Is Privacy Going Decentralised? – Bitfinex blog

5 Mins read

Is Privacy Going Decentralised?

Today, we explore the recent developments in the Bitcoin privacy landscape, particularly in response to increasing regulatory scrutiny. With the shutdown of Wasabi Wallet’s CoinJoin coordinator and the emergence of multiple community-run coordinators, the Bitcoin community is witnessing a shift towards decentralised privacy solutions. This transition highlights the resilience of Bitcoin users in preserving privacy and combating surveillance, raising critical questions about the future of decentralised financial privacy in the face of regulatory challenges.

As Wasabi Wallet Ceases Operations, New CoinJoin Coordinators Rise

At the end of April 2024, Wasabi Wallet announced that it would be banning US customers from participating in CoinJoins. This decision came shortly after the arrests of individuals associated with the Samourai Wallet, another Bitcoin privacy tool, highlighting the increasing regulatory scrutiny on privacy-focused cryptocurrency services. The move by Wasabi Wallet raised concerns among Bitcoin users about the future of privacy and anonymity in the crypto space, as these tools are popular applications to maintain user privacy.

Just a few days after the initial announcement, Wasabi Wallet’s parent company, zkSNACKs, announced it would be ceasing operations entirely. This shutdown, which took effect in the first week of June 2024, marked a significant shift in the Bitcoin privacy landscape. The closure of zkSNACKs not only ended the CoinJoin coordination service provided by Wasabi Wallet but also signalled a broader challenge for privacy-focused Bitcoin users who wish to store their coins privately.

A coinjoin coordinator is a server, entity, or service that facilitates CoinJoin transactions, which are a method of combining multiple Bitcoin transactions from different users into a single transaction. This process helps to obscure the origins and destinations of the involved funds, enhancing user privacy. The coordinator manages the communication between participants, organises the inputs and outputs, and ensures that all parties provide the necessary signatures before broadcasting the final transaction to the Bitcoin network. The coordinator does not take custody of the funds but plays a crucial role in orchestrating the transaction to achieve the desired anonymity.

In response to these developments, the Bitcoin privacy community quickly mobilised to fill the void left by zkSNACKs. Within days of the shutdown, a new fork of Wasabi Wallet, called Ginger Wallet, was launched and is already performing CoinJoins. Ginger Wallet aimed to continue the mission of providing privacy-preserving tools for Bitcoin users by integrating CoinJoin capabilities and maintaining a commitment to open-source development. Additionally, Wasabi Wallet itself released a final software update that allowed users to select custom coordinators directly from the wallet’s user interface, significantly lowering the barrier for users to find and use alternative CoinJoin services.

As many as nine new community-run coinjoin coordinators were launched shortly after zkSNACKs’ shutdown. This rapid emergence of decentralised coordinators indicates a robust response from the Bitcoin privacy community. By decentralising CoinJoin coordination, these efforts aim to ensure that users can continue to access privacy tools without relying on a single centralised service. This decentralised approach is seen as a critical step in safeguarding Bitcoin’s censorship resistance, protecting against malicious forks, and maintaining the network’s overall decentralisation and security.

Silent Payments Samourai’s Code, & Nostr-based CoinJoins

In response to the recent closures of privacy-centric wallets Wasabi and Samourai, Cake Wallet has launched support for Bitcoin Silent Payments, aiming to safeguard user privacy. Silent payments are a type of payment method that allows users to receive Bitcoin transactions at unique on-chain addresses, even though they provide a reusable off-chain address to senders. This approach mitigates the risks of address reuse, which can expose transaction histories and compromise user privacy. By using silent payments, receivers can generate a single silent payment address that senders use to create unique addresses for each transaction, enhancing privacy without requiring constant interaction between the parties.

Silent payments work by having the sender and receiver use their respective secret keys and the receiver’s public key to derive a shared secret, which is then used to generate the unique destination address. The receiver scans the blockchain for transactions that match their silent payment address, performing an Elliptic Curve Diffie-Hellman (ECDH) calculation to detect payments. While this method increases computational load and synchronisation times, it significantly improves privacy compared to traditional address reuse.

The introduction of Cake Wallet’s Bitcoin Silent Payments comes at a crucial time when regulatory pressures are mounting against privacy tools in the crypto space. This feature, now out of beta, ensures that users can maintain their privacy with on-device scanning for transactions, avoiding reliance on external servers that could compromise their anonymity. Users can activate silent payments within the wallet, which will automatically scan for relevant transactions, providing a robust solution for those concerned about privacy.

Despite the legal proceedings faced by Samourai Wallet’s founders, the source code for their privacy-enhancing tools, including Whirlpool and Dojo CoinJoin, has been made public. This move underscores their commitment to maintaining and advancing Bitcoin privacy. Additionally, they have released the code for Soroban, their decentralised CoinJoin implementation, further demonstrating their dedication to empowering users with robust privacy solutions. By making these tools publicly available, Samourai Wallet ensures that their technology can continue to be used, developed, and improved by the community.

In addition to silent payments beginning to appear in wallets and the release of Samourai’s code, the crypto community is witnessing the emergence of Joinstr, a decentralised CoinJoin implementation leveraging the Nostr protocol. Unlike traditional CoinJoin implementations that often rely on a centralised coordinator, Joinstr operates in a fully decentralised manner, enhancing user privacy. Participants register their desired outputs using Nostr, create Partially Signed Bitcoin Transactions (PSBTs), and combine them to finalise the CoinJoin transaction. This decentralised approach mitigates the risks associated with centralised coordination and enhances the overall security of the process.

Joinstr integrates seamlessly with Electrum, offering a user-friendly way to access CoinJoin functionality. The platform prioritises privacy and simplicity, making it accessible to a wide range of users without requiring fidelity bonds. By eliminating the need for centralised coordinators and leveraging Nostr for coordination, Joinstr ensures that the CoinJoin process remains private and secure. Its ongoing development includes enhancements such as new Tor circuits for each request and encrypted channels to further protect user privacy.

The launch of Cake Wallet’s silent payments and the upcoming Joinstr CoinJoin offering highlight the crypto community’s resilience and innovation. These developments signify a shift towards decentralising privacy services, and preserving the privacy and autonomy of Bitcoin users.

What is Behind the Rise of Resilient Decentralised Privacy?

The emergence of decentralised and resilient privacy tools in the cryptocurrency space can be seen as a  response to the crackdown on privacy focused wallets and transaction services which have been increasingly targeted, often due to concerns over illicit activities such as money laundering and terrorism financing. However, these actions have inadvertently spurred the development of more robust and decentralised privacy solutions that are inherently harder to regulate and control. The closures of centralised privacy services like Wasabi Wallet’s coordinator and the confiscation of Samourai Wallet’s server have only accelerated this trend, driving the community to innovate in ways that maintain privacy and decentralisation.

Decentralised privacy tools, such as the community run CoinJoin coordinators and Joinstr’s Nostr-based CoinJoin implementation, represent significant advancements in this field. Silent Payments allow users to receive transactions at unique on-chain addresses derived from a reusable off-chain address, effectively mitigating the risks of address reuse without needing constant interaction. This method decentralises the process of receiving payments. Similarly, Joinstr’s decentralised coordination using the Nostr protocol eliminates the reliance on a central entity.

These innovations highlight a fundamental principle of the cryptocurrency ethos: resistance to censorship and control. By decentralising the infrastructure required for privacy-preserving transactions, these tools ensure that users can maintain their anonymity even in the face of increasing regulatory scrutiny. The decentralised nature of these solutions means that there is no single point of failure or control. This resilience not only protects individual users but also strengthens the overall privacy infrastructure of the cryptocurrency ecosystem.

These tools embody the principles of privacy and autonomy, providing users with the means to protect their financial activities. The community’s response has been to innovate and adapt, ensuring that privacy remains a core tenet of the cryptocurrency world. 

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