Motley Fool analyst Eric Bleeker, Motley Fool lead crypto advisor Bernd Schmid, and Motley Fool contributor Chris MacDonald discuss whether Monero (XMR 0.31%) could be what investors hoped for when they bought Bitcoin (BTC 1.75%) on this clip from "The Crypto Show" recorded on Nov. 4.
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Eric Bleeker: We'll take some more questions at the end, but I want to get to the final cryptocurrency we will be discussing today, which is Monero, it's XMR.
It has a market cap of 4.7 billion, it's the 41st largest crypto. It's a privacy coin that aims for additional layers of privacy I think for investors out there who have been crypto adjacent or watching this space for a long time. You're going to recognize this one. It's been a project that's been very visible for a year.
Bernd, why did you pick out Monero as the third cryptocurrency we're discussing today.
Bernd Schmid: I like Monero because somebody puts it Monero is what Bitcoin noobs thought they bought.
I'm not sure if this is still about the narrative, not anymore, but people used to think Bitcoin is anonymous and it's dangerous and all these obscure actors, which definitely they were there in the beginning. Because it's not that like, Bitcoin is actually a 100 percent transparent. You can look up every single transaction in the network.
If you buy a coffee from me, for example, I can look up your address. I know where this money came from. I know how much money you have on this address. I know where it came from, all the transactions that you do.
This is something that could be desired or undesired. I think in many cases you should argue that for day-to-day transactions, you actually don't want everybody to have a look inside your wallet and know inside your bank account and observe anything that you do. Most people don't know that it is you.
But even right now there's companies out there who actually tried to match faces, so to say real people to address, like rich people or maybe companies like Michael Saylor of MicroStrategy (MSTR 4.69%). Somebody knows what kind of address, and I think in this case it's even public; what kind of address they use. Everybody can look up how rich everybody is.
I think this can be negative, we don't want to know everybody how much money you have. Monero came in and these people said, what does Bitcoin do and what should we do better, or what can be done better to really have a real cryptocurrency which can be used as a cash equivalent just to say, or similar to cash with similar properties?
Then what they did was differently from other projects. There have been other privacy projects before. The older ones they used to copy the Bitcoin code and amended it, changed a little bit to add these privacy features and other features, and Monero didn't do that, they wrote the whole code base by themselves completely from scratch, so it's not a Bitcoin folk, so to say, and then they implemented all these features which they think are useful.
This privacy feature is the most important one. Also, I want to add, it's not that it's completely obscured this network. For example, many people criticize it, but then we can never know who did what and so on. If someone wants to analyze something, understand where an section came from, or there is a malicious act or criminal also.
But also you can actually always prove what you have done and show on the blockchain what you have done. You yourself can do that and you can make this visible to the outside world, but it's your choice to do that as opposed to Bitcoin where it's standardized, it just is out there. The second thing that Monero I think does better than Bitcoin is that Bitcoin will have these mining rewards halve every four years the rewards that the miners who secured a Bitcoin network receive is cut in half. At some point, it will be cut to zero, like the miners who process these transactions in Bitcoin, they will not receive revenue as a reward anymore, but only from the transactions that people are doing.
Then if you made Bitcoin transactions, actually everybody making transactions, they're responsible for paying the miners doing their job. In Monero, it will be much like this, it will be continued. First of all, it's not the halvening cycle where you have this disruption from the second ago to now, you suddenly get only half the reward than you got before for the next four years. But in Monero, this is greatly decreasing and it stops at, I think, 0.3 Monero per minute delivered forever.
There will be inflation forever in Monero, but it will go down toward 0 percent annualized. So miners will always be rewarded by the network itself rather than the transactions.
Also, compared to Bitcoin control systems, action is faster, more secure and these things. But I think that's not important as I don't see Monero as a Bitcoin competitor because I see Bitcoin more as a store of value but Monero could really become the cash replacement for potential in a digital way. Let's just think they have done a great job of implementing an excellent protocol there.
Eric Bleeker: Chris, do you have anything to add to Monero and the privacy space in general?
Chris MacDonald: Well, I think Bernd, you should copyright that statement that Monero is what people thought they were buying with Bitcoin. I think that's true. I think you don't want people seeing what's in your wallet in real life. I think the same thing goes like there's a basic level of privacy that people expect with the crypto world and the fact that, let's say Bitcoin is so hoping and you can see which wallets transacted with which wallets, can pose a problem.
One of the biggest problems that I see with this, and when you think about it, for me, wrapping my head around Monero was difficult because there are those illicit dark web aspects to it.
But if you're a business and you want to do business completely over the blockchain and you say, I have a coffee shop like Bernd was saying, and I want to sell coffee to somebody, well, when you pay your supplier, the other suppliers can see what you paid that supplier, so you're opening up your price sheet to everybody. They can see how price sensitive you are.
When you sell a coffee, people will see what they paid for that coffee, so there's no ability really to, or it makes it more difficult to raise prices or to negotiate. From a business standpoint, it just doesn't work. Monero helps to solve some of those problems and I think, just at a high level, it's the next iteration of Bitcoin could potentially be.
Bernd is really right on the money with his analysis and that's all I would have to add to that.