In the world of cryptocurrencies, Bitcoin stands out as the most recognized and widely used digital currency. Despite its robustness and security, privacy in Bitcoin is a topic of constant debate and concern.
Since all transactions are recorded on a public blockchain, achieving total anonymity requires conscious and methodical efforts.
There are tools that allow observers to know the traceability of a transaction and how that transaction is going to behave in the next ones you make.
Let's explain this in a simple way:
When you make a basic transaction with BTC, it is structured by sending the entirety of your balance to the recipient and setting up a change address in your wallet for the remainder.
In other words, if you have 10 BTC in a wallet address, and you want to transfer the equivalent of 50 USD in BTC, you actually send all 10 BTC, designating a change address in your wallet where the difference is deposited. This change address is visible to the recipient of the 50 USD in BTC, allowing them to always see the total balance in your wallet.
If you didn't know this was possible and you're still sitting there with your mouth agape, keep reading this article. Explore these ten crucial steps to help you manage your bitcoins with the highest privacy as possible.
Privacy in Your Bitcoin Transactions: 10 Essential Steps
1. Use New Addresses for Each Transaction
Reusing addresses can make your transactions easily traceable. Generate a new address for each operation to complicate the association of your transactions with your identity.
2. Choose Privacy-Centric Wallets
Choose wallets that prioritize privacy and offer CoinControl features. Label all your addresses before using them, so you can always trace who you have shared information with and for what purpose.
3. Perform CoinJoin
Utilize the full power of Bitcoin Core's RPC to learn how to obscure the trail of your transactions. While this adds a layer of privacy, practice first on TestNet with your friends and family.
4. Connect Through Tor or a VPN
When making transactions or accessing your wallet, use the Tor network or a quality VPN to hide your IP address and prevent correlating your operations with your real location.
5. Use Privacy Analytics Tools
There are tools that allow you to analyse the privacy of your transactions on the blockchain. Using them can help you identify and mitigate potential risks.
6. Avoid Services Requiring Extensive KYC
Identity verification (KYC) can leave a digital trail that links your transactions to your personal identity. Look for platforms that minimize these requirements, keeping legality and security in mind.
7. MakeSmall and Frequent Transactions
Large transactions can attract attention and facilitate pattern analysis. Spreading your funds across multiple small transactions can help maintain anonymity.
8. Embrace Lightning Network Payments
The Lightning Network is a second-layer solution that not only improves Bitcoin's scalability but also offers greater privacy by not recording all transactions on the public blockchain.
9. Don't Compromise Your Privacy Off-Blockchain
Be cautious about the information you share on social media, forums or with cryptocurrency-related services. Even seemingly insignificant details can be used to identify you.
10. Continuous Education on Privacy and Security
The cryptocurrency privacy landscape is constantly evolving. Stay informed about the latest tools, techniques and best practices to protect your privacy.
In this way, you can gain Privacy in Your Bitcoin Transactions and live a little more peacefully like our friend Max.
If you purchased your BTC through an exchange with KYC (Know Your Customer) policies, the exchange can continuously track your future transactions and potentially trace whom you are sending your Satoshis to, unless you take steps to prevent this.
In each transaction, whether receiving or sending, the person who sends to you or whom you send to will have the ability to follow the trail of your BTC.