The privacy of Bitcoin has for long been a mystery. It was believed from the inception of Bitcoin that this tool will provide complete privacy over the finances of anyone who decides to use it. This would include ownership, payments or custody of the funds.

However, after only a few years, it has become very apparent that due to the transparent nature of blockchain, anyone who revealed any form of their identity online and connected it to a wallet or address, has been exposed. Or at least that part of their Bitcoin stash has been exposed.

With many developers, cypherpunks and cryptocurrency enthusiasts aware of this fact, the focus and attention of many has been connected to improvement of the privacy tools connected to Bitcoin. So what tools are being worked on and improved and what is the current state of Bitcoin privacy?

Sadly, KYC all the way

First and foremost, it needs to be stated that with the current development of the whole cryptocurrency world, the industry is not doing great when it comes to privacy. More and more exchanges are putting on verification processes, ID and KYC procedures that go completely against any form of privacy.

This means that if the users want to buy Bitcoin in a private matter, it immediately gets more difficult, as even the biggest and more convenient cryptocurrency exchanges have become the KYC watchtowers. Luckily, there is an ongoing improvement in several tools and features that could help bring back the privacy to the Bitcoin enthusiasts.

From Bitcoin mixers to Lightning Network

While the banks, central banks, and governments are working tirelessly on putting more surveillance over the population, the Bitcoin developers are trying to do the exact opposite. They are trying to bring more freedom and privacy over the finances of everyone who wants them. And they try to provide for that thanks to Bitcoin and different tools, techniques or services they have implemented.

1. Bitcoin mixers and blenders

One example of those are Bitcoin mixers, blenders and tumblers. These platforms or service providers are doing their best to make Bitcoin transactions obscure, thus helping the sender as well as the receiver of the transaction to improve their financial privacy. The solutions such as these are currently probably one of the most popular ones, since they can be easily used and in some cases are even in-built in some projects, such as Wasabi Wallet.

2. Privacy-oriented wallets

This brings us to another possibility of improving privacy and that is to use privacy-oriented wallets such as the above-mentioned Wasabi or Samourai. These wallets provide important tools and techniques such as CoinJoins right in their interface, making it super easy for their users to take advantage of these tools, thus, improving their privacy as well.

3. Fedimint

Another example, however, still not completed, but currently being under development, is Fedi and Fedimint. This solution would bring not only more privacy to the users, but also better self-custody. Fedi will probably be a solution that could be in a way viewed as a compromise between leaving bitcoins on an exchange and having it in its own custody. The same logic can be applied to privacy, where Fedi will probably not provide the best privacy features, yet, it will still be an improvement on any solution that the CEXs (centralized exchanges) are offering now.

4. Lightning Network

Helping with privacy is currently also the Lightning Network. This layer-2 solution built on top of layer-1, was meant first and foremost as a solution to the scalability problem, however, as of now, it has a nice “side-effect.” And that is privacy, since the transactions on LN can happen anonymously between two parties without ever being written to the blockchain. Thanks to this, the privacy of both parties involved can be improved.

Conclusion

The current state of the financial system is not the best at all. The surveillance that is getting ever-more present in the lives of everyone is just not going to go away. People will thus need to take their privacy as well as privacy over their money to their hands. Bitcoin can provide for this, if it is combined with the most interesting tools that the privacy-oriented developers offer.

One of those options is Whir. At Whir, we are committed to improving the privacy of anyone,  who uses this platform to send or receive funds in bitcoins. Whir is very easy to use and offers competitive fees, which is why it is so attractive for people who are privacy oriented.