As the oldest and best-known cryptocurrency in the world, Bitcoin has had many ups and downs since its invention in 2008.
Aside from the volatility of the crypto market, Bitcoin advocates have always argued that it offers what fiat money cannot: privacy and security. But that’s not really true. In reality, Bitcoin is not nearly as secure and private as many people think.
Why Bitcoin is not private
Bitcoin offers certain privacy protections that most forms of fiat money do not, such as creating addresses that are not linked to one’s identity. But it is far from private. Here are three main reasons.
1. Transactions are public
All Bitcoin transactions are recorded on the blockchain, which is a public ledger. This means that every transaction is public, and anyone with access to the blockchain can see all the transactions associated with a particular Bitcoin address. If someone—be it a threat actor or a law enforcement agency—were to connect your Bitcoin address to your identity, they would be able to track every transaction you’ve ever made.
2. Third party services are required
Bitcoin relies on third-party services. For example, if you want to buy Bitcoin, you need to register on an exchange. The vast majority of exchanges require users to confirm their identity in more than one way. This includes revealing your name, email address, street address and so on. Most will also ask you to submit a photo of a government-issued ID.
And even if you don’t have a problem with a third-party service knowing your identity, you can imagine if it suffered a data breach.
3. Bitcoin is vulnerable to government surveillance
Bitcoin has always been popular with criminals of all stripes, so governments around the world are warming up to the idea of regulating it. But it’s not just regulation that poses a threat to privacy: so does surveillance. Law enforcement agencies have adapted to this new reality quite quickly, and are now engaging in blockchain analytics to anonymize Bitcoin users and track their transactions.
Is it possible to improve Bitcoin privacy?
Bitcoin may not be inherently secure and private, but surely there are ways to protect your privacy when dealing with this digital currency, right? The answer is yes, but there are serious limitations to consider.
One way to protect your privacy is to engage in Bitcoin mixing. Also known as Bitcoin tumbling, this process involves literally mixing your Bitcoin with other people, thereby hiding its origin.
There are two types of Bitcoin mixing services: centralized and decentralized mixers. Centralized mixers are not really a solution, because many keep user mix logs. Decentralized mixers are better when it comes to privacy, but they are also not without flaws. For starters, they don’t fully protect against blockchain analysis.
Then there is also the question of legality. Bitcoin mixers are not explicitly illegal in most countries, but they have attracted the attention of government regulators and law enforcement. For example, the Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian E. Nelson, said mixers “pose a threat to US national security interests”, while both US and European regulators have made efforts to force exchanges to ban mixed assets.
You won’t necessarily get into legal trouble if you use a Bitcoin mixer, but you might – and that’s probably a good reason to avoid them.
Arguably the best thing you can do to improve your privacy is to use a different Bitcoin address for each transaction. This can be achieved with non-custodial crypto wallets. Apart from that, you should also consider using different wallets and switching them as often as possible. In any case, protecting your privacy when using Bitcoin takes real effort, and methods that work today may not work in the future.
It should be noted that crypto enthusiasts are always working on potential improvements and coming up with new ways to improve Bitcoin privacy, but what are your options right now? What is the best way to stay as safe as possible when dealing with cryptocurrency and other digital assets? The answer lies in privacy coins.
Bitcoin Alternatives: 3 Privacy Coins to Use Instead
As the term suggests, privacy coins prioritize privacy above all else. They use advanced cryptographic techniques that make it almost impossible for third parties to measure information about transactions or gain access to sensitive information. Here are three privacy coins you should consider using instead of Bitcoin.
1. Monero
Launched in 2014, Monero is a decentralized privacy coin that uses ring signatures and stealth addresses, or temporary one-time wallets. In combination with other privacy mechanisms, this makes it incredibly difficult for observers to decipher addresses trading Monero or see transaction histories.
2. Zcash
Zcash is a fork of Bitcoin, meaning it shares many similarities with the world’s most popular cryptocurrency. However, Zcash is far more private than Bitcoin because it also enables private transactions. This privacy coin uses a strong zero-knowledge protocol and uses shield addresses, ensuring that users’ privacy is protected at all times.
3. Dash
Like Zcash, Dash is a fork of Bitcoin. It is an altcoin that has come under considerable scrutiny in the past, having been at the center of several pump and dump schemes. Dash protects users’ privacy by using an advanced and decentralized hashing protocol, making it very difficult for third parties to monitor any activity, while enabling instant transactions.
There are several other privacy coins worth considering, such as Horizen, Beam, Verge, Firo, and NuCypher. Still, Monero is by far the best option for those looking for a privacy-oriented digital asset, at least for now.
Bitcoin is not private; Act accordingly
Contrary to popular belief, the technology that underpins Bitcoin is not private. Over the years, governments and regulatory agencies around the world have caught up with privacy-enhancing tools, making it even more difficult to preserve one’s privacy.
This is not to say that Bitcoin does not have its place in the crypto world – it certainly does. But if privacy and security are your priorities, you should look elsewhere, and privacy coins have filled that gap. With all that said, regardless of what cryptocurrency you own, make sure you do everything you can to secure it.
