How to Increase Your Bitcoin Privacy: A Beginner's Guide
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Privacy is one of the key requirements if you want to enjoy all the benefits of Bitcoin without compromises and become a truly sovereign individual.
As global financial surveillance is growing and being normalized both in traditional finance and the Bitcoin space, you can use an increasing number of tools to strengthen your privacy, and, subsequently, protect your BTC and yourself.
In this guide, you’ll find out why Bitcoin privacy matters and what seven measures you can use to enhance your privacy on your path to becoming a sovereign individual.
Why Does Bitcoin Privacy Matter?
Bitcoin privacy matters because it increases the security of your funds and your personal security.
The fewer people or institutions that know how much BTC you have, how you’re storing it, and how you’re using it, the safer you are. This becomes even more important in a world where financial surveillance is on the rise.
If someone knows that you have a large BTC portfolio, this makes your wallet and yourself lucrative targets. This knowledge can also be abused by governments, for one reason or another, seeking to confiscate your funds. Meanwhile, if a government can trace your BTC transactions and is not happy with how you’re using it, for example, by supporting an opposition party, you might end up with law enforcement knocking on your door.
While there are many other situations when BTC privacy is crucial, the great thing about Bitcoin is that there are different tools and methods to enhance your privacy further and protect your funds and yourself.
Read on and learn how you can become safer and, therefore, more sovereign.
7 Best Practices to Ensure Bitcoin Privacy
Your Bitcoin privacy begins with how you get your coins and, next, how you’re using them, which includes how you’re storing BTC. Here are Bitcoin privacy practices that’ll help you in all of these stages.
Get Non-KYC’d Bitcoin
While most people are buying BTC on regulated centralized exchanges, leaving their sensitive personal data, which has been repeatedly leaked or requested by government institutions, there are more private ways to get your bitcoin.
For example, you can use non-KYC platforms. Also, being paid in BTC can help improve your privacy, while the most private, yet the most complicated, way to get your BTC is via mining, including solo mining.
Store Your Coins in Self-Custody
By storing your BTC in a self-custodial wallet, such as an air-gapped wallet, you’re making it harder for sneaky third parties to tie your portfolio to your identity and, in turn, tie all the transactions to you.
If you were to leave your bitcoin on an exchange or trust a third party, you would not only hand over control over your funds but also enable them to surveil all your incoming and outgoing transactions.
Moreover, by having your BTC in self-custody, you can also benefit from additional features that can enhance your privacy.
Use New Addresses for Each Deposit
One of the next best (and easiest) things you can do to enhance your Bitcoin privacy is to always use a new address for receiving BTC.
This drastically reduces the risk of someone figuring out how much bitcoin you have in total, as every deposit would be held in a separate address, controlled by your wallet.
Otherwise, a bad actor would only need one address to find out what’s in your portfolio. However, Bitcoin developers have also introduced so-called Silent Payments, which allow you to use the same address, for example, for donations, tips, or other payments, without hurting your privacy. This feature is only starting to be supported by Bitcoin wallets.
Speaking of BTC addresses, learn the difference between existing Bitcoin address types, such as Legacy, SegWit, and Taproot. The latter, which is the latest, yet least supported BTC address, that starts with “bc1p,” offers the best privacy protection, compared to other addresses.
Learn UTXO Management
Related to the previous practice is the UTXO management, which is essentially about how bitcoin is stored in your wallet. While one of the main purposes of learning how to manage UTXOs is to save on transaction fees and make sure you can spend your BTC in the future when transaction fees are expected to increase sharply, it also helps with privacy.
For example, the UTXO system allows you to choose which BTC inputs, or ‘coins’, to use for a specific transaction, which is also referred to as ‘coin control.’
Let’s say you’ve received BTC from a regulated exchange and, separately, won the 3.125 BTC block reward while solo mining. Therefore, if you’d manually pick the KYC’d bitcoin from the exchange for your transaction, someone could be able to tie it to your identity.
Alternatively, if you want to preserve your privacy while sending BTC, you’d be safe by selecting the UTXO you’ve received as the block reward.
Also, keep in mind that when consolidating your UTXOs to save on transaction fees, avoid large UTXOs, as this increases the chances of someone finding out how large your BTC portfolio is. Especially if you mix KYC’d bitcoin with your ‘private’ BTC.
Use Privacy-Enhancing Wallets
Many self-custodial Bitcoin wallets have extra privacy features built in, such as the ability to connect to a Bitcoin full node and use the privacy-enhancing Tor network.
However, some wallets offer even better privacy features, such as the more established CoinJoin solution and emerging techniques such as PayJoin and CoinSwap. All these protocols are designed to, one way or another, combine multiple UTXOs to obfuscate transaction history, making it extremely difficult or even impossible for blockchain surveillance companies to track your transactions.
Each of these methods has its pros and cons. For example, blockchain analysts can still identify whether BTC underwent the CoinJoin procedure, while the PayJoin transaction looks just like a regular bitcoin transaction. However, wallets only starting to support PayJoin, which, at this stage, also requires more technical know-how.
Run a Bitcoin Node
Running a full Bitcoin node is another great privacy measure to protect yourself against surveillance, as it gives you full control over your BTC, and you can be sure that what you see in your wallet is what it contains. Subsequently, no third-party wallet provider will be able to track your funds.
Even non-custodial wallets use their own nodes to verify and broadcast all transactions, which requires a certain level of trust when using their services, as you become vulnerable to potential on-chain analysis.
While this could be fine for most of the BTC users, if you set up your own node, you reduce the risk of that surveillance and control even further.
Utilize VPNs and Privacy-Enhancing Browsers
While not directly related to Bitcoin, general online privacy measures, such as VPNs (Virtual Private Networks) and privacy-enhancing browsers, can also help protect your funds and yourself.
We already mentioned the Tor network, which is the backbone of the Tor browser that allows you to anonymize your digital footprint.
Another tip: don’t use public Bitcoin explorers or Google to search for your own BTC addresses, as this might also compromise your privacy. If you run a Bitcoin node, it has its own explorer, which is safer to use.
Learn How to Enhance Your Bitcoin Privacy From The Bitcoin Way
While there are multiple techniques to strengthen your Bitcoin privacy, there is no one-size-fits-all solution as everyone might have different needs.
For example, if you’re just holding BTC you mined a long time ago, your privacy measures might look different from those needed for someone who’s actively transacting in bitcoin.
In either case, The Bitcoin Way is ready to help you. Our team has extensive experience in Bitcoin privacy, self-custody, and personal cybersecurity. If you’re looking for a more hands-on approach and help to enhance your Bitcoin privacy, book an appointment with us, and we’ll help you find a solution that works best for you.
FAQs
How do I make my bitcoin private?
To make your bitcoin private, begin by acquiring non-KYC’d bitcoin, for example, on peer-to-peer platforms, and then make sure you’ve implemented best Bitcoin privacy practices. This includes self-custodying your bitcoin, using a new address for every deposit, learning coin control, and using privacy-enhancing wallets. Additionally, you can look into running a Bitcoin node and use general privacy enhancement tools such as a VPN or a privacy-enhancing browser.
What is the best way to protect your bitcoin?
Arguably, one of the best ways to protect your bitcoin from third-party-related risks is to hold it in a self-custodial wallet, ideally a hardware wallet. Moreover, it also helps improve your Bitcoin privacy, while hardware wallets reduce the risk of being hacked. In either case, to properly secure your BTC portfolio and yourself, you would need to learn multiple self-custody, privacy, and personal cybersecurity techniques. An experienced Bitcoin consultancy, such as The Bitcoin Way, can be your guide in finding the best security solution for you.