In this digital world where our money has become a few bits and bytes there are many more prying eyes that are looking at what you are doing with your money. Especially so with a public ledger like Bitcoin, where every on-chain transaction is visible for all noderunners to verify and store indefinitely.
I believe it is your right to selectively reveal yourself to the world, you would want to let your butcher know you paid for your steaks, but not show him your entire financial history by mistake. In Bitcoin this could easily happen, if you don’t obfuscate the on-chain path.
This opens the door to 5$ wrench attacks, kidnappings or worst of all government confiscations. The KYC info that exchanges are forced by government to collect about you will inevitably get leaked or hacked, where they can be abused by malicious actors. Chain analysis companies are out there looking to de-anonymise bitcoin users whilst get paid to do so, we see them as one of the offenders of bitcoiner privacy.
One fast way to relatively private transactions is to pay with a second-layer like Lightning or a confidential transaction on the Liquid side-chain.
Lightning bitcoin payments leave no on-chain footprint other than the opening and closing transactions between Lightning nodes/peers, onion routing the lightning payment can make the sender anonymous.
Liquid confidential transactions even hide the amount you’ve sent to third parties watching, but do leave a trace on the side-chain.
When you are really stuck with doing a first-layer Bitcoin payment, one of the options is to PayJoin with the receiver. In a PayJoin you break one of the chainanal heuristics by having both the payer and payee add an input in the collaborative transaction, making it difficult to determine which UTXO’s belong to whom.
A more powerful version of that idea is called Coinjoin, where you do a collaborative transaction with typically 5 or more other participants and send out similar size portions of bitcoin to each participant.
This breaks the link between the input and output to a certain degree, depending on what you do with your UTXO’s after the coinjoin. This is a great tool to privately send bitcoin to your cold-storage after buying them on a KYC exchange, or spending them privately at any point in the future.
Just do a round (or more) of coinjoin to blend in with the crowd!
Where can I learn more?
One of the easiest wallets that let you do coinjoins non-custodially is Wasabi Wallet, but they are no longer running a coinjoin coordinator themselves. This is where the Noderunners stepped in with the https://coinjoin.nl coordinator, where you pay 0% coordination fees and only chip in your portion of the mining fee. Check it out if you want to learn more!
Stay private.
Stay sovereign.
Posted by Rob, written by Kevin Ravens₿erg
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