Improving Bitcoin Privacy with CoinJoin
Bitcoin by default is public but anonymous; it´s the on-ramps and our own wreckless transaction activity which exposes our identity.
Improve privacy on the blockchain by obfuscating transaction history
Bitcoin is an extremely high-quality money in terms its portability, divisibility, liquidity, and scarcity. Even when compared to physical gold and silver coins, it is more portable, more divisible, more scarce, and extremely durable because of its decentralized proof-of-work infrastructure. Bitcoin is money re-invented, and at the heart of it is what we call the “Blockchain”. The Blockchain is anonymous, so no identity is directly connected to a user´s Bitcoin balance, but the Blockchain is also public, so all transactions are visible. This is deliberate and gives strength to what makes Bitcoin work, but with AI monitors and KYC (Know Your Customer) on-ramps, many new Bitcoiners accidentally connect their identity to their Bitcoin wallets upon entry into the protocol. This damage is unfortunately irriversable, which is why people should never mix their KYC and non-KYC Bitcoin, but what I plan to share with you today is a privacy tool to assist with Bitcoin transaction history obfuscation.
Blockchain vs Banks
Banks and Bitcoin are very different. On one hand, banks have custodianship of their client´s wealth – the client must ask the bank for permission to transfer or withdraw their funds. On the other hand, Bitcoiners (following good practices) have full custodianship over their wealth.
The differences for transaction data privacy are similar. When we use old fiat banks, we are required to trust the bank to protect our information. Meanwhile, Bitcoin is a public ledger, and a Bitcoiner´s transaction privacy is in their own hands.
There are separate AI programs which monitor the blockchain (the public ledger) and decipher the human identities behind the vast number of existing Bitcoin balances. They use a combination of techniques; namely grouping and tracing transactions from KYC on-ramps. It´s a game of cat and mouse, and we´re the mice.
What is CoinJoin, and how does it help?
Imagine you have a blueberry pie, and your friend has an evenly sized apple pie. You both cut your pies in half, and trade one half of your pie with each other. You now have a pie which is half blueberry, and half apple. Next, you see another friend who has been through a similar process. He now has a half raspberry, half mango pie. He cuts his pie in half, and you do the same, and you trade half of your pies. Now you have a pie which is one quarter blueberry, one quarter apple, one quarter raspberry, and one quarter mango. You still have the same amount of pie as before, but after as little as two transactions, you have only one quarter of your original pie.
Imagine repeat this process with a hundred different people. How troublesome would it be for a third party monitor to discern what flavour of pie you entered this bizarre game with? Essentially, this is how CoinJoin works. Knowing that we are being watched, we find ways to throw off and confuse our opponent.
“All warfare is based on deception.” - Sun Tzu
How do you CoinJoin?
Using Wasabi Wallet - A Bitcoin Wallet for CoinJoining
Thanks to the Wasabi Wallet, it is easy for beginners to CoinJoin their Bitcoin. It´s a privacy oriented wallet, open source, and non-custodial. I find that sometimes it takes an long time to load, because it runs on Tor (which is frequently DDOS attacked) but it is a useful tool for obfuscating transaction history. CoinJoin is automated by the Wasabi Wallet, and there are options to choose between speed and privacy. Samouri Wallet is another strong option.