind of stuff, but in this case, it’s not worth it.

_{If it checks out with Vtalik, it checks out with me}

Rather than wax poetic on the details of Zk-Snarks, I mainly wanted to answer this question: What are people using Monero for? It’s impossible to know what Monero will look like in the year 2020 or beyond… but perhaps by understanding what it is like today, we can get a better understanding of the Monero ecosystem.

Is anonymous cryptocurrency nothing more than a way to subvert the law? Or is it a viable and widely applicable technology? This article will figure it out.

About This Series + Disclaimer

This post is part of a new series where I investigate each of the top 50 coins by market cap (based on coinmarketcap.com's rankings on October 11, 2017). My goal is to help steem’s userbase become the most knowledgable blockchain community in the world.

Disclaimer: I am not an investment expert and will not be providing investment advice. I will teach you about the top 50 coins, and you can do what you want with that info.

How is Monero Used Today?

The elephant in the room with most cryptocurrencies is, people aren’t actually using them to buy and sell stuff. The majority of cryptocurrency holdings are investments - either for long-term gains, or for short-term trading - and any profit taking involves cashing out into fiat currency.

On the Steem blockchain, we have seen some small use cases for Steem as an actual currency. The most promising one so far is “Steem Gigs,” the name for when people hire other people and pay them with steems or SBDs.

I posted a Steem Gig once to get a logo designed for a book club and it was great. Steem is fast and free to use so it facilitates easy pairing of freelancers and people who want to hire them.

Monero, on the other hand, has the main benefit of anonymity. Which makes it easy to draw conclusions about what people use it for… but I wanted to find real evidence.

Here is the first thing I found:

From the article: “A quick browse through the [darkweb market Alphabay] today shows dealers of everything from stolen credit cards to heroin to handguns accepting the stealthier cryptocoin.”

Later in the article, there’s a quote from prominent Bitcoin developer Peter Todd that offers a less sinister reasoning for the technology of Monero:

"If I pay my rent in Bitcoin, it wouldn't be that hard for the landlord to figure out how much money I earned if I don't take extra precautions. Then they can decide whose rent to increase. You’re giving away information you don't want to make public.”

How much of Monero’s usage boils down to illegal shit like drugs?

The largest dark net market that get mentioned in these articles is a site called AlphaBay. For legal reasons I am not going to visit the site. But, Wired points to this Bitcoin Magazine interview which indicates that Monero accounts for 2% of AlphaBay’s sales.

Wired’s best guess places this at “a small fraction, but still likely amount[ing] to millions of dollars in annual revenue, given Alphabay's dominant position in the dark web drug market”

As of mid-January, 2018, Monero’s 24 hour volume is $195.5 million. Therefore Alphabay is only making up about 1% of the daily transaction volume of Monero.

That does not place drug dealing via dark web markets as a huge portion of the transaction volume.

Here are a few other good quotes about Monero from around the web:

“Roger Ver, known as “Bitcoin Jesus” for his evangelical support of the currency during its early years… said his investment in Monero is “substantial” and his biggest in any virtual currency since bitcoin.” - from https://monero.how and originally from bloomberg

Freedomnode points out that Monero “competitor” Zcash is actually not competing in the niche of actual anonymous transactions:

Meanwhile, the music industry seems to be embracing Monero. I’m not sure if anybody is actually using the coin to buy music, but some major artists have made it available. Forbes offers this juicy quote as one example:

The music stuff is part of a music distribution project called Project Coral Reef. It’s worth clicking that link to see it yourself - looking at a webshop priced entirely in cryptocurrency gives me goosebumps!

Breaking Down Monero Usage

What are people actually using Monero for? As far as I can tell, and take it with a grain of salt, it looks like this:

(1) a lot of short-term buying and selling for speculation,

(2) some buying for long-term holding based on either: (2a) speculation or (2b) as a “vote” for the philosophy of the blockchain

(3) A decent chunk that uses it for illegal activities that could otherwise be tracked

(4) A smaller chunk now, but theoretically larger later, that uses Monero to keep the total contents of their digital wallet secret for safety (i.e. so the gas station attendant doesn’t see you have access to a million dollar wallet)

(5) A probably tiny group that uses it for random spending - like buying music.

This is not the most satisfying answer, but it’s hard to track the spending of a cryptocurrency designed for anonymity, lol. I’d love to see a more detailed look at the statistics of Monero expenditures if anybody knows of one.

One Other Thing - Will The Government Crack Down on Private Cryptocurrency?

Monero is a cool idea in theory but all of its actual applications are so subversive that they basically are radioactive waste eating away at the government’s power. Which could lead to some drastic defensive moves from the government.

If Monero becomes widely popular, it will be so hard for the government to enforce tax law and we will see some conflict. Paying taxes could become a game of chicken, with the government auditing known cryptocurrency people and suspected tax evaders… but perhaps with it becoming commonplace to hold a little “secret sauce,” keeping 5-10% of your money in Monero for whatever secret means you might need.

It could turn into an ultimate Government vs. Monero Showdown which is what the anarchist crypto-optimists are hoping for.

Or it could become a small background fact of life. People could use Monero to avoid the law just like they use Snapchat today. Tax evasion via Monero could be like growing cannabis in the USA today:

-Using Monero for minor tax avoidance = like growing one cannabis plant, you would probably not get in trouble but it is definitely illegal, or:

-Using Monero to dodge all of your tax - like running a grow op, you are at major risk and are in trouble in you get caught. but the theoretical rewards are high.

This “casually illegal” status of Monero would make a lot of sense to me as it “fits in” with today’s society a lot more than the “Ultimate Showdown” model does. “Casually illegal” lets us move on and get back to business as usual, while “Ultimate Showdown” forces an answer that nobody is really ready for.

Market History

Monero was one of the fastest growing coins of 2017:

_{note: photo taken a few days ago before the big dip today}

I believe that in the long run this currency has a ways to go before it reaches peak popularity. In fact I suspect that much of the juiciest drama surrounding cryptocurrency will be focused on situations involving Monero.

In the short term though who knows. Maybe the market will collapse another 50%, maybe it’ll moon all the way to Mars, I can’t predict it and neither can you.

What Do You Think About Monero?

^^^^ I would love to hear some more ideas on this one, especially if you have any experience with anonymous cryptocurrencies.