As incredible as Bitcoin is, it still comes with some tradeoffs that users need to contend with. Depending on how you interact with the protocol, there are many pot holes that can trip up new users which can result in information leaks which can, quite frankly, be dangerous. I’ve put together a short 10 step guide to help newcomers improve their privacy when interacting with Bitcoin. This isn’t designed to be a ‘must have’ list for everyone to live by from day 1, everyone has different skill levels and priorities, so understanding and implementing all of this from the start just isn’t going to happen.
The steps list the simplest and most important first, then get more technical the further down you go. Obviously you don’t have to do them in order, but look at the later steps as something to work towards longer term as you look to really lock down your privacy. Listed underneath each step will be the tradeoffs that come with each.
I am by no means a privacy expert and continue to learn from other, far more experienced bitcoiners than myself, so if you think I’ve missed anything please let me know!
Step 1 - Don’t tell anyone
I told you the steps start simple… This may seem obvious but I feel like it needs to be said anyway. The less people that know you have bitcoin, the better. There have been numerous accounts of people being either assaulted physically or hacked online resulting in them losing bitcoin. Think about it, are you really gaining anything by posting a screenshot on Twitter of your latest bitcoin purchase?
Tradeoffs - You can’t flex on Twitter you may find it difficult to help onboard others without giving away the fact you own Bitcoin.
Step 2 - Control your own keys + Practice coin control
Hopefully something you learned early on in your bitcoin career, not your keys, not your coins. If someone else has custody of your bitcoin, you essentially have zero privacy. They know your complete balance, so look to move those coins into a wallet where you control the private keys as quickly as possible.
When selecting a wallet look to use one that offers full coin control. Coin control allows you to label and manage the specific pieces of bitcoin (called UTXO’s) you receive. This can be very useful when you come to spend so that you don’t unwittingly combine UTXO’s from undesirable sources. If all of your bitcoin are coming from the same source eg a KYC exchange then you could possibly place less of an emphasis on this aspect but it’s a good habit to get into.
Here is a website I created to help you compare the different types of Bitcoin wallets.
Tradeoffs - You need to remember to label your UTXO’s so you can easily identify their source when you come to spend.
Step 3 - Be anonymous online
This is a trend that dates back almost to the start of the internet. Create an online persona and keep it completely separate from your real identity. You can create accounts on Twitter and Telegram etc without supplying any personal details. Obviously you need to ensure that when using your online alias you do not give away any sensitive information that could be linked to your real identity, which links back to step 1. The less people know about you, the better.
Tradeoffs - You need to take extra care when online. Some accounts require a phone number so think about obtaining a separate sim.
Step 4 - Use encryption tools
You might think this is a strange one to include at step 4, but there are plenty of tools out there now that use encryption but still have a simple user interface. Scenarios such as getting a bitcoin address from one device to another can leak sensitive info to third parties. Using encryption prevents helps this.
Look for encrypted alternatives to your usual apps such as…
Tradeoffs - While the UX of encrypted services like those listed above has improved drastically, they still have a way to go to match up with their less secure counterparts
Step 5 - Use Tor/VPN Services
When browsing online, your internet service provider can see all of your web traffic. Whether it’s searching for ‘bitcoin wallet’, querying an explorer like kycp.org or connecting to your hardware wallet’s online interface, they can see it all. The aim here is to not tie your bitcoin related information to your network IP.
Now if you were to do those activities listed above via the Tor browser, your ISP would not see any of that traffic. The Tor network bounces your traffic off different ‘relays’ across its network before it reaches its final destination. If using a mobile wallet, you should look to use one with integrated Tor for additional privacy. How tor browser works A VPN acts slightly differently. It provides privacy by ‘tunneling’ your web traffic to a different server which is generally located somewhere in a different country. Whilst this does prevent your ISP from spying on your online activity, you do place some trust in the VPN server you are connecting to. Mullvad is a good option that allows you to pay in bitcoin and does not require any personal information whatsoever upon signup.
Tradeoffs - Tor can sometimes be slow and certain websites don’t work great. VPN’s require a level of trust in the VPN provider.
Step 6 - Buy non-KYC
To buy bitcoin from a KYC exchange, you will need to provide personal information. Usually this info is in the form of name, address, drivers license, and in some cases a selfie holding a piece of paper with the name of the exchange and the date. KYC information not only ties your personal identity to any bitcoin you purchase, but also creates a huge honey pot of sensitive information at risk of being stolen due to incompetent security practices at some of these companies.
Once you purchase bitcoin via KYC, no amount of coinjoining or elaborate spending techniques will erase the fact that on X date and at X time, this person bought X amount of bitcoin from this exchange. Visit kycnot.me for a great list of ways to purchase KYC free bitcoin. Buying bitcoin in person at a meet up or event is also an option but then you risk what we covered in Step 1. As always, there are tradeoffs.
My personal favourite is Bisq and I’ve written a step by step guide on how to make your first purchase. Bisq trade video by KIS Bitcoin Those of you wanting to take it one step further and gain the ultimate in KYC free bitcoin, by mining. Check out @DiverterNoKYC article ‘Mining for the Streets’ where he discusses how to set up your own miner at home.
Tradeoffs - You generally pay a premium above the ‘spot price’ to purchase KYC free. (A small price to pay if you ask me). The liquidity is can sometimes be problematic and the UX still needs some work.
Step 7 - Run your own node
You cannot send or receive over the Bitcoin network without interacting with a node. If that node is not yours then you are trusting someone else’s. Let’s say you use the Trezor web interface to interact with your hardware wallet. When you send or receive using the interface, your transaction goes through Trezor’s node which means that they know the balance of all of your addresses and they also know the addresses of every entity you send bitcoin to via their app.
Here is a website I created to help you understand why running a node is important and to also enable you to compare the different types of Bitcoin nodes.
Tradeoffs - You will need to invest some time and energy into setting up our node and ensuring it is kept up to date with the latest software.
Step 8 - Transact off chain
Just like with physical cash, moving bitcoin off chain is much less traceable. There are two main options when transacting away from the Bitcoin base layer…
Use Lightning. After you open a lightning channel you can pay as many other users on the Lightning network as your balance permits without creating an on-chain footprint like a traditional transaction would. Lightning channel open and closes still take place on chain and there are ways you can still leak your privacy so it is by no means the magic bullet.
Tradeoffs - Both methods come with added friction and complexity. Particularly Lightning which requires channel management.
Step 9 - Coinjoin
The Bitcoin blockchain is completely public, so if you have bitcoin that is tied to your personal identity (say from a KYC exchange) you can be followed on chain by anyone with the right resources that is surveilling the blockchain. This problem gets worse if you inadvertently combine bitcoin from different sources when making a transaction.
There are different types of Coinjoin implementations, each with their own take on the same basic idea. Two or more users pool their UTXO’s together into a collaborative transaction. 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. 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.
One thing worth noting here is that Coinjoin does not erase your KYC purchase history, it simply stops those coins being tracked from then on. Providing you practice good post mix spending habits!
Samourai Wallet offer, in my opinion, the best and easiest to use Coinjoin implementation and by far the best post mix spend toolset on offer today. Whirlpool coinjoins can be done on your Android phone or via a desktop application that links to your phone wallet. Here is a step by step guide to your first Coinjoin using Samourai.
Non Android users should look into Joinmarket as an alternative although it’s worth noting that it’s a little more difficult to use.
Tradeoffs - All coinjoin implementations come with varying degrees of complexity and fee structures.
Step 10 - Go Google free
This one seems especially timely given the recent automatic roll out of the ‘contact tracing’ apps that are now baked into both Apple and Android phone operating systems. The issue raises some serious questions on how this software could be used for dragnet surveillance in the not too distant future.
There are now teams of people such as Graphene and Copperhead who have created stripped down and secured versions of the Android operating system. They come with all Google Play services removed which takes with it a raft of tracking and data collection software. Thanks to F-Droid, Aurora Store or direct APK downloads you can still access your favourite apps, but do so with caution, each extra app you install broadens the phone’s ‘attack surface’ slightly. Be cut throat and only install what you absolutely need to.
Here is a guide from Matt Odell showing a full installation of Graphene OS in just 20 minutes.
There are lots to choose from but Ubuntu is one of the most popular and easy to use.
Tradeoffs - Graphene/Copperhead only run on specific phones and require some technical skills to install safely and correctly. Getting to grips with Linux after years of Apple/Windows use make take a little perseverance.
The steps listed here are not gospel and can change as technology and Bitcoin evolve. Nor do they need to be completed in any specific order, carrying out any of them should help, if only a small amount. In my opinion, perfect privacy doesn’t exist in Bitcoin. It’s a spectrum on which we all move along. Hopefully this article will help you make at least one step in the right direction.
One final thing to remember, it only takes a split second to undo years of good privacy practices. Move slow and ask questions.
Want to learn more on bitcoin privacy? Check out these two podcasts…
If you need help getting started with improving your privacy, I offer private support calls for those that benefit from more personalised tuition.