How can Bitcoin users protect their financial privacy？
This article will answer the process of how Bitcoin users can protect the privacy of their transactions.
The following is a summary of ways that the average Bitcoin user can improve the privacy of their transactions.
- Don’t give out your personal information when conducting transactions
2. Don’t reuse the address. Don’t use the address again when the money in it has been spent
3. Choose to use the Tor network
4. Choose a wallet with CoinJoin functionality
5. Choose to use Lightning Network in the right scenario
Loss of personal privacy
The gradual loss of an individual’s right to privacy is a fact of life. The current external environment is much more complex than the above, and how can you protect your privacy?
For us, the correct interpretation is that personal privacy is our right, and that we can choose for ourselves when and where to disclose or withhold it from whomever we wish, without being forced to expose anything about ourselves to the public.
Cryptopunk believes that we need ways to safeguard the privacy of individuals, using cryptography techniques to protect them in the Internet age.
Over the years, one theory has been proposed and one idea has been put into practice. Through the hash algorithm, b-money, RPOW and so on, this group of people have been exploring and laying the groundwork step by step. Finally, based on these theories that were perfected step by step, Satoshi Nakamoto proposed Bitcoin, a peer-to-peer electronic cash system.
Don’t give out personal information about yourself
Bitcoin safeguards the freedom of financial transactions for two main additional factors.
- Independence of the Bitcoin system
The system operates independently and no one has control, but everyone can be part of the system network.
2. Does not correspond to real identity
There is no KYC, so your address doesn’t correspond to a real identity. The public can see all the records, such as the addresses of both parties to the transaction and the number of transfers, but there’s no way to associate those transactions with a specific People go above.
These two factors even gives anonymity above cash, as the transaction process has no direct contact and no character traits are present.
However, Bitcoin is not truly anonymous. Bitcoin addresses can achieve anonymity by blocking certain information before it is tied to a real identity.
The correspondence between identity information and a bitcoin address is just a matter of finding a way to connect the two, which is called down-chain data. The process of real reaction to the chain. As soon as this step is completed, your transaction information is once again exposed to the public, and it becomes a disadvantage that the data on the chain is visible to everyone.
So to achieve Bitcoin privacy protection, it needs to be addressed in three parts.
- Keeping the public key anonymous
- Prevent IP monitoring
- Elimination of clear transaction history
Don’t reuse addresses for privacy
Satoshi Nakamoto offers his solution in the whitepaper: as an extra layer of privacy, use a new address for every transaction.
In the Bitcoin system, you can create multiple addresses, and even use a new address for each transaction, so that even if a party you’ve dealt with knows your real identity and the corresponding address, they have no way of knowing your other transactions.
But for this to work, the premise must be that you can’t group and disperse amounts between your different addresses. These very characteristic behaviors can be easily detected by a careful monitor, who will be able to link a series of your transactions and want to The effect achieved will not exist.
Addresses are not reused and a new address must be used for each transaction. The primary condition for achieving privacy is to maintain public key anonymity.
Using Tor Networks to Solve IP Logging Problems
Bitcoin transactions themselves do not contain any IP addresses, nor does the associated data exist on the blockchain. In fact, Bitcoin is based on a P2P network, and the data is transferred with information attached to it.
The mode of operation is that when a transaction occurs, it is broadcasted from one node, and then received by other nodes as a relay node to other nodes on the network. to make a broadcast. Although the transaction is not explicitly labeled as to which node is the originating or relay node, during transaction propagation, if a node chooses to monitor the To determine the IP address from which the transaction was initially broadcast and to record and store this IP information, there is still an opportunity to expose the IP address to which your transaction was sent. IP addresses often reflect the location of your real address.
Tor uses multiple layers of encryption for transmissions, making the user’s information anonymous, and the transmission paths random and untraceable. Even if a relay node is set up to listen, there is no way of knowing what information is on either end, thus hiding the IP address and preventing it from being traced. Be recorded.
Tor is easier to use. Many bitcoin wallets have Tor web services as a configurable option, and some wallets (such as Wasabi Wallet) are more Make it the default option, so it’s easier to use.
Use Coinjoin to hide transaction records and increase privacy
For this reason, we can also use Coinjoin to separate the input from the output of a transaction, thus hiding the transaction records. Bitcoin’s pseudo-anonymity lies in the fact that transaction records record the addresses of both parties and the amount of the transaction, and all records are public. visible to anyone. Coinjoin is a way to make transactions anonymous by separating the inputs and outputs of a transaction so that they do not correspond to each other. effect.
The principle is simple, for example, a large number of people initiate transactions at the same time, and then we collect those transactions and send them simultaneously to the relative should be the receiving address. Since there is no connection between the originator of the transaction and the recipient of the transaction, after this aggregation the After that, no one can clearly know the addresses of both parties to the transaction, thus wiping out the connection between the sender and the receiver.
At this point even if you go to the Bitcoin browser and look, you will only see the following record：
As you can see from the figure, it is impossible to find the output address corresponding to the initiating address. Since some wallets and websites provide this kind of coin-mixing service, when you use it, just pay attention to choose the more famous one with a large number of users.
The transactions on the chain provide enough privacy after the above steps are completed, and even if there is a way to track them down, the cost is very high, so we think this is enough privacy for the average bitcoin user.
Choose to use Lightning Network in the right scenario
In addition, there is another way of sending privacy that is off-chain based, and that is through the lightning network. Usually in small transactions, we prefer to use lightning networks because of their speed and low cost.
Lightning networks actually have privacy-protecting properties as well. First of all, transactions on the lightning network take place in the payment channel, the transaction is recorded under the chain, and its information is not included on the blockchain! , on, and cannot be viewed by everyone. Second, there are also onion routes on the lightning network, similar to the Tor network above, where payments are passed through multiple channels and only publicly available Part of the payment information is extremely difficult to track, so that even node monitoring does not know everything. So in appropriate scenarios, it is highly recommended to use the lightning network solution.
Getting privacy protection right on Bitcoin takes a bit of effort, and there is no one-stop-shop perfect solution, which requires more attention and implementation of measures at every step.
People with the code-punk spirit, Onward!