The default Wasabi Wallet coordinator will start censoring "illegal" UTXOs

[PrivacyG]

But how would developers mitigate this in the next iteration of the "next Wasabi"? Or what other alternatives can be built, using another path, to protect and preserve Bitcoin's fungibility?

I think the closest thing is Atomic Swaps.  All the other currently existing alternatives are now closed source or honeypots.  Wasabi turned bad, Samourai was weird already.  What is left is using Bisq to enhance privacy or ChipMixer but Bisq is an exchange and ChipMixer is mostly trust based.

I imagine the open source Monero to Bitcoin Atomic Swap mechanism will be very handy for privacy.  Move Bitcoin to Monero and back and you have a new set of coins obtained in a decentralized manner.  How decentralized and open source.. is another discussion but hopefully it exceeds expectations.  Thing is, there is a large market for Bitcoin privacy and fungibility.  I would imagine many would pay big prices to have some privacy over here, so who gets to offer the perfect solution will earn money big time.

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Regards,
PrivacyG

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[n0nce]

Is "Samourai wallet" really the alternative to go to? I remember it also having some controversy. A small one was that it used to send (maybe it still does) user's xpubs to their servers whereas it only needs to send the address(es) that need be updated.
They harassed G. Maxwell for pointing it out too ref
They've apparently harassed others too ref.

In any case I believe both Wasabi and Samourai wallets are unpopular and unreveiwed softwares (despite what it may look like from their community). They both have some degree of shadiness which is not something you want in a privacy oriented software!

Wow, thanks for this information! They both always seemed slick looking (website, screenshots), but at the same time gave me a weird gut feeling. Somehow the 'hyped up' attitude of one or both (I don't remember) on Twitter and large claims as well as the 'too nice'^{(do you know what I mean? )} websites somehow threw me off a bit. Fortunately I haven't used either so far, so I guess I haven't leaked anything to chain analysis or their servers through these programs.
In the end, the simplest stuff is the best. Full node with electrs, open source thin clients and usage of coin control. Mixing with trusted service if needed or paying stuff through Lightning...

I imagine the open source Monero to Bitcoin Atomic Swap mechanism will be very handy for privacy.

True, atomic swaps are pretty cool. I'm looking forward to seeing what comes out of this development, it seems compelling!

[witcher_sense]

I think the closest thing is Atomic Swaps.  All the other currently existing alternatives are now closed source or honeypots.  Wasabi turned bad, Samourai was weird already.  What is left is using Bisq to enhance privacy or ChipMixer but Bisq is an exchange and ChipMixer is mostly trust based.

I imagine the open source Monero to Bitcoin Atomic Swap mechanism will be very handy for privacy.  Move Bitcoin to Monero and back and you have a new set of coins obtained in a decentralized manner.  How decentralized and open source.. is another discussion but hopefully it exceeds expectations.  Thing is, there is a large market for Bitcoin privacy and fungibility.  I would imagine many would pay big prices to have some privacy over here, so who gets to offer the perfect solution will earn money big time.

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Regards,
PrivacyG

There is no need for Monero, all this can well be done on the bitcoin blockchain itself: https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2022-February/020026.html

EDIT:

Wasabi Wallet Parent Company Explains Decision To Censor Bitcoin Transactions

“People started to identify Wasabi with illicit activities and actors, and we wanted to differentiate ourselves from these players in the space,” Harmat said, adding that the route taken on Sunday was zkSNACKs’ solution to enforce it.

“We were always against using [CoinJoin] for illicit activities, and as far as we could see from the news, lots of actors started to take advantage of the software,” Harmat said. “And this created really bad press for us.”

“Wasabi is for people to preserve their privacy, and not for hiding illicit activities,” he added.

“We did our research and really went into the legal details,” Harmat said. “There are no current regulations on ongoing joint coordinators. However, I’m aware this is going to change in the future.”

We haven’t been thinking about implementing a new user interface for switching the coordinator,” Harmat said, when asked if Wasabi would take proactive steps to ensure a more straightforward way for users to choose a different coordinator. “Obviously the whole project is open, anyone is free to do whatever they want to do with it.”

[PrivacyG]

There is no need for Monero, all this can well be done on the bitcoin blockchain itself: https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2022-February/020026.html

If that is possible, that is even better!

Wasabi Wallet Parent Company Explains Decision To Censor Bitcoin Transactions

They made the matter even worse after 'explaining'.  People started to identify Bitcoin with illicit activities and actors and it never got censored.  Not directly on the blockchain anyway.  They do it by banning addresses on exchanges and so, they even tried censoring through miners.  Sad thing for them it did not work.  I am aware there are illicit transactions on the blockchain.  Drug deals and all that shit.  But you either have this or nothing.

This is a VERY dangerous model and the more censorship there is on the surface and externally, the more they will try to invade Bitcoin's decentralized and uncensored manner.  I am against illicit activities too.  So?  I am still against censorship.  And I would never accept a version of the Bitcoin blockchain that censors illicit transactions.  Not because I want them to exist, but because this is a precedent.  Give them an inch and they will take miles.

What we do not seem to get is that in order to have our rights taken away, they have to be taken little by little.  This is how you also take away Bitcoin's most important features.  By accepting the censorship of illicit activities, you will end up accepting censoring addresses of known oligarchs too.  Then you get to the point where you just censor whatever they want, just because they can slap a 'suspect of illicit activities' label on the UTXO.  It gets to a never ending cycle.

This Bitcoin thing is either fully uncensored or it has no point in existing.  We already have central banks doing the censoring, seizing and removal of rights for us.  But to say you are censoring because you do not like illicit activities, you either lied all this time about being pro financial freedom or you have no idea how Bitcoin works.  Or, you have to give up due to .. external pressure.  All in all, this entire mess does not help me at all with being paranoid!

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Regards,
PrivacyG

[dkbit98]

But how would developers mitigate this in the next iteration of the "next Wasabi"? Or what other alternatives can be built, using another path, to protect and preserve Bitcoin's fungibility? Offchain layer with Zero-Knowledge Proofs perhaps? Is that possible?

Best alternative wallet I see is Mercury wallet that is working on totally different principle of swaping private keys in secure way, in that way fees are much lower and privacy can be much higher.
I don't think regulators will be able to do anything with Mercury wallet, but there is always good old mixers we all know, or using Lightning Network is viable alternative.
Instead of creating bunch of shitcoin projects, developers should focus more on making better privacy for bitcoin, but hey you can't scam people like that and become rich overnight...

[o_e_l_e_o]

Still, it seems that Wasabi has never been as safe as we all think:

Using a capability that is being disclosed here for the first time, Chainalysis de-mixed the Wasabi transactions and tracked their output to four exchanges.

A little bit of expansion on this that I came across today: US government spooks have cracked ‘anonymous’ Bitcoin wallet Wasabi

Seems like if you have any coins in a Wasabi wallet right now then not only do you need to withdraw them before Wasabi decide to start blacklisting them, you'll also need to re-mix them (and do so thoroughly) using a different mixing method.

I'd be interested if anyone can point to any similar flaws or vulnerabilities in Samourai wallet?


And in another development to this story:

However, zkSNACKs co-founder and CEO Bálint Harmat told Bitcoin Magazine that the decision to prevent some users from leveraging Wasabi for their privacy needs was a proactive one as there is no current legislation obliging them to do so.

Wasabi are censoring inputs because they want to, and not because they are being forced to. They have moved to the opposite end of the spectrum with a single decision. I cannot understand what they are thinking here. No sane person should every use Wasabi again.

[witcher_sense]

A little bit of expansion on this that I came across today: US government spooks have cracked ‘anonymous’ Bitcoin wallet Wasabi

Seems like if you have any coins in a Wasabi wallet right now then not only do you need to withdraw them before Wasabi decide to start blacklisting them, you'll also need to re-mix them (and do so thoroughly) using a different mixing method.

Here is an interesting video -- How Wasabi was "demixed" by Chainalysis

I'd be interested if anyone can point to any similar flaws or vulnerabilities in Samourai wallet?

How about this?

Unless you're connecting to Whirlpool via RoninDojo, Samourai Wallet devs can deanonymize you because they will know your main wallet xpub, your pre-mix xpub, your post-mix xpub and toxic change xpub.

[pooya87]

Wasabi are censoring inputs because they want to, and not because they are being forced to.

Maybe they were forced to do so, which is a lot worse IMO because they kept it silent instead of being transparent about the situation. Who knows what other backdoors they've already introduced or could introduce in the future into their project.

One thing is certain though, this team does not care about bitcoin principles such as privacy and censorship resistance.

[o_e_l_e_o]

How about this?

Unless you're connecting to Whirlpool via RoninDojo, Samourai Wallet devs can deanonymize you because they will know your main wallet xpub, your pre-mix xpub, your post-mix xpub and toxic change xpub.

Which is the case for every wallet in existence. If you aren't connecting to your own full node, then the owner of whichever node you are connecting to will be able to monitor your activity. I don't think this is a vulnerability by any means, especially since Samourai are completely transparent about this fact and encourage people to run Dojo themselves. It is more of a trade off between people wanting some privacy but not wanting to run a node, and people wanting much more privacy and therefore running a node themselves.

I was looking for a vulnerability where a user could do everything right and still be deanonymized, as is the case for this Wasabi vulnerability.

[Pmalek]

Wasabi are censoring inputs because they want to, and not because they are being forced to. They have moved to the opposite end of the spectrum with a single decision. I cannot understand what they are thinking here. No sane person should every use Wasabi again.

It could be a combination of both. They want to start censoring transactions now before it gets too late. They have been warned and they are now acting "accordingly" to prevent any future damage or penalties.

The post witcher_sense copied says:

“There are no current regulations on ongoing joint coordinators. However, I’m aware this is going to change in the future.”[/i]

One way to interpret this is that someone told them: Listen here you Wasabi scumbags. You either do what we tell you to do now, or you are going to be sorry you didn't listen when we change the legal framework in the future!

They simply gave in...

[o_e_l_e_o]

It could be a combination of both. They want to start censoring transactions now before it gets too late. They have been warned and they are now acting "accordingly" to prevent any future damage or penalties.

So instead they should say "Hey guys, we are going to have to start censoring UTXOs in the future. Take the time now to set up other coordinators or get your coins off Wasabi altogether." This whole "we are just doing what we are told" thing they are trying to cling to is pathetic.

One way to interpret this is that someone told them: Listen here you Wasabi scumbags. You either do what we tell you to do now, or you are going to be sorry you didn't listen when we change the legal framework in the future!

All the more reason for them to fight this. It's not the case that they must do this now or face legal action. They've probably got months if not years before whatever legislation they were threatened with is introduced, debated, amended, passed, and enacted. Plenty of time for them to fight this, mount legal challenges, lobby, campaign, etc. Instead they surrender immediately and sell out their users. Absolutely pathetic and completely untrustworthy.

[Wind_FURY]

But how would developers mitigate this in the next iteration of the "next Wasabi"? Or what other alternatives can be built, using another path, to protect and preserve Bitcoin's fungibility? Offchain layer with Zero-Knowledge Proofs perhaps? Is that possible?

Best alternative wallet I see is Mercury wallet that is working on totally different principle of swaping private keys in secure way, in that way fees are much lower and privacy can be much higher.

I don't think regulators will be able to do anything with Mercury wallet, but there is always good old mixers we all know, or using Lightning Network is viable alternative.

Instead of creating bunch of shitcoin projects, developers should focus more on making better privacy for bitcoin, but hey you can't scam people like that and become rich overnight...

I believe a "for-privacy" offchain layer could be a feaible path for preseving fungibility for Bitcoin. Merely a network for handling a high volume of transactions might not be enough. Lightning is a little cumbersome to use. Users can simply trade their coins for faster shitcoins. There has to be some other form of utility for Lightning that users truly need.

[Pmalek]

All the more reason for them to fight this. It's not the case that they must do this now or face legal action. They've probably got months if not years before whatever legislation they were threatened with is introduced, debated, amended, passed, and enacted. Plenty of time for them to fight this, mount legal challenges, lobby, campaign, etc. Instead they surrender immediately and sell out their users. Absolutely pathetic and completely untrustworthy.

I agree with you 100%. But we both know that not everyone acts the same way when put under pressure or if threatened with legal consequences (now or in the future). I know a guy who was called to his local tax office and asked why he hasn't payed his taxes for certain types of services he offered in the past. They had proof of his transactions dating back 2-3 years. They told him he would get fined and maybe incarcerated (depending on the total amount he owes). The dude got so scared that he admitted he did it longer than the period they had proof for. Someone else would have just laughed at the accusations and made up a plausible explanation.

[PrivacyG]

But we both know that not everyone acts the same way when put under pressure or if threatened with legal consequences (now or in the future).

Had I created Wasabi, I would have assumed and prepared myself for the moment the government knocks on my door and starts asking questions or threatens me.  In fact, just think about it.  I am kind of sure I will be a target of the government myself JUST for trying to stay private.  I am not even doing anything illegal and I am already looking up ways to protect myself for when my government starts questioning me for trying to get away from CCTV's, fingerprints, smart tech et cetera and have my own corner of privacy.

Wasabi created a privacy wallet that makes a number of coins fungible.  They knew about Chainalysis.  They knew that IRS, FBI or whatever institution that was was going to pay money big time for whoever bypasses CoinJoin and Lightning Network and destroys the privacy these two create.  And this was months to years ago!  Wasabi hundred percent knew what they were doing and that some illegal transactions would get into the mix.  They hundred percent knew pressure would be put on them one day.

This is where I admire Monero's Fluffpony.  When they knocked on his door, he already knew he was a target of the government yet he did not compromise, at least yet, his project like Wasabi did.  This is like committing a crime.  When the cops come to your door, you can not come up with the excuse that you did not know how to react.  You must be prepared, and you must have a Plan B.  Even better if you also have a Plan C and Plan D, just in case the other two fail.

My personal take: if they created Wasabi for the privacy they promised and truly had the intentions and ideas they mentioned they had, they would have been prepared for this moment.  And if they were prepared for this moment, they would have fought and Wasabi would have at least yet not been censored.  At least, not by their own choice of doing so.

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Regards,
PrivacyG

[o_e_l_e_o]

I know a guy who was called to his local tax office and asked why he hasn't payed his taxes for certain types of services he offered in the past. They had proof of his transactions dating back 2-3 years. They told him he would get fined and maybe incarcerated (depending on the total amount he owes). The dude got so scared that he admitted he did it longer than the period they had proof for. Someone else would have just laughed at the accusations and made up a plausible explanation.

Selling yourself out is one thing. Selling out thousands of users who use your service is another altogether. If Wasabi were actually being sanctioned, then the correct thing to do would be as I explained above - warn people it is going to happen, explain how they should mitigate it, and maybe shut down their centralized coordinator altogether to encourage the proliferation of decentralized ones which won't censor transactions. But doing that would mean less money for them, so obviously much better to sell out their users than affect their profits.

My personal take: if they created Wasabi for the privacy they promised and truly had the intentions and ideas they mentioned they had, they would have been prepared for this moment.  And if they were prepared for this moment, they would have fought and Wasabi would have at least yet not been censored.  At least, not by their own choice of doing so.

Agree 100%. The fact that they capitulated with absolutely zero fight and of their own free will months or even years before they would actually be forced to makes me question their real motives entirely. Because honestly, their behavior is pretty indistinguishable from a honeypot; set up a privacy enhancing service, get lots of people to use it, then in one fell swoop start censoring transactions and cooperating with blockchain analysis companies.

Since you mentioned Fluffypony, I'll share a slide from a presentation he gave:

[n0nce]

How about this?

Unless you're connecting to Whirlpool via RoninDojo, Samourai Wallet devs can deanonymize you because they will know your main wallet xpub, your pre-mix xpub, your post-mix xpub and toxic change xpub.

Which is the case for every wallet in existence. If you aren't connecting to your own full node, then the owner of whichever node you are connecting to will be able to monitor your activity.

It's disingenuous though. I mean they sell it as super duper anonymous, while random SPV wallet devs don't. The ability to use Whirlpool without a full node is extremely misleading and barely better than not mixing at all honestly. It should not be a feature in the first place, in my opinion.
Your UTXO privacy will wholly rely on Samourai not pulling a Wasabi; and with the way they communicate and operate, they don't give me a very trustable feeling honestly. Nothing in particular regarding working with regulators or such, but the general attitude of them and unpoliteness mostly.

I believe a "for-privacy" offchain layer could be a feaible path for preseving fungibility for Bitcoin. Merely a network for handling a high volume of transactions might not be enough. Lightning is a little cumbersome to use. Users can simply trade their coins for faster shitcoins. There has to be some other form of utility for Lightning that users truly need.

Honestly, thanks to Tor trustless instant exchangers, it's easier to get Lightning funds and use them to pay than going onto a trading platform and swapping into and back out of a shitcoin. Lightning is a pretty good way to gain privacy.

[pooya87]

explain how they should mitigate it, and maybe shut down their centralized coordinator altogether to encourage the proliferation of decentralized ones which won't censor transactions. But doing that would mean less money for them, so obviously much better to sell out their users than affect their profits.

This is only a small mitigation in my opinion because we will face the same conundrum as we face in something like Electrum (although Electrum isn't privacy oriented). The [coordinator] servers could simply be honeypots created by centralized deanonymizers that would directly take all the user information making mixing ineffective without needing to censor anything.

[o_e_l_e_o]

It's disingenuous though. I mean they sell it as super duper anonymous, while random SPV wallet devs don't.

I agree with you to an extent. Yes, they promote themselves as a privacy wallet, but their website is also pretty clear about the risks you take by not running your own node and the benefits to be gained by doing so. If you go to their website, immediately under the initial blurb about the wallet itself are links to Dojo. The Dojo makes it clear that you are risking privacy if you don't use Dojo:

Samourai Wallet is already unrivaled in transaction privacy, but the default configuration is still subject to network level privacy loss. Hosting your own Dojo allows you to simply bypass our default servers and circumvent these concerns.

So yeah, perhaps this information should be more visible, but they are not actively hiding it.

This is only a small mitigation in my opinion because we will face the same conundrum as we face in something like Electrum (although Electrum isn't privacy oriented).

So what's the solution here? Every user running their own coordinator, all of which communicate with everyone else's coordinator in a decentralized manner, much like the bitcoin network itself?

[n0nce]

Samourai Wallet is already unrivaled in transaction privacy, but the default configuration is still subject to network level privacy loss. Hosting your own Dojo allows you to simply bypass our default servers and circumvent these concerns.

So yeah, perhaps this information should be more visible, but they are not actively hiding it.

Honestly, it shouldn't even be an option not to run your own node if this software is supposed to be privacy-first. Their 'default nodes' shouldn't even exist, they should all be taken offline if they're serious about privacy. I have a gut feeling we'll end up with a 'Wasabi situation' sooner or later.

[ABCbits]

This is only a small mitigation in my opinion because we will face the same conundrum as we face in something like Electrum (although Electrum isn't privacy oriented).

So what's the solution here? Every user running their own coordinator, all of which communicate with everyone else's coordinator in a decentralized manner, much like the bitcoin network itself?

Alternatively, use protocol where interaction between user isn't needed. If you're looking for example, check SNICKER[1-2] or Mimblewimble protocol.

Samourai Wallet is already unrivaled in transaction privacy, but the default configuration is still subject to network level privacy loss. Hosting your own Dojo allows you to simply bypass our default servers and circumvent these concerns.

So yeah, perhaps this information should be more visible, but they are not actively hiding it.

Honestly, it shouldn't even be an option not to run your own node if this software is supposed to be privacy-first. Their 'default nodes' shouldn't even exist, they should all be taken offline if they're serious about privacy. I have a gut feeling we'll end up with a 'Wasabi situation' sooner or later.

Alternatively, they should implement BIP 157/158 if they wish to support user with very limited resource (mainly internet bandwidth). But currently they don't support it[3].

[1] https://joinmarket.me/blog/blog/snicker/
[2] https://gist.github.com/AdamISZ/2c13fb5819bd469ca318156e2cf25d79
[3] https://www.samouraiwallet.com/bips