Since 2009, Bitcoin has allowed people to directly exchange goods and services online. However, certain privacy issues still loom over digital currency as it slowly gains mainstream adoption. This guide shows you a few simple tips to use Bitcoin privately.
Content
- The Issue with Bitcoin Privacy
- 1. Use the Lightning Network
- 2. Separating UTXOs for Every Transaction
- 3. Use CoinJoin to Remove Past Transaction History
- 4. Obtain Non-KYC Bitcoin
- 5. Host and Use Your Own Bitcoin Node
- Frequently Asked Questions
Tip: if you need a beginner’s guide, check out how to buy Bitcoin.
The Issue with Bitcoin Privacy
One of the problems with Bitcoin is its privacy model. By design, the cryptocurrency publicly broadcasts every transaction that happens inside its network. This helps it to account for every unit of coin currently in circulation.
However, this open approach also means that anyone can snoop in and analyze everyone’s Bitcoin transactions. The protocol’s way of mitigating this is by assuming that users will not reveal any personal information about themselves.
Unfortunately, the current Bitcoin ecosystem requires you to de-anonymize yourself as soon as you purchase the cryptocurrency. This can be a problem, as it is now possible to associate every transaction you make to your identity.
1. Use the Lightning Network
One of the easiest ways to secure your privacy while transacting in Bitcoin is by using Lightning. This is an overlay network that speeds up Bitcoin transactions by “offloading” asset movements outside the regular blockchain process.
One side effect of this is that a vast majority of Lightning transactions will not appear in the final blockchain record. As a result, Lightning does not only speed up Bitcoin but can also obfuscate your transactions.
You can start with Lightning by installing a compatible Bitcoin wallet, such as Muun for Android or Electrum for Linux.
Tip: you can learn more about how the Lightning Network works by installing and hosting your own Lightning node in Linux.
2. Separating UTXOs for Every Transaction
Unspent Transaction Outputs (UTXO) are at the heart of the Bitcoin protocol. In gist, they are the “units of coin” that make up your wallet balance.
You can improve your privacy in Bitcoin by only using a single UTXO in a single transaction. Most wallets today offer a “coin control” option that allows you to choose the UTXO that you want to spend.
- To do this in Electrum, click “View,” then “Show Coins.”
- Click the “Coins” tab.
- To use a specific UTXO, right-click one of the coins in the list and select “Spend.”
- Go to your “Send” tab and make your Bitcoin transaction.
Good to know: find out more about Stablecoin and whether it’s safer than Bitcoin.
3. Use CoinJoin to Remove Past Transaction History
Aside from isolating individual UTXOs, you can also “remove” any past history by using CoinJoin. This is a clever way of creating transactions where you and four other users send the same amount of Bitcoin in a “mix pool.”
This will combine your UTXO with others that are in the current pool. That results in a break in your UTXO’s history, as it becomes mathematically impossible to determine where your current coin came from.
The easiest way to start with CoinJoin is to use either the Samourai Wallet for Android or the Sparrow Wallet for Linux.
- In Samourai, enter its CoinJoin feature by pressing the “+” button.
- Click “Whirlpool.”
- Inside, click the Whirlpool icon again and select “Mix UTXOs.”
- Select the coins that you want to mix, then press “Next.”
- Select the pool that closely matches your UTXO amount, then press “Review Cycle Details.”
- Lastly, press “Begin Cycle.”
One thing to note is that it can get expensive in transaction fees, and exchanges may reject your CoinJoin bitcoin.
Tip: Outside of Bitcoin, you should also follow these tips to keep your other cryptocurrencies safe.
4. Obtain Non-KYC Bitcoin
Know Your Customer (KYC) is a common business practice that involves companies asking for your personal information when you purchase a financial product. For example, a cryptocurrency exchange may ask for an official government ID before you purchase bitcoin.
This can be a problem, as the Bitcoin protocol does not attempt to anonymize any transactions in the blockchain. Giving your information to a third party ultimately means that they can track how many coins you own and where you spend it.
You can avoid this issue by purchasing your Bitcoin from a Non-KYC exchange. Two of the most popular Non-KYC exchanges are AgoraDesk and Bisq.
5. Host and Use Your Own Bitcoin Node
A full Bitcoin node is a program that holds a copy of the entire blockchain record. It serves as the protocol’s archival backup as well as a “verifier” that checks the validity of new blocks as they enter the Bitcoin network.
This “verifier” function makes a full node surprisingly effective at ensuring your privacy while using Bitcoin, as they do not rely on third party servers to verify that their version of the blockchain is correct.
The easiest way to use a full node is to install Bitcoin Core.
Good to know: you can still harness the ability of full nodes in your mobile wallet by hosting your own Dojo node and pairing it with Samourai.
Frequently Asked Questions
Is the Lightning Network different from Bitcoin?
Yes and no. The foundation of Lightning still rests on Bitcoin, so the Bitcoin inside your Lightning wallet can still go back to your regular wallet and vice versa. The only major difference between them is that Lightning uses scripts to firmly anchor its overlay network on Bitcoin.
Can I still CoinJoin my Bitcoin without Samourai and Sparrow?
One of the oldest ways of doing CoinJoin in Bitcoin is through JoinMarket. This is a semi-automatic program that pairs you with other users that also want to mix their coins.
Aside from that, you can also do manual CoinJoins by combining multiple transactions together with other people. However, this can be prone to fraud if you are coordinating with complete strangers.
Are Non-KYC Bitcoin exchanges safe?
In most cases, yes. Both AgoraDesk and Bisq have automated systems in place that eliminate most of the common fraud that may happen in a Non-KYC exchange. Both also have a support system that can help you in the off-chance that an exchange fails.
Image credit: Unsplash. All alterations and screenshots by Ramces Red.
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Ramces Red –
Staff Writer
Ramces is a technology writer that lived with computers all his life. A prolific reader and a student of Anthropology, he is an eccentric character that writes articles about Linux and anything *nix.
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