5 Bitcoin Privacy Techniques for Beginners

In this article, we’ll explore the fundamentals of Bitcoin privacy, why it matters, and beginner-friendly techniques to enhance your on-chain security.

Is Bitcoin really anonymous? 

Your Bitcoin wallet address and all associated transactions are publicly visible, but not tied to your identity. However, it’s important to note that this ‘pseudonymous’ system is not fully anonymous.

In the past, tax agencies all over the world have identified cryptocurrency investors using Know Your Customer (KYC) information. 

Centralized exchanges like Coinbase and Kraken require KYC information upon sign-up. To use these exchanges, you’ll need to provide information like your name, address, and a picture of your driver’s license. This information can be used to tie ‘anonymous’ wallet addresses to your personal identity.

In recent years, tax authorities across the world have used KYC information to track ‘anonymous’ transactions and crack down on tax fraud. 

5 Bitcoin Privacy Techniques for Beginners

Let’s walk through 5 techniques that can help you safeguard your privacy on the Bitcoin network.  

1. Use the Lightning Network

The Lightning Network allows off-chain Bitcoin transactions that are faster, cheaper, and better for privacy. These transactions aren’t broadcasted to the entire Bitcoin network, making the Lightning Network ideal for privacy-conscious users.

The easiest way to get started using the Lighting Network is to use a wallet that’s designed for these types of transactions like Strike or Phoenix. 

2. Use multiple wallets 

You should consider using multiple wallets for different use cases. 

Separating your wallets ensures that transactions can’t be easily linked to your identity. For example, you can use one wallet for saving, and another for trading. 

If you choose this route, you should avoid direct transfers between your wallets. Otherwise, a third-party observer may be able to discern that both wallets are owned by the same person. 

3. Use peer-to-peer exchanges 

As noted earlier, centralized exchanges like Coinbase collect KYC information from customers. 

One way to get around this requirement is to use peer-to-peer exchanges like BIsq or RoboSats. Because these exchanges do not hold BTC and simply facilitate transactions between users, they are not subject to the same KYC requirements. 

It’s important to note that these platforms are slightly more difficult to use than more mainstream exchanges. However, they do support a variety of different payment options — such as PayPal, Venmo, and even in-person payments. 

4. Use VPNs

A VPN can hide your IP address, which can help hide your cryptocurrency activity from your Internet Service Provider and other third-parties. 

Popular VPNs include Tor and ExpressVPN. 

5. Be cautious when sharing your address 

Be careful about sharing your wallet address with others. 

The more people who can trace your cryptocurrency wallet back to you, the more likely it is that your identity can be uncovered. 

How can my wallet address be linked to my identity? 

It’s likely that in the near future, it will be easier than ever for governments (and even private individuals) to identify ‘anonymous’ crypto wallets. 

• Increased regulatory oversight: All over the world, governments have been applying more stringent rules for exchanges. In America, all centralized and decentralized exchanges will be required to report customer transactions to the IRS starting in 2026. DAC8 will come into effect in the same year — implementing similar rules in the European Union. 
• Hacks and leaks: In the past, cryptocurrency platforms have suffered hacks — revealing the personal details of millions of users and leaving them vulnerable to scams. 

Why is Bitcoin privacy important? 

While some claim that there’s no reason to keep your transactions private if you have nothing to hide, it’s important to remember that privacy is a basic human right. Let’s walk through some reasons why Bitcoin privacy can be important:

• Personal finances: Revealing how and where you spend money can expose details about your personal finances. 
• Associations: Your transactions can reveal your closest connections and your personal network. 
• Personal freedom: Bitcoin is held by investors all around the globe — including citizens of oppressive countries who are looking for a secure way to store their wealth. 

What privacy tools should I stay away from? 

All of the privacy techniques we listed in this guide are fully legal. 

It’s important to note that the following cryptocurrency privacy solutions have come under scrutiny from regulators in recent years: 

• Coin mixers: ‘Coin mixing’ allows users to mix their cryptocurrencies with other users to hide the source of their funds. In recent years, coin mixing services like Tornado Cash have been shut down or sanctioned by regulators due to money laundering concerns. 
• Privacy coins: Unlike other blockchains, privacy-based cryptocurrencies like Monero do publicly display transactions. In recent years, Monero has been delisted from most major exchanges and banned from countries like Japan and South Korea. 

Because of the regulatory issues these privacy solutions have faced, they aren’t recommended for most investors. 

Conclusion

While it’s true that Bitcoin transactions aren’t truly private, the steps listed above can help you protect your identity and your financial history.