Bitcoin as a Privacycoin: The Technology is Maintaining the Privacy of Bitcoin

For some years now, Bitcoin has proved to be the most dominant cryptocurrency in the market.  However, has Bitcoin really been able to address the privacy of all its users fully? Usually, the issue of financial privacy is crucial but rare in this era. When Bitcoin was initially introduced, anonymity is one of the major features that attracted many investors and individuals to adopt Bitcoin.

Bitcoin gave us the liberty to transact both locally and internationally without the interference of a third party. However, due to its pseudonymous nature, Bitcoin has not been able to deliver complete financial privacy. The public nature of the Bitcoin systems means that it can leave a trail of immutable transactions that can be pinpointed.

Crypto transactions are linked to specific individuals or organizations through advanced techniques. Important data related to IP address as well as points of centralization such as cryptocurrencies exchanges platforms can be used to reveal the various identities of the participants. No wonder some people are considering other cryptocurrencies such as Monero, Dash, and Zcash, which has proven to offer more effective privacy to its users.

Bitcoin has not, however, been left behind; there are several projects underway that can make Bitcoin privacy safer altogether. Here are a few of the most prominent examples;


TumbleBit was initially proposed in 2016 by a research team from George Mason University, Boston University, and North Carolina State University. It was among the most anticipated privacy solutions for Bitcoin’s privacy. TumbleBit is essentially a coin-mixing protocol where participants use a centralized server to connect.

Usually, it requires a two-chain transaction per participant-one chain is required to open the channel while the other one closes it. The participants send and receive coins in such a way that both parties receive the same amount of coins as they originally sent. In fact, given the current Bitcoin value, Bitcoin users want Bitcoin to eliminate any chances of a breach to in user identities.

TumbleBit aims at breaking the trail of ownership each time a party sends or receive coins. This means that none of the parties can track or spy on the other. In addition, it utilizes cryptographic tricks to eliminate the chances of any tumbler establishing a link between the participants. TumbleBit facilitates an anonymous communication where hundreds of users can partake at the same time, therefore, breaking the transaction trail.


Dandelion is a privacy solution that was initially developed by a team of researchers from the University of Illinois, University of Carnegie Mellon, and MIT. Dandelion guarantees to eliminate chain analysis which could potentially be used to expose the identity of the users. It changes how various transactions spread over the network.

Dandelion makes this possible by initially sending a new transaction to a single peer node. The node then randomly decides how to forward the transaction to another peer. The process continues in that manner which makes it very hard for one to spy or track where a transaction originated. Evidently, dandelion can help solve privacy issues which make Bitcoin wildly accepted yet not widely adopted.  

Dandelion has been specially designed to obfuscate any attempts to retrieve the identity of the users. In addition, it is lightweight and therefore easy to implement.

Schnorr Signatures

Schnorr signatures, named after its inventor, Claus Peter Schnorr, are designed to facilitate private transaction processing. It was introduced in 2012, and it requires users to combine transactions and signatures at the same time when transacting. This means that within 64 bytes, it’s possible to connect multiple signatures just under a single Schnorr signature. These signatures prove that a certain user is indeed the owner of specific private keys associated with a Bitcoin address.

Schnorr signatures help to increase the privacy of Bitcoin transactions in multiple signatures’ scenario.It requires that only the aggregated signature prove the ownership rights of the funds. This means that the privacy of other participants is retained since their signatures are not required. An increase of 25% in Bitcoin network is expected with the implementation of Schnorr.


CoinJoin was initially introduced in 2012 by Gregory Maxwell, the co-founder, and CTO of Blockstream. It functions like Schnorr signatures by combining multiple transactions into a larger one.

CoinJoin combines multiple Bitcoin transactions from multiple participants into a single transaction. It protects the privacy of Bitcoin in that it makes it harder for outside parties to track or determine receipts and payments. In addition, CoinJoin transactions don’t need a modification to the Bitcoin network/ protocol.


Stonewall is a privacy technique designed to improve the privacy of Bitcoin Blockchain network. It works by introducing a larger element of uncertainty and doubt into the datasets of the Blockchain analysis platforms. It helps to increase the Blockchain technology benefit of anonymity. It increases the deniability of the transaction link between the sender and the receiver of a transaction by including extra sending and output addresses in the transaction.

This means that it’s complicated to come into a logical conclusion about the identification of the sender or the receiver. Stonewall is an improved version of Bitcoin Improvement Process.

BIP 151 Encryptions

BIP 151 was authored by Bitcoin shift developer and core maintainer, Jonas Schnelli. It was designed to encrypt traffic between Bitcoin nodes. Usually, Bitcoin network traffic has always been encrypted. Blocks and transactions are sent from node to node in plain sights. This means that all this data can be viewed by open-WIFI providers, Internet Service Providers, or any entity monitoring the Bitcoin network.

BIP 151 anticipates using a cryptographic standard referred to as ChaCha20/Poly1305@openssh. This means that any entity monitoring the network is enabled to recognize the Bitcoin data. However, it’s not possible to know or have access to the content of the data.

In addition, it improves the privacy of the network by making it harder to censor certain blocks or transactions. BIP 151 can surely counter some privacy attacks such as man-in-the-middle attacks.

Confidential transactions (CT)

CT was introduced by Gregory Maxwell to increase the privacy of Bitcoin transactions by homomorphically encrypting the various inputs and outputs by using a blinding factor. It is a trick that blinds the amounts of the funds in a transaction. CT only allows the two parties involved in a transaction to be privy to the amount being transacted.

Any outsider is blocked from knowing the information. Also, liquid users can verify that the amount received doesn’t exceed the amount sent even though don’t know precisely the amount of money was exchanged.

These are just a few of the projects that are anticipated to improve the overall security of Bitcoin in the future. And as the world of cryptocurrencies especially Bitcoin continues to enlarge investors equally want to see the security and privacy of their funds maintained and improved. Though it may take some time to implement these projects in the Bitcoin network, they have the potential to improve the overall privacy and scalability of the Bitcoin technology.

In summary, Bitcoin is already facing stiff competition from more secure cryptocurrencies such as Dash and Monero. In fact, it’s expected that as the cryptocurrency market continue to mature, the issue of complete anonymity will surely become commonplace.

Author Bio:

Denise Quirk is a Health Advisor and fascinated by Crypto, Blockchain Revolution. She is a believer of transforming complex information into simple, actionable content. She is keenly interested in finding the value of crypto world. She writes for Coin Review, Bitcoin Warrior, Irish Tech News, etc. You can find her on Linkedin, Twitter and Facebook.

To Top

Pin It on Pinterest

Share This