Everyone considers cryptocurrency to be safe and private, especially Bitcoin. But maybe you should think again...
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As the oldest and best known cryptocurrency in the world, Bitcoin has had many ups and downs since its invention in 2008.
The volatility of the crypto market aside, those advocating for Bitcoin have always claimed that it offers what fiat money cannot: privacy and security. But that's not really true. In reality, Bitcoin is not nearly as safe and private as many believe.
Why Bitcoin Is Not Private
Bitcoin does offer certain privacy protections most forms of fiat money do not, like the creation of addresses that are not tied to one's identity. But it is far from private. Here are three main reasons why.
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 that anyone with access to the blockchain can view all the transactions associated with a particular Bitcoin address. If someone—be it a threat actor or a law enforcement agency—were to link your Bitcoin address to your identity, they'd be able to trace every transaction you ever made.
2. Third-Party Services Are Necessary
Bitcoin relies on third-party services. For example, if you want to buy Bitcoin, you need to sign up to an exchange. The vast majority of exchanges require users to verify 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, imagine if it suffered a data breach.
3. Bitcoin Is Vulnerable to Government Surveillance
Bitcoin has always been popular among 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: surveillance does too. Law enforcement agencies have adapted to this new reality fairly quickly, and now engage in blockchain analysis to de-anonymize Bitcoin users and trace 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 revolves around literally mixing your Bitcoin with that of other people, thus obscuring its origins.
There are two types of Bitcoin mixing services: centralized and decentralized mixers. Centralized mixers are not really a solution, because many keep users' mixing logs. Decentralized mixers are better when it comes to privacy, but they are not without their flaws either. For a start, they don't fully protect against blockchain analysis.
Then there's also the issue of legality. Bitcoin mixers are not explicitly illegal in most countries, but they have attracted the atte
ntion of government regulators and law enforcement. For example, Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian E. Nelson, said that mixers "pose a threat to U.S. national security interests," while both American and European regulators have made an effort to compel exchanges to ban mixed assets.
You won't necessarily get in 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 enhance your privacy is use a different Bitcoin address for every transaction. This can be achieved with non-custodial crypto wallets. Other than that, you should also consider using different wallets and switching them up as often as possible. In any case, protecting your privacy when using Bitcoin requires 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 enhance 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 nearly impossible for third parties to gauge information about transactions or access sensitive information. Here are three privacy coins to 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 wallets that are only used once. In combination with other privacy mechanisms, this makes it incredibly difficult for observers to decipher addresses trading Monero or view transaction histories.
2. Zcash
Zcash is a fork of Bitcoin, which means 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 utilizes a strong zero-knowledge protocol and uses shield addresses, ensuring that user privacy is protected at all times.
3. Dash
Much like Zcash, Dash is a fork of Bitcoin. It is an altcoin that's faced considerable scrutiny in the past, having been at the center of several pump and dump schemes. Dash protects user privacy utilizing an advanced and decentralized mixing protocol, making it very difficult for third parties to monitor any activity, while also 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 the time being.
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 across the globe have caught up with privacy-enhancing tools, which has made preserving one's privacy even more difficult.
This doesn't imply Bitcoin doesn't have its place in the crypto world—it most certainly does. But if privacy and security are your priorities, you should look elsewhere, and privacy coins have filled this gap. With all that said, regardless of which cryptocurrency you own, make sure you do all you can to secure it.
