There are two main areas of concern for a cognizant and diligent Bitcoin (or cryptocurrency) user: (1) Protecting your private keys; (2) Protecting your privacy. This post was inspired and based by Filip Martinsson’s YouTube video entitled “6 Steps to Protect Your Privacy In Crypto”, which you can watch at the end of this post.
Bitcoin and other cryptocurrencies are bearer assets, meaning that you own the private keys that give you access to them. If you lose your private keys you lose access to your cryptocurrency. This is a big cryptocurrency and Bitcoin concern. However, there is another lesser-known concern regarding privacy.
This post focuses on the latter, protecting your cryptocurrency privacy.
- Why Do You Need to Protect Your Cryptocurrency?
- Your Information Leaks
- The Six Steps to Protect Your Cryptocurrency:
- Filip Martinsson, 6 Steps to Protect Your Privacy In Crypto
Why Do You Need To Protect Your Cryptocurrency?
Bitcoin and subsequent cryptocurrencies utilize blockchain technology, which is revolutionary and all, except one of its greatest features is also its greatest drawback. The Bitcoin blockchain (and all blockchains) are transparent. Anyone can read the blockchain ledger and learn how much Bitcoin (or ETH, XRP, XMR, ADA, EOS, LTC etc) has been moved from one address to another and at what time.
Now, if you never associate your name, address, email, cell phone number, social security number, identification of any sort with an address, then it is difficult for anyone to discern who is the owner of that address. However, the moment an identifier is associated with it, a smart investigator can unravel who you are.
I am not condoning any illegal activity; however, privacy is a fundamental human right. So if you want to protect your privacy you must be careful when using cryptocurrency. Many people today still think that cryptocurrency is private, perhaps by its name (“crypto-“) or its history of anonymous cypherpunks who initially began using it. But we know that this is simply not true.
I’m not calling anyone here a criminal, or even that you have something to hide. I’m just saying that it is important to protect your privacy when it comes to Bitcoin and cryptocurrency. You never know what the government might do, and you want to keep control of your bearer asset. That being said, I do not advocate tax evasion. Keep your privacy, but be an honest person and pay your taxes since taxes help to pay for your local needs like roads, Emergency Medical Services, Libraries, Schools and Health Care.
Your Information Leaks
The government and companies already have many Bitcoin or cryptocurrency addresses that you use. We unwittingly leak information on ourselves every day without fully realizing what we are doing. Below are the three most common ways that you leak personal data as it relates to cryptocurrency so that corporations and governments can discover your Bitcoin or cryptocurrency addresses.
Cryptocurrency Exchange KYC
If you bought cryptocurrency on an exchange that does KYC, then your name and address (and sometimes your social security number) are known and associated with your withdrawal address. The crypto exchange has that information and the government of the jurisdiction that the exchange resides in can gather that information from the exchange.
Some people will post their Bitcoin or cryptocurrency addresses publicly, either for donations or to accept a payment from someone. That Bitcoin or cryptocurrency address is now on the open Internet and directly associated with your personal social media account. Whether it is Twitter, Facebook, Instagram, WhatsApp, YouTube, it is possible (and relatively easy) for the government to find.
If you have purchased something online where it requires delivery to your address, then you have inputted that personal address information to the online company website (for example Amazon). Then if you’ve used cryptocurrency to pay, whether directly or through a service provider such as BitPay, then you have associated a Bitcoin or cryptocurrency address with your physical home address (and likely your name as well). Now the company (and likely a government that requests this information) will make the connection and know you Bitcoin and cryptocurrency addresses.
This one is complex and indirect. Basically, if a government (or corporation) sets up enough Bitcoin nodes (or nodes for other cryptocurrencies), they can view all of the outgoing transactions. They may not be able to discern if a transaction is reaching its end destination or just in the process of being propagated forward to other nodes (as the Bitcoin network works, nodes propagate transaction information until all nodes have it) at any one point in time.
However, with enough data points and traffic analysis and enough nodes, the government might be able to differentiate patterns and isolate certain addresses with certain IP addresses. Your IP address is associated with a geographic area and physical address. Once they associate your IP address with your Bitcoin address, they know it is your Bitcoin wallet address.
Block Explorers are websites where you can read the blockchain in a more readable format. Sometimes people will repeatedly refresh a block explorer while watching their Bitcoin (or another cryptocurrency) address to see when the transaction confirmation is settled.
By repeatedly refreshing the block explorer on the page with your Bitcoin address… you indirectly send a message to the authorities who are surveilling the web that your IP address is associated with that Bitcoin address.
As you know, the blockchain is transparent and readable to anyone with any reasonable level of experience or learning with blockchain analysis. In fact, there are companies dedicated to this nowadays, often called “blockchain forensics”.
If you have any Bitcoin address associated with your name (i.e. you bought Bitcoin from a KYC exchange such as Binance and withdrew it to your BTC address on your Ledger Nano X) and then you sent the BTC to any other address, even after taking critical privacy steps, the authorities can still trace it back to you. Since the originating address is associated with your name.
Even if you send it to a brand new, privacy protected address (i.e. TOR browser, VPN, no posts on social media – see below), it can be traced back to you through the blockchain ledger and the fact that the originating address was associated with you.
The Six Steps to Protect Your Cryptocurrency
You are not as private as you think you are when you use cryptocurrency. You must be very intentional and careful to protect your privacy. This is not for everyone as it requires some diligence. There are so many information leaks that we leave especially in this digital day and age.
These steps are not complex, but you must be intentional about it so that you do not leave any informational traces behind you.
(1) Don’t Use KYC Exchanges
Simply do not use KYC Exchanges as this associates your identification with your withdrawal address for Bitcoin or any other cryptocurrencies. Although this is becoming increasingly difficult as exchanges work towards becoming more legally compliant with local laws in order to grow into multibillion-dollar companies.
(2) Don’t Post Your Address(es) To Social Media
Referring here to your Bitcoin or cryptocurrency addresses. Never post any of them online to your social media accounts as then it is easily traced back to you. Don’t accept donations or payment over these channels.
This includes: Facebook, Twitter, YouTube, Instagram, Website, Reddit, etc
Additionally, it probably helps to not gloat or show off the fact that you own any cryptocurrency (Bitcoin included) on social media. Even if you are not displaying your address, it leaves a cookie crumb trail that you do own cryptocurrency and so it must be stored somewhere, making you a target for investigation.
(3) Don’t Make Crypto Purchases
Don’t make purchases with Bitcoin or cryptocurrency online if/when you need to give your name or your address (which is most often the case if you are needing a delivery).
(4) Use A VPN
Using a VPN is a way to mask your IP address. This helps to prevent a government or corporation from setting up nodes and completing traffic analysis to identify your IP address, then geolocate your physical address, associating your Bitcoin address in the process.
By masking your IP address a VPN is an easy way to add another layer of privacy to your Bitcoin and cryptocurrency use. VPNs are easy and cheap. Filip Martinsson and Ivan on Tech recommend Nord VPN.
(5) Use TOR
TOR stands for “The Onion Router” which is a browser type that helps protect your online activities, location and identity. Filip Martinsson recommends the Brave Browser, which is “chromium based” meaning it looks just like Google Chrome.
(6) Use a Privacy Focussed Wallet
In his video (below) Filip Martinsson recommends a privacy focussed wallet such as Wasabi Wallet. The Wasabi Wallet uses something called “coin join”, where it shuffles coins from multiple input users so it is difficult to determine where the coins that are sent originated from. The more users of this shuffle translate into greater wallet address privacy.
The Wasabi wallet is a non-custodian hot wallet. While it is good that it is non-custodian, I still prefer the use of a cold hardware wallet. I would recommend that you utilize the Wasabi hot wallet coin shuffler and then send your Bitcoin to a brand new cold hardware wallet address that has never received Bitcoin from a KYC exchange.
You can use the Wasabi Wallet as a gateway to send out BTC – send it from your hardware wallet to Wasabi and then out to the true destination address.
Filip Martinsson, 6 Steps to Protect Your Privacy In Crypto
Markshire Crypto Conclusion
In closing, I think that privacy should be considered a fundamental human right. That being said, I do not condone illegal activity and you should not take advantage of the privacy to do illegal things with your Bitcoin or other cryptocurrencies.
You might be wondering why go to all of this effort to protect your privacy when it seems that you might not even be able to use Bitcoin/cryptocurrency (especially if you do not buy things online with it). Well, it is partly a hedge against a totalitarian outcome if governments or corporations have such detailed surveillance over the population including spending habits. With these efforts, you can minimize your visibility and keep a low profile and thus your privacy.
The whole premise of Bitcoin when it was released back in 2009 was to avoid the government from destroying fiat currency by moving your wealth into Bitcoin. And Bitcoin is succeeding in that task. However, it is not nearly as private as people thought it was. Thus you need to practice extreme caution in that regard.
Bitcoin may free you from government money, but it gives the government close surveillance of your purchases and movement of Bitcoin.
I was thinking that in addition to Filip’s 6 privacy measures, it might be worth looking into purchasing newly minted Bitcoin from a miner directly without KYC. As well as looking into participating in a mining pool and getting BTC directly into your privacy focussed wallet (Wasabi) and send it to yourself all over TOR on a VPN network.
I hope you enjoyed this post, please comment and let me know what you think below.