How To Best Protect The Privacy Of Your Bitcoin Wallet Address So No One Knows How Rich You Actually Are
Cryptocurrencies are still pretty new. This means that even people who are considered "crypto experts" may fall prey to rookie mistakes. That's what I'm here for.
This may be quite a controversial statement, but I genuinely believe that Bitcoin’s most important strength also happens to be a trap that most people will fall right into.
What’s more concerning is that I (unfortunately) don’t see this specific issue receive nearly as much attention online as it should, which is why I wanted to cover it here:
Bitcoin’s Public Transaction Record Is A Threat To Your Privacy
The Bitcoin blockchain is a public record showing “anonymous” wallet addresses and the transactions that those wallet addresses make.
The problem is that once you use that wallet address to either pay to or receive funds from (i) an individual, (ii) a business, or (iii) a government agency…
…that wallet address becomes identifiable with you.
In other words, that individual, business, or government agency can use the BTC blockchain explorer to track all the transactions you make through that address.
This is a serious privacy concern.
Moreover, it defeats the entire purpose of cryptocurrencies and blockchain technology, which was primarily aimed at facilitating anonymous P2P transactions.
To illustrate the gravity of the issue, consider the following examples:
You’re a consumer who pays for goods/services online with crypto.
Businesses can develop computer algorithms to track the transactions your wallet has previously made, finding out how much money you currently have and what your spending behaviors are like. Data brokers can then use this data to sell to businesses so they can promote specific products to you (similar to ad targeting today, but so much worse) or even sell the same product/service to you for a “higher price,” knowing that you have the means to pay more for it.
You unknowingly make a crypto payment to someone with criminal intent.
That person now knows exactly how much money you have in your wallet, creating a potential threat to your personal safety and wellbeing from criminals.
You run a business that receives crypto payments from a supplier.
Using your wallet address, the supplier will be able to determine your business cash flow and how sensitive your business is to market conditions, potentially weakening your negotiating hand. Furthermore, with enough information, the supplier can determine what other suppliers you do business with.
(a) When Receiving Crypto Payments:
When receiving funds only use wallet clients that offer Deterministic Wallet Addresses, which enable you to generate a new Bitcoin wallet address every single time you expect to receive a payment from someone.
These wallet addresses are all joined together by a master private key.
Your funds will, therefore, all end up in the same place (or, “master address”).
You will not need to store multiple private keys, but only one master private key that provides you with access to all the other addresses that you generate.
This is illustrated below with two BTC accounts. Realistically, however, you can have as many addresses/accounts as you like — all tied to the same master address.
A common misconception is that once you generate a new wallet address to receive funds to, all your “old addresses” become useless. In other words, if you or a friend were to use an old whitelisted address, the funds would be “lost.”
While this is true for some cryptocurrencies, this is not true for Bitcoin or Ethereum.
Any old wallet addresses will still be valid and can accept funds.
Using a Ledger or Trezor hardware wallet is an effective way of doing this.
(b) When Sending Crypto Payments:
This is (admittedly) a little more complicated as it’s harder to send crypto without revealing your identity and private financial information because the payment needs to come out of your master account/address at some point.
Some people recommend using third-party “mixing” services.
Personally, however, I absolutely don’t recommend this as you would be trading in your (presumably? 😉) “clean” “honest” “non-criminal” Bitcoin for tainted Bitcoin, which I expect will cause issues in the very near future.
So, my recommendation is to always use a centralized exchange, like CDC Pay or Binance Pay, to make your payments — rather than sending crypto directly.
By using a CEX to send crypto, the exchange acts on your behalf (similar to how VISA and MasterCard operate). Therefore, your payments will be made through the exchange’s wallet address, rather than your own address.
Guaranteeing that no one will know just how rich you really are…
…or just how poor.
We don’t discriminate here because I love you all — equally.
except the dumb ones who get scammed because they sent their crypto to a “hot girl” on Twitter who promised them a 420,000% return in 69 days… we don’t like those obv
Doctor Crypto Loves You To Bits.