Bitcoin Privacy: Harder Than You Think?

Bitcoin isn't anonymous as many believe. While it offers a degree of pseudonymity, achieving true privacy requires conscious effort and technical knowledge.

The recent legal pressures on privacy tools like Samourai Wallet and Tornado Cash highlight the increasing scrutiny on Bitcoin privacy solutions.

Satsie, a board member of the Payjoin Foundation and a contributor to the Bitcoin Dev Project, joined Bitcoin Season 2 to discuss the state of Bitcoin privacy.

The Myth of Bitcoin Anonymity

Bitcoin is pseudonymous, not anonymous. For the average user going through KYC exchanges, privacy is limited. Every transaction is traceable on the public blockchain.

The responsibility rests on the user to understand their threat model and use Bitcoin accordingly.

Privacy is Possible, But Challenging

Protecting your privacy requires active measures. Basic internet privacy practices (VPNs, secure email) are relevant here as well.

Address reuse is a major privacy risk. Wallets now automatically generate new addresses for each transaction, but users should still be aware of the UTXO model.

Mixing UTXOs from different sources can link your transactions.

Basic Privacy Techniques

• Avoid sending addresses or transaction IDs in plain text. Use encrypted channels like Signal.
• Never ship hardware wallets to your home address. Use a P.O. box or alternative delivery location to avoid data breaches.

The Importance of Running Your Own Node

Running your own node is crucial for privacy. It allows you to broadcast transactions and query the blockchain directly, without relying on wallet providers who can track your balances, addresses, and transactions.

Understanding Payjoin

Payjoin is a transaction method where the receiver adds an input to the transaction, breaking the common-input ownership heuristic. This enhances privacy because it's no longer certain that all inputs belong to the sender.

Payjoin offers fee savings for exchanges and enables transaction cut-through, improving efficiency.

Cake Wallet, Bull Bitcoin, Blue Wallet, and others support payjoin. The Payjoin Dev Kit facilitates integration into wallets.

Silent Payments Explained

Silent payments allow address reuse without compromising privacy. The sender combines your silent payment address with their input's private key to derive a unique taproot address. The receiver scans the blockchain for matching transactions.

Regulatory Landscape and the Future of Bitcoin Privacy

The regulatory landscape is complex. There is hope for more breathing room to develop privacy-enhancing technologies. The Clarity Act is being hoped for in the US to protect non-custodial wallet developers.

Resources for Learning More

• The Bitcoin Wiki
• Bitcoin Optech
• Payjoin.org and Payjoindevkit.org

Key Takeaways:

• Bitcoin is pseudonymous, not anonymous, requiring users to actively protect their privacy.
• Tools like Payjoin and Silent Payments aim to improve privacy at the transaction level.
• Running your own node is vital for reclaiming control over your Bitcoin activity and minimizing reliance on third parties.
• Regulatory risks can impact Bitcoin privacy tools.