Improving privacy with light wallets (SPV)

[LoyceV]

Let's say I have 100 addresses and I am cautious about spending their outputs separately. I don't want to link them all to a singular identity; I have used different pseudonyms across various services and I've used it to pay for anonymous hosting, used an exchange on one, etc etc. If my SPV wallet queries all of the addresses on the same server, there is a high chance that all of the queried addresses belongs to the same person and thus negating the benefits of me so cautiously segregating all of the addresses from each other.

Let's say you do have 100 addresses and you're worried about an Electrum server spying on you: would you be better off connecting to the same server each time, or a random server? If you limit it to one server, chances are they're not keeping logs. But if you use a different server each time, at some point you'll hit one that spies on you. And once it knows which addresses belong to the same wallet, it can keep using that information even if you never use the same server again.

In other words, every time you receive a transaction, you will need to give electrum 9 addresses that have just received transactions for the first time, but you have no way of finding 9 addresses that meet this criterion to give to electrum.

It was mainly hypothetical, and I haven't used this yet, but you make a valid point. It's going to be a lot of work finding addresses from for instance block explorers.

Another solution: if you don't want anyone to know certain addresses belong to the same owner, you should use separate wallets. If you don't use them at the same time, and choose a random server (and random VPN or Tor IP) each time, only the few addresses within each wallet can be linked together. And as a bonus, you can't accidentally create blockchain evidence by including multiple inputs in one transaction.

[PrimeNumber7]

In other words, every time you receive a transaction, you will need to give electrum 9 addresses that have just received transactions for the first time, but you have no way of finding 9 addresses that meet this criterion to give to electrum.

It was mainly hypothetical, and I haven't used this yet, but you make a valid point. It's going to be a lot of work finding addresses from for instance block explorers.

If you use a block explorer, you are giving up any privacy you gained from implementing using watch-only wallets with 90% decoy addresses, as the operators of the block explorers will know which addresses you are looking up.

I think at the end of the day, if you are using a SPV wallet, you need to accept the incremental reduction in privacy as a cost of using such wallet. As I previously mentioned, you could run a full node on a VPS that your SPV wallet could always exclusively connect to, in order to get most of your privacy back in exchange for an incremental reduction in security, and an incremental increase in cost.

[ranochigo]

I got it. But what you have described is highly unlikely in my case because when I do purchases I use fiat money. If I need to cash out my bitcoins I either use p2p exchanges or direct  hand-to-hand swap in my location. Here we have "kiosks" which exchange bitcoin on the spot.

What else can be  considered as a threat to my privacy when I use rotating IP to connect to Electrum server?

You seem to be assuming that there is only one use case for Bitcoin and that ends after you purchase your Bitcoins. Having a bunch of addresses linked to a single identity is a threat to privacy, that is the truth. It doesn't matter who you are, if someone links a group of addresses together, that is more than sufficient for someone to start linking transactions together and potentially expose your identity with any lapse with the subsequent transactions.

That is your biggest threat to privacy and again, I'm not sure about your trajectory of arguments when we come to this topic. You can't really be too paranoid when we're talking about privacy. But I respect your opinion, people view privacy differently.

[bob123]

What else can be  considered as a threat to my privacy when I use rotating IP to connect to Electrum server?
[...]
What can make me vulnerable? Please, elaborate.

Basically any information which identifies you. Nor necessarily directly you, but anything which describes a subset of possible entities.

An example would be the script type you use. Bech32 transactions make up a total of less than 10% (estimated; a year ago it was roughly below 7%).
Together with for example the usual quantity you transact with and/or specific timeframes you usually transact, this further reduces the anonymity set.

This could be used with non-bitcoin related pieces of information to make your profile more specific.
Just as you are being tracked across the internet. Not through your IP address, but through cookies and other specific configurations such as your screen size, color depth of your screen, language, specific browser and/or OS version, etc..
I remember reading (don't know where currently) that such information (a pc/browser configuration) can be used to track one person out of a million. With ~5 million people for example visiting a specific website or using a specific service, your anonymity set could be shrinked to 5.


Obviously this shouldn't be generalized, and i am not saying that you are being tracked or are surfing/transacting with an anonymity set of X, but it's not as easy as changing your IP address to not get tracked / identified.
This applies to an electrum server as well as browsing the web.
Using Tor also doesn't guarantee you perfect privacy. People doing illegal stuff there get caught relatively often. Sometimes it is because of the link to their real identity (e.g. cash flow) but sometimes it's because of their behavior and/or "wrong" configuration.
The whole privacy- and anonymity aspect is not as easy as one might think.

[Dabs]

How hard is it to run an electrum server from scratch? There are a few implementations out there and even a "personal" server, but I couldn't use that as it severely limits which wallets can connect to it (I would like to connect using multiple Electrum wallets.)