Privacy On The Bitcoin Blockchain

Read now to learn how transactions on the Bitcoin blockchain can be private if you're willing to put in the effort.

Do you know how much privacy you have in your daily life? Most of us are aware that websites and apps are actively tracking us anytime we venture online. And we’ve certainly heard the “conspiracy theory” about government agencies tracking the digital and real life movements of millions of people around the globe. Well, at least it used to be a conspiracy theory until the last decade showed us that governments are definitely tracking us, all in the name of the “greater good”.

Some people will try to argue that those who have nothing to hide don’t need privacy. But ask yourself: how much does the government need to know about you in order to “keep you safe” and where does the line get drawn? At a certain point, privacy limitations become overly burdensome even for people with the most mundane lifestyles.

For example, various groups within the U.S. government want to impose reporting requirements for financial accounts that have $600 or more in annual transaction volume. Since the average U.S. citizen spends over $1,000 a month just on rent, not to mention all the other monthly expenditures people are prone to make, the proposed reporting requirements essentially include everyone with a bank account. You’ll have a hard time convincing me that the government needs a full record of all of your transactions in order to keep you safe.

Privacy On The Bitcoin Blockchain

People who understand very little about Bitcoin will try to tell you that it’s perfect for criminals because they can privately send money back and forth for their nefarious purposes and no one will ever be the wiser. That couldn’t be further from the truth since every Bitcoin transaction is publicly and permanently embedded into the blockchain. Just ask the couple accused of laundering stolen funds from the Bitfinex hack. The U.S. Department of Justice has been very vocal about how it used the public nature of the Bitcoin blockchain to trace transactions over several years back to the perpetrators.

But while Bitcoin isn’t very private by default, there are certainly actions that users can take to increase the privacy of their blockchain activity. After all, Bitcoin usage isn’t tied to users’ identities. Instead, Bitcoin usage is represented by pseudonymous addresses on the blockchain. If you don’t do anything to tie your real-life identity to your pseudonymous blockchain usage, then it will become exponentially more difficult for someone to invade your privacy, so to speak. So what do you do to increase the privacy of you and your Bitcoin?

Don’t Publicize Your Bitcoin Holdings Or Activity
Don’t get me wrong. I have a lot of respect for Jason Williams and I’ve been following him and his work for a while. But openly posting about your Bitcoin purchases on Twitter is a great way to make yourself a target for any government, hacker, con artist, or connoisseur of $5 wrenches who might want a piece of your Bitcoin action.

Does this mean that you should never talk about Bitcoin? Certainly not. Many Bitcoiners, myself included, are very interested in helping others learn about and appreciate Bitcoin. But teaching others about it and haphazardly disclosing how much Bitcoin wealth you have are not the same.

Don’t Reuse Bitcoin Addresses

Imagine if the things you buy could be used to identify you. Actually, it’s not fantasy. Credit card companies, ad agencies, and retailers are compiling lists of your purchases to understand who you are so they can target their goods and services to align better with your profile.

Since the Bitcoin blockchain is publicly available, it would be simple for anyone at all to review transactions tied to a pseudonymous Bitcoin address and make an extremely educated guess as to who’s behind the wheel, in a manner of speaking. But it honestly wouldn’t even be that difficult. If you decide to run all of your Bitcoin transactions through the same wallet, a retailer or service provider who received your name along with your Bitcoin-based payment can easily tie you back to your address and all your other transactions.

It’s for this reason that Bitcoiners with privacy in mind will encourage you to never reuse addresses. If you use a different address every time you receive Bitcoin, then it will become much more difficult for someone to tie all your transactions together since your payments will usually come from different addresses as well. And don’t think that you’ll necessarily have to manage a different private key for each individual Bitcoin address. Many Bitcoin wallets integrate xPub (extended public key) technology that allows for the creation of many Bitcoin addresses in a single wallet.

Privacy vs. Convenience

Some people want privacy, while other people want convenience. And the two don’t always mix. Each of you will have to decide for yourself whether privacy is worth the extra effort. But for those who value privacy, there are certainly relatively simple ways to boost it on the Bitcoin blockchain.
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