You, as a decentralized person, have probably heard me say that monero is the best privacy tool, not only natively but also one of the best to give privacy to your satoshis (BTC).
Well, today I think differently to some extent. While I still consider monero to be the best privacy project, I can no longer say the same about the effect it has on satoshis as it is technically null.
Let me explain:
Previously I used to share that a private satoshi is one that is not tied to your identity, thus going through monero resulted in a good option. Now from a stricter perspective I consider private a satoshi whose record on the blockchain is not only not sociable to an identity, but also has a hidden past.
The nature of bitcoin is to be transaparent, its blockchain reflects every move made and its past and future can be traced.
When exchanging bitcoin for monero we make a sale. The satoshis you send to the buyer carry your history, this history may or may not be related to your identity, but they carry your addresses, your signature, and everything you have related them to.
The person who receives your satoshis, receives them with your history. It is true that it is not linked to the identity of the person who receives them, but we cannot call them private either, because the blockchain reflects all the past of those satoshis.
If you do the movement the other way around, i.e. you sell monero and receive satoshis, it is the same. You will receive satoshis with a verifiable past in the blockchain, a past not associated with your identity, but that does not comply with being a private satoshi.
So.
Monero is an excellent privacy tool, but its attributes are not transferable, they only apply within its own network. When you make a swap, what you do is an exchange with a random person, which serves perfectly well to dissociate identity, but it does not offer total privacy, but you absorb the history of those satoshis. This history can be from a random user with KYC, to satoshis listed in the blacklist of centralized services.
What can I do to give privacy to my satoshis?
A coinjoin - this is the real privacy tool designed for bitcoin. A coinjoin mixes the unspent outflows (UTXO) of a group of people, and distributes them equally among the participants.
Since the bitcoin blockchain is transparent, the coinjoin will be reflected in it as shown in the following image.
On the left side of the image is the outgoing transaction, on the right side is the transaction that returns the satoshis to your wallet but already mixed. You can see that all the amounts on the right side are the same, that is what makes it a private transaction, because it is not possible to deduce from which of the addresses on the left side each balance comes from.
In case the balance on the left has an associated identity, this is the last point of traceability, because at the output each address is a match possibility.
Is it a foolproof method?
No, there are cases like wasabi wallet, where an internal wallet error caused the transaction to lose privacy, by sending the transaction change mixed with a previously used address. The user could do nothing about it, as this process is automatic.
It is also possible (although exponentially more complicated) that if the coinjoin shows for example 10 exits, someone will follow up on those 10. That is why it is recommended that when doing the coinjoin process you leave it doing several mixes, so the obfuscation becomes exponentially more complicated and it doesn't cost you more.
Finally, the weak point of coinjoin is the user. Any minimal future mistake made with these satoshis, diminishes or completely eliminates the privacy achieved.
Conclusion
Going through monero and returning to bitcoin achieves that the satoshis are not associated with your identity, but you absorb the history of those satoshis.
Doing a coinjoin, obfuscates the traceability of the satoshis by cutting off the history as well as any associated identity.
Both methods need to be complemented with good privacy practices in the management of your satoshis such as:
- Coin control
- PayNyms
- Payment codes
- Navigate through tor
- VPN
- Using self-custody wallets
- Connecting your wallet to your bitcoin node
- Checking the block explorer from your bitcoin node
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This article was originally published by BITCOIN EN ESPAÑOL