A beginners guide to Bitcoin privacy
The Bitcoin blockchain is completely public, anyone can hop onto a block explorer and look up any transaction from the last hour or the last 10 years. Depending on the tools available and their level of expertise they could analyse and follow any one of these transactions to build up a picture of an entity’s spending habits. Chain surveillance firms do exactly this, and using heuristics (assumptions) they can cluster transactions together to follow a given entity accross the chain. Aside from this being an invasion of your privacy it also poses the risks we covered in sourcing your bitcoin.
Coinjoin is a privacy tool that prevents this and there are different types of implementations, each with their own take on the same basic idea. Two or more users pool their UTXOs together into a collaborative transaction that is formed in a unique way. The way the transaction is constructed makes it very difficult for surveillance firms to know exactly which transaction output belongs to which of the input owners.
This is where the separation part comes in… A proper coinjoin implementation will completely break all deterministic links with the coins ‘pre coinjoin’ past. At best anyone looking at the transaction can come up with a number of possible scenarios as to who owns which piece of bitcoin but they can never be 100% sure. Now imagine you carry out multiple rounds of coinjoin one after the other, the transaction graph quickly becomes very confusing and impossible to track.
Here is a podcast episode where I talk through the basics of coinjoin.
Samourai Wallet offers the easiest and most effective coinjoin implementation, Whirlpool. Below is a simple walkthrough but to read a more in-depth look at it’s features see here and to see a video demonstrating the process below, click here.
Sparrow Wallet has recently implemented the Samourai Wallet Whirlpool coinjoin implementation. Users opting to mix using Sparrow will connect to the same Whirlpool coordinator and as such, will be part of the same postmix liquidity pool. Read the full documentation on this here.
There is currently no coinjoin option for iOS. Recommended course of action…
Joinmarket is by no means a beginner option, something worth exploring as you become more experienced.
Here is a very detailed guide by KIS Bitcoin
Coinjoin is a complex topic to wrap your head around and fraught with pitfalls in which you can leak your privacy. Fortunately, tools like Whirlpool are making things almost foolproof. Coinjoin does not erase the past, it simply affords you forward looking privacy. Remember that you can easily undo much of the privacy gained by practicing poor postmix spending habits e.g. merging multiple UTXOs.
Now you have obtained, secured, segregated, labelled and coinjoined your bitcoin in a wallet backed by your own node let’s look at how to safeguard it for any long term savings.