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Bitcoin Privacy: Best Practices

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Retrieved from articles Gigi prepared by bitcoiner Tony ₿

Bitcoin Privacy: Best Practices

"Each of us has our own space where we make important decisions and determine our own future-a space with its own fundamental rights and freedoms, that part of our lives in which the law, in general, should not interfere."

– Geoffrey Fisher, Archbishop of Canterbury (1959)

Not so long ago, the default Internet usage was the most common unencrypted text. Anyone could spy on anyone, and few people thought about it. With The release of information about mass surveillance things changed in 2013, and today secure communication protocols and end-to-end encryption are becoming the norm.

Although Bitcoin has only just reached adolescence, it is (to put it metaphorically)still in the era of the most common unencrypted text. Bitcoin is radically transparent by default, but there are a number of ways to protect your privacy. In this article, we want to highlight some of those ways, discuss best practices, and give advice to both new and experienced Bitcoiners.

The importance of privacy

"Privacy is essential to the open society of the digital age. Privacy and secrecy are not the same thing. A private matter is something one thinks the whole world doesn’t need to know about, while a secret matter should not be known at all. Privacy is the ability to choose what information about oneself to reveal to the world."

These words served as an introduction to Eric Hughes’ "The Cipherpunk Manifesto" in 1993. The difference between privacy and secrecy is subtle, but significant. The decision to maintain privacy is not an indication that one has something to hide. As an example, think about what you do in the bathroom or the bedroom; it is neither illegal nor secret (in most cases), but you close the door behind you and draw the curtains.

Similarly, your savings and what you spend it on are not necessarily secret. It should, however, remain your own business. Most would agree that your boss should not know how you choose to spend your paycheck.

The importance of privacy is recognized by many international organizations, from the American Declaration of the Rights and Duties of Man to the United Nations; it is recognized that privacy is a basic human right around the world.

"No one shall be subjected to arbitrary interference with his privacy, family, or correspondence, nor to arbitrary attacks upon his honor and reputation. Everyone has the right to the protection of the law against such interference or attacks.

Article 12, United Nations Declaration of Human Rights

Bitcoin and privacy

Although Bitcoin has often been described by early adopters and the media as an anonymous payment method, it is not. Bitcoin is pseudonymous at best, and today breaking the link between your real identity and pseudonymous Bitcoin accounts is not the easiest task for most.

Bitcoin is a transparent system. Its publicly accessible registry can be checked and examined by anyone. Thus, every transaction displayed in the proof-of-work chain ( PoW ), can be exposed as long as Bitcoin exists. Disregarding privacy principles today could cause negative consequences in the future.

Achieving privacy, like security, is a process, and it’s quite difficult, but not impossible. The development of tools to help maintain privacy when using Bitcoin continues, and fortunately, interacting with most of these tools is getting easier. Unfortunately, there is no panacea, per se. We need to be aware of the tradeoffs and follow best practices as they evolve.

Best practices for privacy

Like everything related to Bitcoin, controlling your own privacy is a gradual, step-by-step process. Learning and implementing best practices takes patience and responsibility, so don’t be discouraged if at first glance you find it too difficult. Every step, no matter how small, is a step in the right direction.

Listed below are practical steps you can take to improve your privacy :

  • Store your own coins by yourself

  • Do not reuse addresses

  • Minimize KYC procedures ( know your customer )

  • Minimize interaction with third parties

  • Start your Bitcoin node

  • Use lightning network for small transactions

  • Do not use public block observers

  • Use CoinJoin as often as possible

Store your coins yourself : Not your keys, not your bitcoins If someone else stores your bitcoins for you, they know everything there is to know about those coins : amounts, transaction history, upcoming transactions, etc. The first and most important step is to store your coins yourself.

Do not reuse addresses : Address reuse will negate the privacy of both sender and recipient. This should be avoided at all costs.

Minimize the passage of KYC procedures: Linking your real identity to your bitcoin addresses is mandatory in most jurisdictions. While the effectiveness of these rules is questionable, numerous data breaches point to negative consequences for ordinary users. If you choose to use KYC platforms to buy or sell bitcoins, make sure you are fully aware of the relationship between you and the service in question. You are trusting this service not only with your personal data, but also with the future security of that data. If your income is denominated in fiat currencies, we recommend using one of the services focused exclusively on Bitcoin. If you want to opt out of KYC entirely, check out the article " No KYC ".

Minimize interaction with third parties : Trusted third parties are security holes If you have the ability to handle it yourself without relying on trusted third parties, do it.

Start your own Bitcoin node : Not your node, not your rules. Running your own node is necessary to use bitcoin in a private way. Every interaction with the Bitcoin network takes place through the corresponding node. If you do not control that node, all your actions are visible to the node you are interacting with. This means that whoever controls the node serving you can monitor your actions.

Use the lightning network for small transactions : Offchain Nature lightning nets increases the privacy of its users’ transactions without requiring a number of complex transactions. Although the network is still at a fairly early stage, the days when the lightning network was dangerous to use seem to be over. Using the network for small and medium transactions can help improve both your privacy and save on fees.

Do not use public block reviewers : Searching for addresses in a public browser implies that third parties can link those addresses to your IP, which in turn can be linked to your persona. Applications such as Umbrel and myNode will help you run your own noreferrer. If you need to use a browser, make sure you mask your IP by connecting via Tor , or at least use VPN

Use CoinJoin as often as possible : Since Bitcoin is an irreversible registry, using best transaction practices such as CoinJoin joint transactions , ensures that your privacy is protected going forward. While CoinJoin transactions have a number of nuances, there is user-friendly software that can help you create and automate such transactions. For example, Whirlpool by Samourai is a great solution for Android users. You can also turn to JoinMarket, which, thanks to projects like JoininBox , can easily be set up on your own node.

Conclusion

Everyone should strive to use Bitcoin in the most private way possible. Privacy ≠ secrecy. Privacy is everyone’s right, and we should all protect and uphold that right. It is difficult to remove information from the Internet; it is impossible to remove information from the public Bitcoin registry.

While it’s impossible to achieve perfection, there are already tools available today that make it easier to follow privacy best practices. We have highlighted some of these tools and, as new improvements are activated, such as Taproot and Schnorr, these tools as well as Bitcoin’s privacy capabilities will certainly improve.

Bitcoin’s functionality does not conform to traditional concepts. Answering questions such as "who owns these funds" or " Where did this money come from " is not easy in most cases.

Satoshi considered privacy when developing Bitcoin. At the protocol level, every Bitcoin transaction is akin to a "melt" process, leaving behind only heuristic breadcrumbs. The protocol does not care where you got the bitcoins (or satoshi) from. It also does not care who owns them in the real world. It only cares about the validity (authenticity) of the signatures.

And as long as we have freedom of speech, signing a message (whether privately or not) should not be considered a crime.

More information about Bitcoin privacy can be found in the section of our website Bitcoin Privacy

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