Bitcoin has a fungibility problem. it is transparent about what can be both good and bad. Transparency allows anyone to check how many Bitcoin are in circulation and make sure no one is cheating.
But it also allows bad actors (like governments) to monitor the chain and compromise user privacy.
When a new user purchases Bitcoin through a regulated Know Your Customer (KYC) exchange, their information (including Bitcoin address, Government ID, and other identifying information) is shared with their local government. This information enables them to see the activity of his wallet as his coins are linked to his identity. It also allows for easier seizure in the event of a government ban on Bitcoin.
Obviously, this is dangerous, especially if you are living under an authoritarian government. There are options for buying Bitcoin without revealing your identity and without compromising your privacy. However, these are less popular and usually harder to follow.
This requires a data protection standard in Bitcoin: if most wallets enable data protection features by default, it will be much more difficult for chain analysts to link transactions and wallets to real identities and / or previous transactions. Users need to ensure that each of our transactions is private. This can be achieved through the use of tools like CoinJoins, PayJoins, and other privacy enhancement techniques. While these tools are not a silver bullet, if used properly, users can achieve a remarkable level of privacy. Stealth addresses also play an important role in the data protection standard as they allow users to share their addresses without having to worry about them being linked to their digital or physical identity. Running your own node also plays an important role and greatly reduces the possibility of a node being used to link your transaction history to your real IP address, which can be used to decanonymize your transactions.
If we can, we can disarm chain analysts. Chain analytics firms specialize in breaking into the privacy of Bitcoin users. They do this by using publicly available on-chain data and then comparing it with other data, such as: B. KYC records to establish a deterministic link between a user’s wallet activity and their real identity.
The worst part about these companies is that they don’t work exclusively for governments, they work with those who are willing to pay them. Whether it’s a government, an advertising company, or a creepy stalker doesn’t matter to them. These companies are pure poison for Bitcoin and completely unnecessary in the Bitcoin ecosystem. They only bring harm and suffering.
There are many users who are approached by these companies simply because they have stated that they hate the idea of chain monitoring. A good example of this would be DarkDotFail’s donation address, which is featured on several exchanges that partner with these companies. Chain surveillance is not about money laundering, crime or any other illegal activity, it is about creating an age where no one has the right to keep their finances private. A bitcoin privacy standard aims to kill these purely evil companies. However, this requires the Bitcoin community to come together, put the ego aside, and work together to create, use, and nurture tools that make these efforts possible.
The hardest part in standardizing Bitcoin’s privacy is acknowledging Bitcoin’s flaws in privacy. Many will just avoid talking about it, and some don’t even know it exists! Creating such a standard would require a large consensus in the community, not because we need to change the protocol, but because we need to get people to recognize the fact that their privacy is at risk. A data protection standard would also prevent discrimination against people who want to keep their Bitcoin finances private (see this post).
You can censor a minority, but not a majority.
We need more wallets like this and more enthusiasm for creating and using bitcoin privacy tools. Ascending numbers is not all that matters in this peaceful revolution. Data protection is also important.
This is a guest post by Yonatan. The opinions expressed are solely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.