How does the lightning network make btc more private?

[Anonohmon]

I heard it does but idk?

[Apocollapse]

Because of this

Are Lightning Network payments more anonymous than on-chain transactions?

Yes, Lightning Network payments are more anonymous. They use onion routing. In short, when a payment is being routed, an intermediary node knows only the previous and the next node in the path. It is impossible to tell who initiated the payment and what the final destination is.

[NotATether]

Because of this

Are Lightning Network payments more anonymous than on-chain transactions?

Yes, Lightning Network payments are more anonymous. They use onion routing. In short, when a payment is being routed, an intermediary node knows only the previous and the next node in the path. It is impossible to tell who initiated the payment and what the final destination is.

You have to explicity configure onion routing though, because the lightning nodes by default will use your public IP address as an identifier. That means, the Lightning invoice will also contain your IP address, so anybody who sees the invoice will know to which node its intended to!

Personally I think this default is a blunder, and I'd like to see software like c-lightning default to setting up a Tor hidden service instead.

[witcher_sense]

How does the lightning network make btc more private? 

First of all, it is important to realize that bitcoin is by no means a private network because every transaction and every block is broadcast to everyone and is verified by everyone who has a full node. Second of all, all information in the bitcoin protocol is sent in an unencrypted format, in fact, in plain text, so all transactions and all balances can be seen and verified by anyone who is looking at it. Third of all, all information is permanently recorded in the blockchain, which means you can always go back and analyze it again once you have obtained additional "evidence." It also follows that any privacy-enhancing technique is going to make bitcoin "more private" because it has literally zero privacy in its default configuration. Unlike bitcoin, payments in Lightning Network aren't broadcast to everyone but to only concerned nodes that participate in the routing of payments, which greatly increases privacy. Additionally, payments routed on the Lightning Network don't need to be written somewhere and therefore don't leave a trace which can be analyzed in the future. However, Lightning Network still has some shortcomings, it is not as private as we might think.

[franky1]

not so true..
you can spot payment flows

when payments get "success" they update their channel by announcing it to the network that their channel state has changed(facepalm)

if a flood of channel updates come from only certain string of nodes at a quick succession of each other due to that trigger. you learn that, that route had been used,

you then simply look at the balance of those channels of available routing value to then work out how much might have been spent compared to the previous snapshot before the updates triggered.

yep to do routing on the majority of versions of LN nodes they keep a 'map' of the other nodes(facepalm). not just their partner. but all nodes of all the routes of each and their routes of each.
(some nodes prune/stop outbound to a length of about node 20 hops away from themselves. but thats not a rule that is enforced)

there are already chain analysis companies setting up route analysis systems to watch this stuff

oh and by the way publishing channels is set to public by default.
and anyone can (make fake payment request) through routes with variable amounts to see what the max payments are at and see where their route attempts fail and dont respond with the next channel to know the fail/final responder doesnt have balance at X amount to pass on.. they can do this any time thus snapshot the network easily.

..
its important to know that on the bitcoin network . UTXO's/bitcoin addresses have no pseudonym linkage/labeling/tagging. no names no company brands nothing.

on LN though..  nodes give themselves names. you can easily find businesses like bitrefills on LN

secondly as explained in first part of my post. the public announcement of channels and the routing map along with ability to test routes for liquidity makes it easy to snapshot routes .. even if payments have "onion/sphinx 'encryption' people can still spot changes by the echo of old announcement vs new announcements and regular route testing inbetween the encrypted payments to resolve what possible liquidity has changed by the encrypted data to work out what must have been in the encrypted payment without having to unencrypt the payment message

..
this is why the devs then wanted "mimblewimble" so that subnets/sidechains can then hide value as a random number. which majority of LN wallets have yet to even implement
(LN channels that use MSAT pegged to litecoin are closer to privacy than channels with msats pegged to bitcoin)

[Rath_]

You have to explicity configure onion routing though, because the lightning nodes by default will use your public IP address as an identifier. That means, the Lightning invoice will also contain your IP address, so anybody who sees the invoice will know to which node its intended to!

Lightning invoices contain only the payee's node public key. Their IP address can be looked up in any node's local map of the network as long as it was advertised in the "node_announcement" message. You can choose not to advertise your address at all, but you might as well set up Tor at this point.

Also, onion routing =/= Tor hidden service. When someone is paying you, they are not passing around your invoice. Instead, they construct an onion routing packet, which consists of multiple encrypted routing instructions that can be decrypted only by a specific hop. Each hop knows only about the next and the previous hop. That's what onion routing is.

[DaveF]

With a little work and a bunch of BTC you can actually do a fair privacy dance with multiple LN nodes of your own. Probably pointless but if you have a couple of large nodes that are well connected. And then setup a bunch of other ones that just connect to each other and then to the large well connected ones your own transactions can easily be lost in the shuffle. And if instead of re-balancing them or closing channels you just use other services to pay invoices now and then back to yourself you could probably hide a lot of what you are doing.

Is it worth it, IMO no. But it can be done.

-Dave