Topic: BTC Needs A Privacy Layer (Read 762 times)

Today Bitcoin is veery Down

Absolutely. And if that merchant is happy to complete KYC at that exchange to turn his bitcoin to fiat, then it is also his right to do so. However, I am under no obligation to complete KYC at that exchange. And sure, I can always refuse to use the merchant who wants my personal details and find another merchant, or refuse to trade with the user who wants my personal details and find another, which is a viable solution at the moment. But as time goes on, and governments push for more and more restrictions and more and more KYC, then the pool of people conducting business without KYC details or accepting bitcoin from unknown sources shrinks. Some countries are starting to force users to complete KYC for their own addresses before letting them withdraw from an exchange, for crying out loud. Mining pools are starting to censor transactions which don't come from "approved" sources. The government will not stop until every address and every bitcoin is linked to someone's personal details, and if you don't compromise your privacy in this way, then your bitcoin will not be accepted at any exchange and your transaction may not even be mined.

No merchant will accept coins if they are worried about them being seized. Instead, centralized payment processors like BitPay (which are already pretty far along with the whole spying on their users thing) will start to employ the same chain analysis firms that exchanges employ. If the exchange would seize your coins, then BitPay will too, and the merchant will not be out of pocket.

It's an extreme scenario, yes, but I don't think it's sufficient to say either "Well, let's convince governments or exchanges to stop their regulations" (which will never happen), or just to cross our fingers and hope it doesn't come to this. If it becomes near impossible to spend your bitcoin without some chain analysis company giving the approval or some centralized third party collecting your KYC data, then bitcoin is no longer bitcoin as far as I am concerned.

That's part of the freedom that bitcoin gives you. If a merchant wants to use a centralized exchange for reasons that make sense to him, it's his right to do so. I can tell him about better options, but he doesn't have to listen to me as long as that exchange satisfies the needs he has. If I use the services of such a merchant who then sends those coins to a centralized exchange where they get confiscated for being associated with mixers/underground markets/gambling/whatever, I can't tell the merchant that I am a privacy-oriented individual and he needs to be one as well by not using such exchanges. He'll want his money because the coins I sent him, aren't worth anything to him. Therefore, if this practice of removing value from certain coins that centralized entities don't like continues, it will be the privacy-focused users who suffer the consequences.

It's an interesting concept, but I'm not sure it solves the problems of centralization. It is possible that transactions "withdrawing" coins from the Mercury statechain are identifiable due to specific nlocktimes or other parameters. And even if they are not identifiable, then the UTXO in question still has a transaction history which can be traced as normal, including any involvement in coinjoin transactions, for example. Although the Mercury wallet obviously breaks the link between coins and an individual, it doesn't break the link between coins and their history, as is the case for coinjoins or mixers.

If exchanges are banning coinjoined coins, they don't care (or maybe won't be able to tell in Mercury's case) if the coins were coinjoined by me or were coinjoined by someone else before being transferred to me. Either way, my account is being locked.

I listened to Andreas Antonopoulos, who btw would also like to see privacy improved for Bitcoin base protocol, and he said that ring signature are almost impossible on Bitcoin blockchain, but there are other things that can be implemented and better sooner than later.

There are several ideas in circulation for improving privacy but not many of them are actually realized and in testing phase, and so far I only saw few of them that can do something in future but they are all second layer solutions like Mercury wallet for example.
It's not perfect but I guess it is better than nothing.

I never said I want ring signatures specifically. I don't know what the best protocol level privacy improvements would be, and whether these would require a soft or a hard fork. We obviously can't implement a change which would make "wallets useless" as you suggest by depreciating P2PKH addresses or something similar, since doing so would effectively be stealing and burning millions of bitcoin from completely innocent users.

Someone will propose an idea. Anyone who is interested can discuss the idea. If it's a good idea, the developers might work on the idea. If there is a lot of support for the idea, then it might move towards being implemented. Some changes make their way in to Bitcoin Core based on the consensus of the development team, but it is still ultimately up to each person running a node to update their software with these changes. Other changes, like Taproot (a soft fork), require both nodes and miners to make the switch. For Taproot, once >90% of miners signal their acceptance, then it will lock in for activation at a future date. You can see the Taproot consensus status here: https://taproot.watch/

What's wrong with private Bitcoin transaction introduced by some changes in code?

All other privacy coins had many flaws that made them not really private from the start like you say, but they are also changing their code and improving all the time,
and I don't think that Snowden is stupid for proposing such change for Bitcoin, even as optional feature like in zcash for example.

Thanks.

I haven't read what's Taproot yet, besides the known fact that it it helps with privacy, but aren't all those you mentioned soft forks? How do you vision a protocol change that would make Bitcoin transaction's outputs interchangeable? Wouldn't we have to move onto implementations like ring signatures that would create hard forks?

Who exactly is the community? This forum? The developers? The miners? The majority of its users? I think that in Bitcoin, the word “community” is highly abused. How can one define what's the community on a consensus based system?

I'll skip the Taproot part, because as I said, I'm unaware. What solution do you propose that will make Bitcoin fungible, but won't affect the already existent wallets? With ring signatures, they'd have to change.

What's wrong with that?

Here is the link for post made by Satoshi:
https://bitcointalksearch.org/topic/m.9074

We the people are real users of this thing called Bitcoin, and this thing code changes all the time if you didn't notice so far.

Saying no to privacy for Bitcoin, while supporting other privacy oriented altcoins...  

It's here: https://bitcointalksearch.org/topic/m.9074

Was P2SH necessary? Was SegWit? Is Taproot? Even P2PKH isn't the original design, which was simply pay to pubkey. Bitcoin would have continued to work without any of these changes, but the developers proposed a useful change, the community agreed with it, and it was implemented. The whole point of bitcoin being free, open source, and decentralized, is that the community can decide to change things.

Why? Taproot is a privacy improvement and will not affect existing wallets at all.

I remember that discussion, but I can't find it from satoshi's posts. Do you have the thread link?

I may just believe that changes must happen on extreme occasions like hash collisions or weaknesses on public key cryptography and not for privacy. A privacy layer would surely be wanted, but the protocol shouldn't be changed if the chain started with that idea. To put it another way, who are we to change the way this thing works 11 years now? Shouldn't consensus change only if it's completely necessary? How can you explain to someone that privacy is necessary and not just another one of the improvement proposals?

I know that Bitcoin should have a better privacy system and I don't like getting exposed by blockchain analysis due to my coins' relativization with illicit activity, but we tend to forget its censorship resistant philosophy. Not to mention that if we changed the protocol on that level, we'd instantly make every wallet out there useless. Again, who are we to take that decision? Surely not the majority.

If that was a poll thread, it's a no from me. I'm in favor of using other cryptocurrencies whose purpose was privacy-oriented from the beginning.

I don't think Satoshi would be against changing and improving Bitcoin protocol because if you read some of his earlier posts you could see that he was talking about key blinding and group signatures back in August of 2010.
I tend to agree with Edward Snowden here when he said that if Bitcoin would introduce some privacy upgrade in base protocol, there would be nothing governments could do about it now,
and with more important changes in Bitcoin code I believe that most of the shitcoins would not even exist anymore.
Further we go in future it would be much harder to make this changes, I have no doubt that centralized exchanges will have more strict rules and regulations in future, and there will probably be more and more ofac mining pools like Marathon.

Bitcoin is actually mined every day and it has some inflation that is much lower compared to fiat inflation but it still exists and it is about 1.45% currently.
We can however say that millions of bitcoin are lost so far that would somehow negate that inflation.

If Satoshi got everything right, then why is bitcoin still being developed? The whitepaper also talks about one-CPU-one-vote, but nobody mines on CPUs anymore. It talks about "a single hash" for mining, when we actually use a double hash. It talks about following the "longest chain", when actually we follow the chain with the most work. Just because it is in the whitepaper doesn't mean it can never be changed.

The whitepaper also says "privacy can still be maintained by breaking the flow of information in another place: by keeping public keys anonymous". We no longer keep public keys (or rather, addresses) anonymous. Every centralized exchange and service links every deposit address you use and every withdrawal address you use to your real name and KYC data, as well as tracing these addresses backward and forward another several transactions. We have entire industries built on de-anonymizing public keys and addresses and selling their services to the FBI and others. I doubt Satoshi foresaw that.

But none are as widely accepted as bitcoin. As long as I can keep using bitcoin privately then I will continue to do so, but as I said above, if the day comes when I can longer spend my bitcoin without a centralized third party invading my privacy or demanding KYC, then that is the day I stop using bitcoin.

And Coca-Cola was intended as a patent medicine, but now it's considered a temperance drink.

What I want to say is that, because Satoshi visionned it as a currency, it doesn't mean that everyone should too. If you ask me, I'd answer you that it can't work as a medium of exchange the way you imagine it, whether the majority of the people saw it as it's said or not. I'll omit the fees, let's just think about it ethically.

It's deflationary. If we agree that the greatest currency is the one that circulates the most on a capitalism, then Bitcoin is the worst one. Not sure why you haven't understood it, or if you don't want to, but it just seems odd to me that there are, indeed, people who still believe on the so-called “global adoption” of Bitcoin as a currency.

You can use it as a currency, if it satisfies you, but I think that it'd be advisable to give a childish example:

(In the system below, 100 fresh bitcoins are brought into circulation every day.)

Let's assume that once upon a time, on an island, there were 100 people with 100 mushrooms in total and each one of them had 10 bitcoins, willing to use it as a currency. This means that each mushroom costs 10 BTC since there are 1000 BTC in total. But, hey, the next day, there are 1000 newcomers bringing 1000 mushrooms and they are also willing to use Bitcoin as a currency. But, unfortunately, there are only 1100 bitcoins in circulation which means that each mushroom now costs 1.1 BTC. Same thing would happen if that little community gained 10,000 new mushroom-farmers the next day. Every mushroom would cost 0.12 BTC.

So, the more newcomers, the more my money's value. Would it be beneficial to pay with Bitcoin? No, because next year, I'll probably be able to buy more things than today with the same amount. It turns out that, phenomenally, it's better as a store of value or as a long-term investment.

This isn't going to happen. I think Satoshi was clear in the whitepaper that all the transactions must be publicly announced. Making such big change would censor it and devalue it. If you don't like Bitcoin the way it is, then use a different cryptocurrency. I have used to see Bitcoin as a “religion”, but I shouldn't. Truth be told, there are far better cryptocurrencies than Bitcoin for privacy, anonymity and decentralization if you want to use them as mediums of exchange. First one that comes in mind, Monero.

If everyone used it as a currency, then none of the arguments would stand. But when someone like me comes along, who isn't interested in day trading at all and just wants to use it as a currency, and tries to spend bitcoin with a merchant who just wants to immediately send the bitcoin I spend to an exchange and convert it to fiat, then the arguments absolutely still stand. As long as merchants, retailers, counter parties, etc., want to use centralized exchanges to convert back to fiat, then the fungibility of my coins absolutely matters. Exchanges are blacklisting some coins, and now mining pools are blacklisting some coins. BitPay already block users based on IP address and location. It's not a huge stretch of the imagination to reach the point where payment processors start blacklisting some coins too. And sure, the argument again is if everyone just accepted bitcoin themselves without centralized payment processors this wouldn't be an issue, but we both know that is never going to happen.

I don't necessarily disagree, but there is absolutely zero chance of convincing governments to stop regulating against bitcoin, stopping centralized exchanges enforcing these regulations, or convincing every bitcoin user in the world to move to decentralized exchanges. Our only option left is to improve the fungibility of bitcoin at a protocol level.

True, but we still haven't reached a point where the acceptability level of this currency is high enough. There are many limitations, and they depend on how crypto-friendly the place you find yourself in is. When we reach a point where I know that I can ask my counterparty if he accepts bitcoin, and he will happily take it in the same way he would accept cash or a credit card from me, I would be happy with the results. We can only measure the true value of an asset by how accepted it is in any situation we are in. The more those odds move in bitcoin's favor, the better it will be.     

I feel like we got sidetracked into discussing exchanges. Although I admit trading bitcoin and making profit has become the only thing that newcomers care about but that is not what bitcoin is made for. Bitcoin was made to be a currency not an asset that you trade on some exchange whether centralized or otherwise. If you use it as a currency none of your arguments stand anymore.

I have mixed more than 0.005 and have paid lots of merchants both online and offline (face to face), even big regulated companies located in US and to this day I have never had any problems with fungibility.
Meanwhile people who have never used any mixing services or received any mixed coins have had their exchange accounts shut down!

I repeat my first post here; I'm not against more privacy in bitcoin but the problem is not with bitcoin protocol, the real problem is with centralization. Even if bitcoin were fully anonymous or if it were like this but 99% of bitcoin users were mixing their coins the centralized exchanges (and others) would still enforce anti-privacy rules. For example the exchange could force everyone to submit how they got their coins and provide a detailed transaction history to the exchange or their account would be shut down and their coins seized.

You can read about Bisq's conflict resolution process here:
https://bisq.wiki/Dispute_resolution
https://bisq.wiki/Arbitration

Bisq uses a 2-of-2 multisig between buyer and seller. At the start of the trade, the bitcoin seller sends the bitcoin to be sold to this address, and both buyer and seller also send a security deposit to this address. They both then sign a timelocked transaction which sends all the coins on this address to a Bisq donation address. If the trade is not completed in this time, and was not able to be resolved through mediation, then either party has the option to publish this timelocked transaction and request for an arbitrator to step in to resolve the dispute. Once the arbitrator reaches a decision, then the deposits and traded coins are sent to the appropriate parties, with the possibility of the offending party losing part of all of their security deposit and it being awarded to the other party. I've never had to use arbitration on Bisq before.

Other DEXs have different mechanisms.

That! People tend to blame centralized exchanges for their differentiated behavior regarding fungibility, but they can't do otherwise! For instance, if they receive some hundreds of bitcoins which were recently stolen from a company, they'll be reproached. They ought to be 100% fine with the law.

The problem can only be solved by implementing a protocol change.

I've never traded from a decentralized exchange and I'm trying to understand its functionality. So, you setup a 2-of-2 multisig and deposit your BTC there once you want to sell for, let's say, XMR. Since it's decentralized, there's no third party neither nodes that will operate your transactions, such as on the lightning network.

How will you ensure that your buyer won't rip you off? I've read bisq, but it doesn't describe that little part last time I checked and I was wondering if you guys could give an explanation.

I completely agree, but I'm also not sure such an exchange will ever exist. It is simply not possible to make a decentralized bitcoin-fiat exchange, which by definition requires users to back up their own wallet, browse offers or post their own, and deal with the slowness of the fiat banking system, which is easier and faster to use than a centralized exchange. The sad fact of the matter is that the vast majority of users simply don't care that centralized exchanges invade their privacy, track all their transactions, report them to governments, and seize their coins. All they care about is YOLOing in to some stupid altcoin for a quick buck. It is unrealistic to say "Well, privacy will be better once we convince everyone to stop using centralized exchanges". As much as I wish everyone would stop using centralized exchanges, the only way for that to happen is if centralized exchanges cease to exist. If we want better privacy, and if we want bitcoin to remain fungible, then we need to implement change at a protocol level.

I've never had a problem yet with having bitcoin refused or seized, but I also don't use any centralized exchanges. However, to say I am not concerned about this kind of privacy invading behavior spreading to merchants and affecting me in the future would be a lie, especially with the news of mining pools now excluding so called "blacklisted" transactions. The day I can't spend my bitcoin without completing KYC is the day I trade all my bitcoin to monero, I'm afraid.

This is a reply to pooya87's replies from the other page of this topic.

Realistically, we can not convince a majority to move to a new experience all of a sudden.  Convincing a verified user to move from a Binance verified account to Bisq is a burden and will realistically not work unless a version of Bisq fast enough, better than Binance in liquidity, technical specifications user-friendliness pops up.  Also, even if a very user-friendly exchange comes to surface anytime soon, how many people do you think would leave an exchange with such low fees for a blockchain that gets congested and such a significant variety of sats/vByte every day with at least 10 minutes of waiting per trade?  I am using Bisq pretty often myself, however I rarely get good rates or liquidity without moving very large sums.  And then, the trade takes so long it sometimes gets annoying.

Centralized Exchanges will not disappear.  In fact, they will likely grow even larger than they are today.  In consequence, if we make Bitcoin more private, we will know for sure which exchange values our privacy and which doesn't.  o_e_l_e_o is more than right.  Realistically, users will always prefer a two-minute account setup over writing down words on a paper, downloading software on their smartphones or personal computers and then assuming the risk for every single action of theirs.  Centralized Exchanges have Customer Support and offer you much simpler details than a Decentralized one would.  Also, try convincing a majority that Decentralized Exchanges are better when all they see on Google News spotlights is articles talking about how much supposed illicit activity there is on there.

I rather think the problem lays in Bitcoin's protocol and not in the existence and usage of Centralized Exchanges.  As mentioned above, if the majority verifies their identity on Centralized Exchanges and they do not have a problem with platforms seizing our funds, then I as a privacy advocate do not have a right to privacy no more.  As a consequence, I am being told that I can achieve the desired privacy with Bitcoin but on my side it gets much more difficult than it sounds.

I can not call this fungibility when you are allowed to deposit your 1 Bitcoin on a Centralized Exchange and be allowed to trade and withdraw it freely while I am always afraid that my Chip-Mixed or Coin Joined Bitcoins are going to be seized anywhere I go, be it stores or exchanges.  Around the forum there are way too many people who mention how easy it is to gather privacy with Bitcoin and only a few real examples of it working as mentioned.

Here is one challenge: try to deposit at least 0.005 Bitcoins coming directly from Coin Join outputs on three different centralized exchanges without getting your funds seized or questioned on any of the three exchanges.  Anyone who is using Wasabi or Samourai knows this challenge can not be won.

Bitcoin is not fungible anymore and whoever says otherwise is wrong.  Furthermore, the situation above forces me to move on to Decentralized Exchanges and private cryptocurrency blockchains.  A while later, the same ones who earlier told me that achieving privacy is easy calls out Monero and Bisq for having an increasingly large volume and number of users, exploding in a said illicit activity I am now apparently part of.  Privacy is so easy to achieve, eh?

-
Regards,
PrivacyG

But then you are no longer decentralized, since there is a third party (the escrow) who has complete control over your coins. The advantage of a platform such as Bisq or LocalCryptos is their non custodial escrow set ups: 2-of-2 multisig between buyer and seller in the case of Bisq, and a locking script requiring codes from both buyer and seller in the case of LocalCryptos. The only way to cut this out altogether is to trade directly with another person, which is fine if you know and trust them, but often that isn't the case. I don't see how a fiat supporting DEX wouldn't become a haven for scammers if it had no escrow.

You're probably right because I'm not good at reading Java but the "seed nodes" and the way they are being used all over the code always seemed to me like servers that aren't just used to find peers but also to coordinate trades (so they receive all trade information).

For trading with fiat, sure. But that should require and escrow fee not an exchange fee.
For trading with cryptocurrencies however this additional fees shouldn't exist.
This also proves the existence of the centralized servers that you connect to and are fully aware of all your trades (is not 100% P2P, there is a middle man who knows everything).

Well, it will be interesting to see what they manage to come up with. As I say, I don't follow the project, but please keep us updated if they make any changes or announcements. I'd be very keen to check out whatever they implement, especially if they do manage to implement decentralized and peer-to-peer fiat-to-crypto trades without requiring KYC.

Bisq doesn't have centralized servers. The software that you run connects peer-to-peer directly to other users over Tor. I'll concede the point about the middle man and fees, though, although I'm not sure how you eliminate them when one side of the trade is using fiat. The only way I can see is if you place complete trust in the other party to release the bitcoin after they have received your fiat payment.

This would be the ideal world. It is easy to do when trading between cryptocurrencies, but how do you do it when one side of the trade is fiat? Maybe there will be a way to trustlessly swap between bitcoin and central bank digital currencies in the future, although I doubt very much that governments are going to like or permit that.

Bisq is probably the most decentralized exchange but it is not truly/fully decentralized.
In a fully decentralized exchange (just like a fully decentralized cryptocurrency) there is no server to connect to and there is no middle man who receives exchange fees (Bisq doesn't check these boxes).
Instead everything happens 100% peer to peer where traders connect to each other and execute scripts (smart contracts) that ensure their safe trade and the only fees they end up paying are the transaction fees (whether it is on-chain or on second layer like lightning network).

I don't have any links with more information but I can see that Fiat option is coming soon in their desktop wallet, like you can see in screenshot I made below.
Not sure how all this will work in real life situations, but I saw that Visa Payment Solution Gleec made partnership with them few days ago.

I've never used AtomicDex because I don't have any interest in the vast majority of altcoins, but it certainly looks like a nice design. Can you provide any links I can read about them adding fiat support though? I quick search of their website, github and subreddit doesn't turn up anything relevant.

It will be used as a base layer, alongside bitcoin. Bisq has supported other base layers in the past, such as LTC and Doge. You can read the relevant github discussion here:


See also:

I am following AtomicDex project, there is no website to use, just download wallet for atomic swaps between Bitcoin with bunch of other altcoins, and they are going to add Fiat trading soon.
Let's see how that works in real life, but it looks very simple to use, there should be no kyc verification, it's much simpler to use than Bisq and there is no need for Bitcoin security deposit.

As I said Liquid (that is not decentralized) will be used as base protocol and Bitcoin main chain will only be used as alternative option.

I know, but that's kind of my point. Any DEX is going to be inherently more complicated to set up and use than a CEX where you can just create an account and hit "buy". The method to getting more people using DEXs is to address that imbalance rather than just create more DEXs. I'm kind of out of the loop here because I've only ever used DEXs and I've used them for so long that they just second nature to me now. What are the biggest hurdles to a newbie using a DEX for the first time? How do we address that?

They are implementing support for it, not moving to it altogether. Bisq as it exists currently will continue to exist and still function as it does (and actually with some improvements to the high fees you mentioned by reducing the number of on-chain transactions required): https://twitter.com/wiz/status/1385980688428507143

I should clarify when I'm talking about DEXs I'm talking about DEXs which allow trading between fiat and bitcoin (or some other cryptocurrency). Bitcoin to altcoin trades are easy to perform in a decentralized and private manner.

Bisq exchange is far from perfect, people need to have Bitcoin security deposit to use it and is it almost unusable when fees are high, not to mention they will soon move to fully centralized Liquid blockstream as their base protocol.
Dex exchanges can actually work very well as we saw in case with other altcoins despite high fees, so we know it's possible for people to switch from centralized exchanges to dex.
There is nothing bad in having a competition with more dexes or improving something and making it better, since this is opensource space afterall.

I don't disagree with that, but we already have Bisq, which fulfills all those criteria and is truly decentralized. Adding more exchanges doing the same thing will only serve to spread the already low DEX volume even more thinly. Bisq can be used by anyone, at any time, anywhere in the world. Adding more DEXs doesn't solve the issue of people not using them.

I don't disagree with this, but it mirrors the old fiat v bitcoin argument. How do you get people to start setting up their own wallets and storing their own keys when they are so used to just swiping a bank card and having a bank deal with all the complicated stuff? How do you get people to start running their own Bisq client and setting up their own trades when they are so used to just hitting "buy" and having a centralized exchange deal with all the complicated stuff?

Using a DEX is, by definition, always going to be more complicated than trading on a CEX, and it can only be simplified so far.

Did you check XMR in the last years, or you've just read some extremely old news on this?
Monero has GUI wallet for quite some time and I find it super friendly. I've even looked up a guide for you, which, although it has the images in Spanish, I think, can give you quite a good idea.



For years people were expecting institutional investors come and put their money into Bitcoin. Now they have come. Banks are inevitable in this.
But the devs are just fine. They did well and they know that community has to also consent the changes, else chaos can come out i.e. a lot of forks.
On the other hand, LN is seen by many as a way too big step towards centralization, so the future won't be all nice and shiny. Still I think that LN can be more private than on-chain tx.


This is off-topic, but I'll answer:
It's known fact that 2/3 of mining is OK. And the rest of the miners will most probably don't care. All in all this is a strangely weak PR move and basically that's all.

I agree but the problem is not with lack of DEX it is with lack of good truly decentralized exchanges. What we have right now is either not decentralized at all (despite being called that) or is partially decentralized and using it is a hassle.
So we first need to make them 100% decentralized and then we have to improve the user experience so that they could use it just as easily as they use CEX.

We circled back to the root of the problem which is centralized exchanges are the problem, and also treating bitcoin as not-a-currency otherwise there is nothing more tainted that fiat, specially certain fiats such as US dollar and yet everyone is happy accepting it even though they could get in trouble accepting "dirty money"!

XMR needs to get it's UX/UI better and I think it would have serious potential.  It's just too much of a pain to transact with for the average Joe who has little-to-no tech skills.  It's a great piece of tech though.



One thing that's for sure is that the tentacles of the trad banking system are going to try to wrap themselves around BTC more and more in the coming years.  I just hope the devs and people working on BTC are aware of that and thinking about what adjustments or upgrades the protocol might need in order to maintain it's initial vision of sound money outside of any centralized control.  Saylor even hosted a meeting with Elon and N. America BTC miners to try to move towards a "greener" mining opperation.  https://twitter.com/michael_saylor/status/1396915801492439044?s=20

Bitcoin is not fungible. There is already a pool that only mines "clean" transactions. Of course, it doesn't matter much yet for its small hash rate and the only block I know they've mined was not perfectly "clean" too (by their rules), but it can be a dangerous trend for 5 or 25 years from now.
Monero is fungible, hence it's a problem for governments and it faces a lot more barriers Bitcoin had. It's still difficult to foresee what will its future look like, if any.

We can add as many DEXs as we like, but if people continue to be happy to sacrifice their privacy and security to centralized exchanges then it achieves nothing. We need to move the users, which is a very difficult thing to do. And if you want CEXs to stop spying on you then you need to stop the government from demanding that CEXs spy on you or be shut down, and you'll have an easier time brute forcing Satoshi's keys than you will convincing the government to stop their mass surveillance programs.

At the moment, maybe. But at any point, merchants/traders/other users could decide that cashing out "tainted" bitcoin via an exchange is too much of a risk and so they will only accept "clean" bitcoin.

Every single thing you said here are the problems with centralization which bitcoin set out to eliminate not to mitigate. Have we already forgotten why bitcoin was created?
Also we should solve the actual problem where it exist not somewhere else. For example if centralized exchanges are discriminating then we should solve the actual problem by either replacing CEX with DEX or adding more CEX that don't do the same thing maybe in other jurisdictions so that those CEXes that discriminate lose business and lose enough money to either have to shut down or be forced to change their rules.
That also doesn't change anything about bitcoin's fungibility as a currency. 1 bitcoin is always 1 bitcoin whether it is virgin coin, mixed coin or a "regular" coin when you want to use it as a currency not in some centralized service like for trading.

First of all any country that sees bitcoin as illegal sees all cryptocurrencies as illegal.
Secondly monero's usage and adoption is far less than bitcoin so it should also be less on their radar for discrimination.

When responding to the two articles in the OP, this is really the correct answer. The referenced articles are talking about mandatory reporting of transactions (deposits/withdrawals) exceeding thresholds to the government for the purpose of enforcing tax laws. Making on-chain transactions private will not result in more privacy. If anything, it would result in more mandatory reporting by exchanges, having a net effect of reducing privacy.

Exchanges have vast amounts of data on their customers bitcoin holdings. Taken with data from other exchanges, someone could probably deduct who owns the majority of addresses.

Privacy is a “virtue” that is nowadays omitted. Its violation is being taken for granted. What people don't get is that the more privacy shouldn't be bringing fear, at least not from the government. It's the relation between the people and the government that forms this bad-shaped opinion.

Bitcoin/Monero/Tor wouldn't destroy a healthy functioning state. It's already working unhealthy and Monero is a way for people to actually escape from the whole system. Bitcoin did it and it's being censored a million times in the past. Having a block chain that operates completely equivalently for each unit is a genius move. I don't want to offend the guy behind Bitcoin, but this is actual cash. I won't be surprised if Monero reaches in the triad by market cap.

I didn't know that they do that for coinjoins too. Now this is getting serious...

Bitcoin is already not fungible for the exact reason you point out - some exchanges and other centralized services will lock accounts and freeze deposits if the coins can be traced to darknet markets, coinjoins, etc., despite having no idea if the coins were in the possession of the user depositing them at the time. It is possible to sell "virgin" coins at a premium.

I have never experienced an issue with this, despite all my coins being mixed, coinjoined, or otherwise obfuscated, as I simply refuse to use any centralized exchange or service, or use a payment processor such as BitPay which discriminates against certain coins. I'm under no illusion that this will last forever though. If the merchants I use want to use a centralized exchange, then they won't want to accept my "tainted" bitcoin either, regardless of how stupid the blockchain analysis which "tainted" them in the first place is.

With some mining pools now only mining "whitelisted" transactions, we need more on-chain privacy urgently, before "tainted" bitcoins won't be accepted anywhere, can't be sold, or maybe even can't be moved at all.

I see your point, but it makes the problem even worse.  Bitcoins coming from anonymous sources like obfuscated Bitcoins from a Coin Join are seen as bad coins already.  If virgin coins are banned too, it gets even worse and Bitcoin is definitely not fungible anymore!  Are exchanges not discriminating even today by banning anonymous coins from entering the markets?  Anyone visiting Binance, Bittrex, Kraken or any other Centralized Exchange today and depositing a Coin Join output will have their assets seized immediately with no rights of ownership for them unless they provide personal documents.  If you deposited a transaction from a regular person's wallet however, you would have no issues depositing and withdrawing.  The discrimination is already here.  While for you one Bitcoin equals one Bitcoin, for centralized institutions and exchanges it does not anymore.

Is the Bitcoin protocol providing enough privacy?  Most transactions successfully get debunked through blockchain analysis.  Besides, the average user will either not have enough knowledge about Bitcoin privacy or enough time or care to keep their privacy at a constant level.  Staying private with Bitcoin requires a lot of attention and timespan many users can not afford.  As long as the majority of users will not care anyway, I will never have my promised privacy.

The discussed issue goes even deeper.  The less privacy we will have, the more discrimination there will be and in consequence the closer towards black markets anonymous coins have to move.  If there is no room for anonymous coins on normal exchanges anymore, black markets become the norm.

Moreover, I see this Monero argument everywhere around yet I do not understand it.  Monero has probably been deemed illegal on less markets and in less countries than Bitcoin.  Do you think having more privacy is that bad or why does almost everyone seem to hate or be scared of the idea of having privacy nowadays?

Also, I honestly believe the best petition against unreasonable governmental laws is Monero.  And by Monero, I mean private transactions they cannot debunk.

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Regards,
PrivacyG

If a government wanted to discriminate it wouldn't make any difference if your coins were mixed or not. They could even do it for virgin coins (freshly created coins in a coinbase transaction, ie. the block reward).

Same thing here. The centralized place could be under pressure by government to make anon coins (such as Monero) illegal and anybody who has ever deposited these coins in their account in the past would be under discrimination.

The solution to problems you are describing is not changing bitcoin protocol that is working fine and is providing enough privacy. The solution is avoiding centralization and petitioning your government about their unreasonable laws.

Bitcoin for sure lacks a privacy layer even if part of the most well-known Core developers have previously looked into this issue many years ago.  Bitcoin users nowadays seem too scared of a government blockage to adopt a privacy layer, trading privacy for short term profit.  My gut feeling says we should either get privacy straight inside Bitcoin's Core functions or we do not at all.  And my gut feeling also says that we will likely never get a privacy layer as a consequence of Bitcoin users fears.  Solutions such as the one proposed by Wasabi or Joinmarket are fine, but they are temporary solutions only.

I saw a lot of users on Bitcoin Talk reply that Wasabi's Coin Joins and Chip Mixer are proper solutions someone can hang on to but I strongly disagree.  Without default privacy, it is easy to separate non private from private users and discriminate them by considering private users money launderers or terrorist funders.

Deposit your mixed coins on a Centralized Exchange and you will be asked for documents.  Deposit Monero instead and they will probably not.  I am saying this according to my personal experience and it is bad.  You can not put the equal sign between two Bitcoins anymore, which is very concerning.

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Regards,
PrivacyG

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With reference to the above, UTXO selection only works to segregate your identity. It helps the user to maintain multiple identities but it also makes it easy for someone to track a user through its individual identities and make connections using one way or another. This provides at most a mediocre privacy improvement and is by no means a high level of privacy.

Is there just one way to achieve absolute privacy, I did not also mention absolute privacy, I only mention high level of privacy. Also I made mention of wasabi wallet that CoinJoins and also Mixers to achieve high level of privacy while in addition using coin control which can still help while maintaining privacy.

You cannot achieve absolutely privacy with coin control. Doing so allows you to separate the UTXOs and avoid linking addresses together but it does not in anyway helps the user preserve their privacy. Transactions can still be linked, change addresses lowers the degree of confidence in terms of its association but in no way will it improve on privacy. CoinJoin and mixers are your best bet at it but there is always a chance of them compromising your privacy, either intentionally or unintentionally as well. Electrum is notorious for having mediocre privacy features and should not be used if you really care about it.

Having transactions that could be linked together defeats the purpose of having any privacy; any compromise along that chain of transaction will reveal your identity.

Can it be done? Sure. Look at Monero for example. Will it be done on bitcoin? I suspect not. Most people in the community these days actively welcome government regulations and control if it means a short term boost to the price. The same people are happy to trade their KYC documents for an airdrop of some worthless shitcoin.

Although KYC obviously identifies you immediately, there are plenty of other ways to lose your privacy and be identified. IP addresses and browser fingerprinting can link your real identity to bitcoin activities, blockchain explorer look ups, transactions, etc. There are operating systems and browsers which track all your activity and report back to their manufacturers. Giving out a physical delivery address when paying by bitcoin. Not using encrypted communication channels when sharing a deposit address or discussing a trade with someone else.

If the addresses and other identifiable sources and destinations of transactions are already pseudonymous, the only way you're going to be able to identify who is doing all this is with documents.

Without documents the only conclusions you'll be able to make are things like "someone moved an old 2011 address", "someone moved a 1000BTC address", etc. All of these anonymous techniques become useless for people who willingly verify themselves to a custodial service!

While i want to see more privacy features and privacy layers on Bitcoin, the problem mentioned on the news can't be solved by technology. The proposal will be applied to any legal business/service which uses cryptocurrency. For this case, lobbying to make regularization about cryptocurrency less strict is more practical.

As for improving Bitcoin privacy/anonymity from technological side, other member already mention it. However, i doubt it'll be implemented since it'll increase burden on Bitcoin node while Bitcoin community still think 1 MB 4M weight units block size limit is sufficient and reject past proposal which increase block size limit.

Unfortunately people use these terms interchangeably all the time. Only a handful of people here know the actual difference.




A wallet which leaks tons of confidential information shouldn't be used to preserve your privacy in the first place.
While you definitely can increase your privacy with electrum, it requires quite some effort. There are better alternatives available (Core, Wasabi, ..).
Basically any wallet which doesn't send a random server all of your addresses is already better in terms of privacy.

Privacy is not the same as anonymity, people should not get this confused, you can use Bitcoin and have your privacy. Wasabi wallet that CoinJoins and Mixers can help in achieving high level of privacy, but did you still know you can use electrum to achieve high level of privacy? Just make use of coin control, coin freeze, address freeze and many other features in a way you can have high level of privacy, and if you are not yet satisfied, you can make use of mixers. Bitcoin can be used in a way all my transactions can although be tracked on blockchain but can not be linked to me.

Privacy is very important and one of the basic human rights and Bitcoin must have better privacy in future maybe with some second layer, sidechain or code upgrade, maybe even lightning network can be used for privacy.

I am always looking for interesting new projects and I found something called zCash Sidechain using BIP300, zSide and Melt/Cast for making fully anonymous transaction.

One more interesting project I am currently testing is Mercury wallet that is still in early development and it is using something called coinswaps on layer two statechain that enables transfering of private keys without any on-chain transactions.

It's more of a "we haven't thought about it" stance given the abundance of mixers and Tor nodes. I don't think anybody seriously contemplated adding an entire layer (think LN, or Liquid) on top of bitcoin for this.

Layers are optional parts of the network and thus only fully work if everyone is using it. If you have a percentage of people not using the layer then the layer won't be fully effective. And for a layer that's supposed to implement privacy you'd need a very high adoption %.

Mimblewimble offers much improved privacy *along* with scalability benefits.
While transactions are admittedly larger (~1.6KB for 2-input 2-output), they leave only a small ~100 byte footprint on the historical chain, since all spent output data can be completely pruned.

What is the main argument by the community not to provide an additional layer of privacy onto Bitcoin?  There've been scaling improvements, fee cost improvements, and some small privacy improvements (coming soon).  I assume the technology is available to add additional privacy to the protocol through zk proofs or something of the like.

Use Tor, use mixers, use Bitcoin Core. Important to note that your privacy leak may or may not be related with Bitcoin.



No such thing as anonymity in Bitcoin, even if the users were to be careful with their activities, it would be the best to assume that Bitcoin is pseudonymous at best. There are far too many possible privacy leaks with users even if they were careful enough; potential spy nodes on the network, possible leaks through mixers with their heuristics, etc. Bitcoin was never really designed to provide anonymity from the start and all the current implementation only helps to maintain the privacy of the user.

As mentioned, CoinJoin, mixers all helps with the privacy. Confidential transactions has been proposed as well, which helps with privacy but at the expense of higher resource requirements.

Great post.

Are there any other options outside of just staying off of exchanges/avoid KYC.  Any resources or articles to better protect your privacy while using BTC?

This depends on your definition.

There are privacy-enhancing technologies available such as CoinJoin and Reusable Payment Codes (BIP47).
Both used together with a lightweight client which does not leak crucial information (so not using electrum for example) but a wallet implementing Block filters (e.g. Wasabi) your privacy can be significantly increased.

Whether that is enough for you, depends on your definition of privacy. You won't get anonymity tho.

By representing bitcoin ownership only in terms of public/private keys, transactions on the bitcoin network by themselves are already private and pseudonymous.

The problem comes when all the exchanges which give you your own address, and debit card & IBAN suppliers want your documents and this is something beyond what the bitcoin network is able to stop. If you look at privacycoins like Monero, they aren't even listed on some IRS-compliant exchanges such as Coinbase because of the inability to track address usage.

It's really difficult to anonymously cash out your bitcoin, or move it to banks or cards, I can tell you that. I guess that's why there's a ton of grey-area services for buying prepaid cards whose funds can be moved to those places.

It depends on how you an dealing with your bitcoin, if you learn about privacy and how to maintain privacy while using bitcoin, you will then realize that Bitcoin is not a privacy-depriving coin. You can have your privacy.

The normal way Bitcoin transaction do works is that the transaction are not linked to individuals but can be tracked/traced on blockchain.  If you have your privacy, use Bitcoin in a way people will not link your Bitcoin transactions to your real identity, only the Bitcoin will be seen on blockchain but no one can be able to trace it to you. Is that not privacy enough.

But, nowadays, people like to make use of centralized exchanges, fill in their personal information, if there is a data breach on such exchanges, will the Bitcoin not be linked to the users? It would definitely be linked to the users. If use Bitcoin on decentralized platforms, and use noncustododial wallet, able to make use of your coin control and spend wisely, making use of mixers. If you know all these, you will know Bitcoin can be used in a privacy way.

About the links above, know that bitcoin can be bought directly (direct p2p), it can be bought on decentralized platforms like Bsiq and Hodlhold. It can be hard for someone to do this the first time, but it is what to be done for privacy reasons.

https://www.msn.com/en-us/money/markets/the-us-treasury-wants-every-crypto-transfer-larger-than-10000-to-be-reported-to-the-irs/ar-AAKcIRu

https://www.msn.com/en-in/money/topstories/why-government-shouldnt-delay-cryptocurrency-regulations/ar-AAKeI1V

Bitcoin is the greatest form of money humanity has created.  It has a monetary policy second to none.  But it is missing this one crucial component that is an essential human right and even more necessary today than it was a decade ago, privacy.  I'm curious if privacy can be done in a way such that it protects the identities of the transactions (both in terms of btc address and personal identity) while still preserving the open-ness and transparency of the current system?  Also what is the consensus of the BTC community on implementing this?  I've generally heard the commumity/devs don't find it necessary.