BTC Needs A Privacy Layer

[ajs316]

https://www.msn.com/en-us/money/markets/the-us-treasury-wants-every-crypto-transfer-larger-than-10000-to-be-reported-to-the-irs/ar-AAKcIRu

https://www.msn.com/en-in/money/topstories/why-government-shouldnt-delay-cryptocurrency-regulations/ar-AAKeI1V

Bitcoin is the greatest form of money humanity has created.  It has a monetary policy second to none.  But it is missing this one crucial component that is an essential human right and even more necessary today than it was a decade ago, privacy.  I'm curious if privacy can be done in a way such that it protects the identities of the transactions (both in terms of btc address and personal identity) while still preserving the open-ness and transparency of the current system?  Also what is the consensus of the BTC community on implementing this?  I've generally heard the commumity/devs don't find it necessary.

[Charles-Tim]

But it is missing this one crucial component that is an essential human right and even more necessary today than it was a decade ago, privacy.

It depends on how you an dealing with your bitcoin, if you learn about privacy and how to maintain privacy while using bitcoin, you will then realize that Bitcoin is not a privacy-depriving coin. You can have your privacy.

I'm curious if privacy can be done in a way such that it protects the identities of the transactions (both in terms of btc address and personal identity) while still preserving the open-ness and transparency of the current system?

The normal way Bitcoin transaction do works is that the transaction are not linked to individuals but can be tracked/traced on blockchain.  If you have your privacy, use Bitcoin in a way people will not link your Bitcoin transactions to your real identity, only the Bitcoin will be seen on blockchain but no one can be able to trace it to you. Is that not privacy enough.

But, nowadays, people like to make use of centralized exchanges, fill in their personal information, if there is a data breach on such exchanges, will the Bitcoin not be linked to the users? It would definitely be linked to the users. If use Bitcoin on decentralized platforms, and use noncustododial wallet, able to make use of your coin control and spend wisely, making use of mixers. If you know all these, you will know Bitcoin can be used in a privacy way.

About the links above, know that bitcoin can be bought directly (direct p2p), it can be bought on decentralized platforms like Bsiq and Hodlhold. It can be hard for someone to do this the first time, but it is what to be done for privacy reasons.

[NotATether]

By representing bitcoin ownership only in terms of public/private keys, transactions on the bitcoin network by themselves are already private and pseudonymous.

The problem comes when all the exchanges which give you your own address, and debit card & IBAN suppliers want your documents and this is something beyond what the bitcoin network is able to stop. If you look at privacycoins like Monero, they aren't even listed on some IRS-compliant exchanges such as Coinbase because of the inability to track address usage.

It's really difficult to anonymously cash out your bitcoin, or move it to banks or cards, I can tell you that. I guess that's why there's a ton of grey-area services for buying prepaid cards whose funds can be moved to those places.

[bob123]

I'm curious if privacy can be done in a way such that it protects the identities of the transactions (both in terms of btc address and personal identity) while still preserving the open-ness and transparency of the current system?

This depends on your definition.

There are privacy-enhancing technologies available such as CoinJoin and Reusable Payment Codes (BIP47).
Both used together with a lightweight client which does not leak crucial information (so not using electrum for example) but a wallet implementing Block filters (e.g. Wasabi) your privacy can be significantly increased.

Whether that is enough for you, depends on your definition of privacy. You won't get anonymity tho.

[ajs316]

But it is missing this one crucial component that is an essential human right and even more necessary today than it was a decade ago, privacy.

It depends on how you an dealing with your bitcoin, if you learn about privacy and how to maintain privacy while using bitcoin, you will then realize that Bitcoin is not a privacy-depriving coin. You can have your privacy.

I'm curious if privacy can be done in a way such that it protects the identities of the transactions (both in terms of btc address and personal identity) while still preserving the open-ness and transparency of the current system?

The normal way Bitcoin transaction do works is that the transaction are not linked to individuals but can be tracked/traced on blockchain.  If you have your privacy, use Bitcoin in a way people will not link your Bitcoin transactions to your real identity, only the Bitcoin will be seen on blockchain but no one can be able to trace it to you. Is that not privacy enough.

But, nowadays, people like to make use of centralized exchanges, fill in their personal information, if there is a data breach on such exchanges, will the Bitcoin not be linked to the users? It would definitely be linked to the users. If use Bitcoin on decentralized platforms, and use noncustododial wallet, able to make use of your coin control and spend wisely, making use of mixers. If you know all these, you will know Bitcoin can be used in a privacy way.

About the links above, know that bitcoin can be bought directly (direct p2p), it can be bought on decentralized platforms like Bsiq and Hodlhold. It can be hard for someone to do this the first time, but it is what to be done for privacy reasons.

Great post.

Are there any other options outside of just staying off of exchanges/avoid KYC.  Any resources or articles to better protect your privacy while using BTC?

[ranochigo]

Great post.

Are there any other options outside of just staying off of exchanges/avoid KYC.  Any resources or articles to better protect your privacy while using BTC?

Use Tor, use mixers, use Bitcoin Core. Important to note that your privacy leak may or may not be related with Bitcoin.



No such thing as anonymity in Bitcoin, even if the users were to be careful with their activities, it would be the best to assume that Bitcoin is pseudonymous at best. There are far too many possible privacy leaks with users even if they were careful enough; potential spy nodes on the network, possible leaks through mixers with their heuristics, etc. Bitcoin was never really designed to provide anonymity from the start and all the current implementation only helps to maintain the privacy of the user.

As mentioned, CoinJoin, mixers all helps with the privacy. Confidential transactions has been proposed as well, which helps with privacy but at the expense of higher resource requirements.

[ajs316]

Great post.

Are there any other options outside of just staying off of exchanges/avoid KYC.  Any resources or articles to better protect your privacy while using BTC?

Use Tor, use mixers, use Bitcoin Core. Important to note that your privacy leak may or may not be related with Bitcoin.



No such thing as anonymity in Bitcoin, even if the users were to be careful with their activities, it would be the best to assume that Bitcoin is pseudonymous at best. There are far too many possible privacy leaks with users even if they were careful enough; potential spy nodes on the network, possible leaks through mixers with their heuristics, etc. Bitcoin was never really designed to provide anonymity from the start and all the current implementation only helps to maintain the privacy of the user.

As mentioned, CoinJoin, mixers all helps with the privacy. Confidential transactions has been proposed as well, which helps with privacy but at the expense of higher resource requirements.

What is the main argument by the community not to provide an additional layer of privacy onto Bitcoin?  There've been scaling improvements, fee cost improvements, and some small privacy improvements (coming soon).  I assume the technology is available to add additional privacy to the protocol through zk proofs or something of the like.

[tromp]

Confidential transactions has been proposed as well, which helps with privacy but at the expense of higher resource requirements.

Mimblewimble offers much improved privacy *along* with scalability benefits.
While transactions are admittedly larger (~1.6KB for 2-input 2-output), they leave only a small ~100 byte footprint on the historical chain, since all spent output data can be completely pruned.

[NotATether]

What is the main argument by the community not to provide an additional layer of privacy onto Bitcoin?  There've been scaling improvements, fee cost improvements, and some small privacy improvements (coming soon).  I assume the technology is available to add additional privacy to the protocol through zk proofs or something of the like.

It's more of a "we haven't thought about it" stance given the abundance of mixers and Tor nodes. I don't think anybody seriously contemplated adding an entire layer (think LN, or Liquid) on top of bitcoin for this.

Layers are optional parts of the network and thus only fully work if everyone is using it. If you have a percentage of people not using the layer then the layer won't be fully effective. And for a layer that's supposed to implement privacy you'd need a very high adoption %.

[dkbit98]

Privacy is very important and one of the basic human rights and Bitcoin must have better privacy in future maybe with some second layer, sidechain or code upgrade, maybe even lightning network can be used for privacy.

I am always looking for interesting new projects and I found something called zCash Sidechain using BIP300, zSide and Melt/Cast for making fully anonymous transaction.

One more interesting project I am currently testing is Mercury wallet that is still in early development and it is using something called coinswaps on layer two statechain that enables transfering of private keys without any on-chain transactions.

[Charles-Tim]

<...>

Privacy is not the same as anonymity, people should not get this confused, you can use Bitcoin and have your privacy. Wasabi wallet that CoinJoins and Mixers can help in achieving high level of privacy, but did you still know you can use electrum to achieve high level of privacy? Just make use of coin control, coin freeze, address freeze and many other features in a way you can have high level of privacy, and if you are not yet satisfied, you can make use of mixers. Bitcoin can be used in a way all my transactions can although be tracked on blockchain but can not be linked to me.

[bob123]

<...>

Privacy is not the same as anonymity, people should not get this confused

Unfortunately people use these terms interchangeably all the time. Only a handful of people here know the actual difference.

[...] but did you still know you can use electrum to achieve high level of privacy?

A wallet which leaks tons of confidential information shouldn't be used to preserve your privacy in the first place.
While you definitely can increase your privacy with electrum, it requires quite some effort. There are better alternatives available (Core, Wasabi, ..).
Basically any wallet which doesn't send a random server all of your addresses is already better in terms of privacy.

[ABCbits]

While i want to see more privacy features and privacy layers on Bitcoin, the problem mentioned on the news can't be solved by technology. The proposal will be applied to any legal business/service which uses cryptocurrency. For this case, lobbying to make regularization about cryptocurrency less strict is more practical.

As for improving Bitcoin privacy/anonymity from technological side, other member already mention it. However, i doubt it'll be implemented since it'll increase burden on Bitcoin node while Bitcoin community still think 1 MB 4M weight units block size limit is sufficient and reject past proposal which increase block size limit.

[NotATether]

I am always looking for interesting new projects and I found something called zCash Sidechain using BIP300, zSide and Melt/Cast for making fully anonymous transaction.

If the addresses and other identifiable sources and destinations of transactions are already pseudonymous, the only way you're going to be able to identify who is doing all this is with documents.

Without documents the only conclusions you'll be able to make are things like "someone moved an old 2011 address", "someone moved a 1000BTC address", etc. All of these anonymous techniques become useless for people who willingly verify themselves to a custodial service!

[o_e_l_e_o]

I'm curious if privacy can be done in a way such that it protects the identities of the transactions (both in terms of btc address and personal identity)

Can it be done? Sure. Look at Monero for example. Will it be done on bitcoin? I suspect not. Most people in the community these days actively welcome government regulations and control if it means a short term boost to the price. The same people are happy to trade their KYC documents for an airdrop of some worthless shitcoin.

If the addresses and other identifiable sources and destinations of transactions are already pseudonymous, the only way you're going to be able to identify who is doing all this is with documents.

Although KYC obviously identifies you immediately, there are plenty of other ways to lose your privacy and be identified. IP addresses and browser fingerprinting can link your real identity to bitcoin activities, blockchain explorer look ups, transactions, etc. There are operating systems and browsers which track all your activity and report back to their manufacturers. Giving out a physical delivery address when paying by bitcoin. Not using encrypted communication channels when sharing a deposit address or discussing a trade with someone else.

[ranochigo]

Privacy is not the same as anonymity, people should not get this confused, you can use Bitcoin and have your privacy. Wasabi wallet that CoinJoins and Mixers can help in achieving high level of privacy, but did you still know you can use electrum to achieve high level of privacy? Just make use of coin control, coin freeze, address freeze and many other features in a way you can have high level of privacy, and if you are not yet satisfied, you can make use of mixers. Bitcoin can be used in a way all my transactions can although be tracked on blockchain but can not be linked to me.

You cannot achieve absolutely privacy with coin control. Doing so allows you to separate the UTXOs and avoid linking addresses together but it does not in anyway helps the user preserve their privacy. Transactions can still be linked, change addresses lowers the degree of confidence in terms of its association but in no way will it improve on privacy. CoinJoin and mixers are your best bet at it but there is always a chance of them compromising your privacy, either intentionally or unintentionally as well. Electrum is notorious for having mediocre privacy features and should not be used if you really care about it.

Having transactions that could be linked together defeats the purpose of having any privacy; any compromise along that chain of transaction will reveal your identity.

[Charles-Tim]

You cannot achieve absolutely privacy with coin control.

Is there just one way to achieve absolute privacy, I did not also mention absolute privacy, I only mention high level of privacy. Also I made mention of wasabi wallet that CoinJoins and also Mixers to achieve high level of privacy while in addition using coin control which can still help while maintaining privacy.

[ranochigo]

but did you still know you can use electrum to achieve high level of privacy? Just make use of coin control, coin freeze, address freeze and many other features in a way you can have high level of privacy

Is there just one way to achieve absolute privacy, I did not also mention absolute privacy, I only mention high level of privacy. Also I made mention of wasabi wallet that CoinJoins and also Mixers to achieve high level of privacy while in addition using coin control which can still help while maintaining privacy.

With reference to the above, UTXO selection only works to segregate your identity. It helps the user to maintain multiple identities but it also makes it easy for someone to track a user through its individual identities and make connections using one way or another. This provides at most a mediocre privacy improvement and is by no means a high level of privacy.

[PrivacyG]

Bitcoin for sure lacks a privacy layer even if part of the most well-known Core developers have previously looked into this issue many years ago.  Bitcoin users nowadays seem too scared of a government blockage to adopt a privacy layer, trading privacy for short term profit.  My gut feeling says we should either get privacy straight inside Bitcoin's Core functions or we do not at all.  And my gut feeling also says that we will likely never get a privacy layer as a consequence of Bitcoin users fears.  Solutions such as the one proposed by Wasabi or Joinmarket are fine, but they are temporary solutions only.

I saw a lot of users on Bitcoin Talk reply that Wasabi's Coin Joins and Chip Mixer are proper solutions someone can hang on to but I strongly disagree.  Without default privacy, it is easy to separate non private from private users and discriminate them by considering private users money launderers or terrorist funders.

Deposit your mixed coins on a Centralized Exchange and you will be asked for documents.  Deposit Monero instead and they will probably not.  I am saying this according to my personal experience and it is bad.  You can not put the equal sign between two Bitcoins anymore, which is very concerning.

-
Regards,
PrivacyG

[pooya87]

Without default privacy, it is easy to separate non private from private users and discriminate them by considering private users money launderers or terrorist funders.

If a government wanted to discriminate it wouldn't make any difference if your coins were mixed or not. They could even do it for virgin coins (freshly created coins in a coinbase transaction, ie. the block reward).

Deposit your mixed coins on a Centralized Exchange and you will be asked for documents.  Deposit Monero instead and they will probably not.

Same thing here. The centralized place could be under pressure by government to make anon coins (such as Monero) illegal and anybody who has ever deposited these coins in their account in the past would be under discrimination.

The solution to problems you are describing is not changing bitcoin protocol that is working fine and is providing enough privacy. The solution is avoiding centralization and petitioning your government about their unreasonable laws.