The Open Bitcoin Privacy Project (OBPP) has released their first full report (PDF warning) on the levels of privacy found in various bitcoin wallets, and the results should be concerning for a majority of bitcoin users. While there were a few bitcoin wallets who fared well in the report, the two most commonly used bitcoin wallets — Coinbase and Blockchain.info — failed quite miserably. After reviewing this report on privacy in bitcoin, it should become clearer that bitcoin transactions are definitely not anonymous or private by default.
Good news for Coinbase?
Although Coinbase received a dismal score of 11 out of 100 for overall wallet privacy, the company may not view this poor showing as a negative. After all, Coinbase is a company that seems to have a need to prove to regulators that they are as compliant as possible with various KYC/AML requirements. In other words, a poor score in a report on privacy in bitcoin wallets may actually be helpful in proving to regulators and lawmakers that they’re not trying to allow people to transact in an anonymous manner on their platform.
A fair comparison?
Due to the fact that Coinbase is a hosted wallet where they hold the private keys for the user, some may say that comparing them to more traditional bitcoin wallets is an unfair competition. Having said that, the reality is that many Coinbase users who believe their account information is being dealt with in a relatively private manner could be harmed by these less-than-stellar default privacy options. There are likely many users who hear that bitcoin is an “anonymous online currency” who turn to Coinbase as their first wallet. With the OBPP’s stated goal of “improving financial privacy within the bitcoin ecosystem,” it should not be a surprise to see “bitcoin banks” also listed in their reports.
The two most popular bitcoin wallets fail on privacy
Perhaps the most concerning outcome of this recent report from the OBPP is the fact that the two worst scores found in the rankings are from the two most widely-used wallets in the bitcoin ecosystem. Some will say that this is not an issue as other wallets, such as Dark Wallet or Mycelium, can provide better privacy for certain users, but the problem with that line of thinking is that privacy, security, and anonymity are better protected when as many people are attempting to protect those three tenets of proper bitcoin use as possible.
Both needed; but #Bitcoin Wallets should be totally separate from Exchanges – different companies. Just like separation of Church and State.
— Rodolfo Novak (@nvk) May 13, 2015
Although the OBPP can be helpful in pointing out privacy issues found in various bitcoin wallets, it does not appear that Coinbase is going to be swayed by the organization’s findings. Due to the regulatory microscope that companies like Coinbase find themselves under, it would be difficult for them to bring better privacy protections to their platform. At the end of the day, it may be better to simply view reports from the OBPP as educational resources. If you are someone who believes in financial privacy, you’ll need to keep track of which wallets fall in line with your philosophical beliefs.
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