Transaction privacy

--- layout: guide title: Transaction privacy description: An overview of Bitcoin payments, common concepts and the transaction lifecycle. nav_order: 4 parent: Payments permalink: /guide/payments/privacy/ main_classes: -no-top-padding image: /assets/images/guide/payments/transactions/tx-preview.jpg --- ![](https://i.imgur.com/ljt6EhQ.jpg) # Transaction privacy  It’s a common misconception that Bitcoin is anonymous. Instead, it should be referred to as pseudonymous which means each address you generate is like a new identity. Unless you reveal that you are the owner whether directly or indirectly you are able to remain anonymous. Transactions, their signatures, and addresses after they are mined remain public on the ledger forever. However, there is no personally identifiable information attached to transactions on the blockchain. The transparent property of the blockchain allows anyone to easily verify the amount of bitcoin in existence which means it also makes looking up any address or transaction trivial. This can be demonstrated going back to the first block on [January 3, 2009](https://blockstream.info/tx/4a5e1e4baab89f3a32518a88c31bc87f618f76673e2cc77ab2127b7afdeda33b). > Each Bitcoin transaction contains at least one input and at least one output. This means that once a single address is known, there is a trail to follow the bitcoin. > > <cite>As documented by <a href="https://docs.wasabiwallet.io/FAQ/FAQ-GeneralBitcoinPrivacy.html#how-is-bitcoin-bad-in-terms-of-privacy">Wasabi Wallet</a></cite> The key to keeping your transactions private is to prevent others from determining which addresses you own[^3]. Satoshi let others know they mined the first block, which contained just one transaction, with the block reward getting sent to their address. This illustrates the possible permanence of association between an address and an identity. That being said, the pseudonym “Satoshi Nakamoto” also contributes to further anonymity. While it's possible break asumptions of ownership going forward, the challenge is to recover privacy once an association is made public.  ## Methods to preserve privacy Keeping private takes constant and diligent work but is not impossible to ensure an acceptable level of privacy[^1]. Let’s explore some methods and practices that help preserve privacy on a transaction level.  ### Generate a new address for each payment Creating new online personas is not the only way to preserve privacy. A new address can be generated by the wallet application used to receive bitcoin. This is achieved using [HD Wallets](), a standard for how private keys get generated in modern bitcoin applications. This allows each transaction not to be tied to a single address, making it difficult to associate with to the owner. > If thieves can see your income, holdings, and spending, they can use this information to target and exploit you.[^2] Using the same address multiple times does not only degrade the privacy of just one transacting party. Both the [sender](/guide/payments/receive) and [receiver](/guide/payments/receive) are put at risk. On the receiver’s side, by using a single address, senders or anyone with whom the address is shared can see the previous activity and the amount of bitcoin controlled by the owner. Assuming an adversary uncovers the identity behind the reused address there is now a single point for them to reach anyone else who has transacted with the owner.  **Do's** - Show a new unused address when the receive screen is entered. - Make it easy to generate as many addresses as the receiver needs at a time. - Before broadcasting a transaction, inform senders if an address is already used. **Don'ts** - Make it easy to reuse an address. ### Keep track of who knows about an address <div class="center" markdown="1"> When [receiving bitcoin]() we can [add additional details to a payment](). Not only does this help to contextualize payments, but it also enables preventative measures for preserving privacy. Labeling addresses with the counterparty's name involved in each transaction can inform decisions for which [UTXOs]() are selected in future transaction inputs. To make this UTXO selection easier, some interfaces make it possible to select/filter UTXOs that cluster under one label. _Check out the glossary to learn more about [how coin control works]()._ </div> ### Increase anonymity by collaborating with others <div class="center" markdown="1"> {% include image.html image = "/assets/images/guide/payments/privacy/coin-join.jpg" retina = "/assets/images/guide/payments/privacy/coin-join@2x.jpg" alt-text = "Example CoinJoin transaction with 3 participants with 1 input each, which get broken up into 5 equal outputs." width = 400 height = 400 layout = "float-right-desktop" %} The "common input ownership" heuristic[^4] assumes in a transaction, it is likely that all inputs belong to the same owner. [CoinJoins]() is a technique where multiple participants collaborate on a transaction to break this heuristic. It becomes more difficult (although not impossible) to determine the individuals who own the outputs are since all the outputs typically have the same denomination. With CoinJoins, as with any other anonymity network, a large and diverse group of participants provides the best protection. Users still have to be mindful of how the UTXOs they received from the CoinJoin are spent. For instance, spending them together in a single transaction would unravel the anonymity gains from participating in the CoinJoin. </div> ### Design with privacy in mind Thinking about privacy is critical during the design process. Your users will not have the same level of knowledge of how to use Bitcoin privately. It becomes especially important for them to understand the implications of their privacy degrading actions which often occur at the point of creating a transaction or requesting a payment. When managing funds While there is no perfect solution that will guarantee 100% privacy, try always to minimize how much information gets shared to the most essential. Also, consider ways to inform and prevent user actions that negatively impact their privacy as they use your product.  [^1]: [Bitcoin.org - Protecting your privacy](https://bitcoin.org/en/protect-your-privacy) [^2]: [Wasabi Wallet Docs - Transaction Surveillance Companies](https://docs.wasabiwallet.io/why-wasabi/TransactionSurveillanceCompanies.html#attempt-to-invade-privacy) [^3]: [Top Seven Ways Your Identity Can Be Linked to Your Bitcoin Address](https://99bitcoins.com/know-more-top-seven-ways-your-identity-can-be-linked-to-your-bitcoin-address/) [^4]: [Bitcoin Wiki / Privacy](https://en.bitcoin.it/wiki/Privacy#Common-input-ownership_heuristic)  # ignore below --- ### How you gradually reveal information about yourself - [ ] privacy its not binary - [ ] privacy decays over time - [ ] how do WE define privacy? #### How does privacy get degraded? [Start describing Common-input-ownership heuristic] > _The common-input-ownership heuristic (also called the multi-input heuristic, Nakamoto/Meiklejohn heuristic, or co-spending heuristic) is a heuristic or assumption that the same entity owns all inputs to a transaction._ > > _Transactions with multiple inputs usually arise if the user's wallet does not have a single UTXO large enough to fulfill the user's payment amount._ [DIAGRAM WITH POINTS OF COMPROMISE] Wallet 1. wallet fingerprint 2. transaction structure 3. coin selection Node 1. location 2. broadcast time --- 1. **address reuse**; can expose transaction history 2. **coin selection techniques**; since the recipient can look up the previous transactions 3. **using large inputs**[^1]; can allow blockchain analysis companies to easier determine which output is the change 4. **network snooping**; adversaries with enough nodes on the network can start to determine the origin locations of transactions based on the node that receives the transaction first. 5. **fingerprinting**; can identify what wallet, or which output is change and a payment. unique usage behavior #### What can you do to enhance privacy ##### Address Reuse > ###### Worked Example 1 - Savings Revealed > * You save in bitcoin, using a single-address paper wallet. > * All your bitcoin savings to this same address, let's say it contains $1 million worth. > * You buy a small amount of bitcoins to add to your savings, depositing in the paper wallet. > * The person who sold you the bitcoins follows their trail on the blockchain and finds your paper wallet containing $1 million. > * He mentions it to someone in a cafe or bar. > * Word gets around. A burglar raids your home. Kidnappers capture your children and know exactly how much to demand in ransom. ##### LABELS! ![](https://i.imgur.com/1BYMDUS.png) To recognize the origins of the funds or the observer of those coins and addresses. It's contextualizing and informative for payments and aids in enabling preventative measures for enhancing privacy. Separating coins by observers can help you make more informed decisions in the future regarding coin selection. If you understand that recipients can deanonymize the historical transaction data associated with these coins, you can consider which UTXOs you are willing to expose to them. ##### Generate new addresses for every payment - warning message identify if an address has been reused ##### Coin joins To break up UTXOs into smaller denominations. Coinjoins are a technique for multiple people to collaborate on a transaction. It breaks the common input ownership heuristic, so it becomes more difficult (although not impossible) to determine who the individuals who own the outputs are since all the outputs have the same denomination. You cannot be anonymous on your own -- anonymity loves company. The larger and more diverse the group of people you are part of provides better protection. [Anonymity set] ##### Tor Use Tor or a VPN - [^1]: https://www.researchgate.net/figure/How-a-peeling-chain-works-Color-figure-online_fig16_319944399 ### COMMENTS What can a user do? What can a designer do?

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